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Prop 16 could turn the light out on California energy market

by Mytheos Holt, published

In the face of economic uncertainty, ever-increasing attempts to make both governmental and economic activity predictable have been making their way to the ballot box, whether by means of tax freezes, spending freezes, or comparable fiscal strategies aimed at decreasing the level of risk and danger in the market.

Yet, one isolated element of economic protection has been purposefully left untouched up until now due to the danger of political fallout – the prospect of companies using the political process to deliberately corner their share of a particular market.

Depending on who you ask, that moratorium has now been broken. Proposition 16, a ballot initiative, sponsored by the Pacific Gas and Electric Company (PG&E), proposes to amend the State Constitution to, in effect, cement the existing distribution of income/sustenance in the California energy market as all but utterly untouchable.

The Wall Street Journal reports that the bill requires:

     the state's 47 city-owned utilities and a new kind of supplier called a ‘community choice aggregator’ to hold public elections to add new customers. Two-thirds of voters would have to approve a utility's expansion plan for it to proceed. Currently, many city-owned or municipal utilities can gain new customers or expand their service territories with the approval of local elected officials.

In other words, any time one of California’s 47 city-owned utilities wanted to supply an additional set of customers, or any time that set of customers wanted to buy energy from one of those utilities, it would not be an issue of appealing to local elected officials, who run the various companies, but rather to the entire California electorate, two-thirds of whom would have to approve the plan.

Like most economic stability measures, the bill has been marketed via a populist appeal to the notion that voters need to be allowed to determine for themselves what changes will happen, especially economically. This is a stronger argument than it would be if private industries were involved, given that the “companies” under consideration are state-owned utilities, and thus accountable to the political process in a way which private enterprise is not, at least not directly.

Whether it will gain traction with the electorate, many of whom have become disillusioned with direct democracy thanks to the recklessness of the ballot initiative process, is anyone’s guess.

There are, however, other interpretations of the bill’s intent which are not nearly so charitable. For instance, it is inescapably true that the bill provides substantial disincentives for public utilities to seek out new customers, and thus to drive down prices, at the point where those new customers could be vetoed by two-thirds of the State.

Opponents cite this economic tendency towards stasis as evidence that the bill is really an instance of industrial protectionism dressed up in the language of direct democracy. They further argue that the bill’s ostensibly democratic approach is actually an attack on localism insofar as it does not allow individual cities to decide for themselves what utility to buy from, but must rather ask for approval from the entire state.

To be fair, whether this latter argument is true is a function of how one reads the bill, which contains substantial ambiguity with respect to this question. Likely, if Proposition 16 were to be passed, it would be necessary for the Court system to clear up that ambiguity before implementation.

Such an outcome could be easily averted, naturally, if California voters decide that the bill is not worth the hassle, but such an outcome is not predetermined.

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