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CNN Live Sunday

Are Price Caps a Solution for California's Energy Woes?

Aired June 03, 2001 - 17:19   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STEPHEN FRAZIER, CNN ANCHOR: As the U.S. deals with energy woes, there has been heated rhetoric over price controls for power. But could they, in fact, make a difference. Barbara Shook joins us now from Houston to help answer that question. Mrs. Shook is the Houston bureau chief for the Energy Intelligence Group.

Mrs. Shook, welcome, thanks for joining us.

BARBARA SHOOK, ENERGY INTELLIGENCE GROUP: Thank you, Stephen. It's good to be working with you again.

FRAZIER: Let's talk a little bit about what happened the last time we tried price controls, remember, in '79 or so when we had an energy crisis stretching on. What do you think happened then to the price of energy?

SHOOK: The price of energy was held artificially low in that period of time. They actually started during 1971 under the Nixon administration, and price caps sent false signals to consumers, and they don't encourage consumers to conserve or to find alternative sources of energy.

FRAZIER: So, historically, we had just what the president said in comments in week that they didn't improve -- they didn't reduce demand and they didn't increase supply, in his words.

SHOOK: Very true. I would have to agree with the president on that.

FRAZIER: So, there's a historic precedent for that which proves it. Why, then, such a call for price caps? Even now, Governor Gray Davis in California saying he's going to sue the federal government for those caps.

SHOOK: I don't understand where the governor's reasoning is on this issue because price caps, as we have already pointed out, have not worked in the past. What the people are doing is trying to avoid paying the cost that they have tried to avoid for all these years but not building additional plants. If they had had the additional facilities in place, it might have cost them a little bit more in the short run, but now it's going to cost them a whole lot more.

FRAZIER: Of course, in your experience, the resistance to building new plants is more sort of a not in my backyard process kind of in California, isn't that it?

SHOOK: Well, in California, it's gone beyond the not in my backyard, or NIMBY, syndrome. You can describe Californians' attitude as either BANANAS, for build absolutely nothing here anybody, or NOPE, not on planet Earth.

FRAZIER: So, as result, then, they have kind of a patchwork of half deregulation and half forces that are not market forces at all, and it's something of their own doing, as the federal government likes to point out.

SHOOK: Yes, it is. The plan that is in place right now was formulated in 1996 by a coalition of Republicans and Democrats. You had a Democratic state assembly, you had a Republican executive branch under Governor Wilson. So, it's -- you can't make this a partisan issue. Both sides are at fault.

FRAZIER: Now, you have spoken earlier this week with a newly- appointed member of the Federal Energy Resource Commission, Pat Wood. What were his thoughts on what's going to happen, how to resolve this crisis?

SHOOK: Commissioner Wood has chaired the Texas Public Utilities Commission, and done a very successful job. What he said to me that he was going to recommend to California was first, discuss the number of plants that will be coming on in the near future. They will have additional plants that start up this summer, and then more in 2002.

That will bring the price down just because of the expectation of additional supply. It will certainly mitigate more price spikes and it should bring the price down. He also recommended that the state do whatever possible to improve the creditworthiness of all the electricity buyers out there.

In California, the consumers are being charged a penalty, if you will, in the cost of their electricity because of the credit problems, just as somebody who has a bad credit rating pays a higher interest rate on a home or car.

And finally, Commissioner Wood recommended that the folks in California just turn down the rhetoric and start addressing the issues as adults, and stop making this just a finger-pointing game.

FRAZIER: Right, in 25 words or less, because we're running out of time, did he think they are doing anything right there?

SHOOK: He thinks that the fact they are building plants and expediting process and are expanding their gas pipelines and are going to expand some of their electricity transmission systems are steps in the right direction.

FRAZIER: Right, that new Path 15. Well, Barbara Shook from the Energy Intelligence Group, once again, we're grateful for your insights. Thanks for joining us on a Sunday night.

SHOOK: Thanks for having me. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com