Taking Over the Grid: 
An Expensive “Fix” That Falls Short

•	The cost of “fixing” California’s energy problem could exceed $39 billion.
If California pays twice the book value of the transmission grid ($7.6 billion), performs necessary system upgrades ($523 million), builds plants to produce an estimated need of 20,000 megawatts of electricity ($18 billion), and helps utilities recover the difference between what customers were charged and actual wholesale rates ($13 billion), the cost to taxpayers could be nearly $40 billion.

•	Purchasing the grid does not increase capacity, buy security or ensure supply.
The grid only carries electricity if that power has been generated.  Additionally, a state takeover of the grid and excessive regulation of access and price could discourage imports of electricity generated outside of California, causing many of the same problems the state has recently faced.  As one legislator has said, what purchasing the grid mostly buys is political cover.

•	Only adequate supply will ensure the best rates for consumers.
Electricity is subject to the same supply and demand forces on the wholesale level as other commodities.  Although the state’s deregulation plan compounded matters, the growth of power-hungry technology and unpredictable factors such as weather has created a shortage of electricity in the West and other areas of the country.  There has been little construction of new power plants to serve California over the past decade – for a variety of reasons – and the state is starting to feel the result.

•	Excessive regulations have discouraged the construction of needed power plants.
No one will argue that power plants should be allowed to operate without meeting reasonable environmental standards.  But excessive regulation means it currently costs $30 million just to site a plant – in other words, just to meet red tape requirements before construction of a half-billion dollar plant even begins.  These costs are a tremendous deterrent to the construction of smaller, more efficient power plants by private companies.  Instead, the state must rely on decades-old power plants that were built by utilities during regulation and which may be reaching the ends of their useful lives.

•	Government attempts to manipulate the market will cause even greater imbalance in supply, demand and costs.
California never truly “deregulated.”  Caps on consumer costs and prices may have been well-intentioned, but in the end they led to sudden rate increases and power shortages – exactly opposite the desired effect.  Almost all current proposals discussed before the Legislature amount to attempts by the state to further manipulate the market under the friendlier-sounding term of “re-regulation.”  These proposals will largely discourage private investment, forcing the state to own more of California’s electric infrastructure at much higher costs to taxpayers than if private industry were allowed to play a greater role.  Moving toward a more open marketplace – true “deregulation” – is a better answer, although it will take courageous political decisions that should be made in the best interest of Californians.