- The Washington Times - Monday, June 25, 2001

Republican Whip Tom DeLay couldnt believe what he was hearing at a House Republican leadership meeting last week after the Federal Energy Regulatory Commission voted to put into place stricter controls on Western electricity prices.

Almost all of the Republican leaders around the table, who were opposed to price caps, were happy with FERC´s decision because it pulled the political rug out from under the Democrats. "The mood around the table was positive. FERC had robbed the Democrats of a big issue that we were doing nothing to control higher energy prices for consumers," said a Republican House leadership official who attended the meeting.

The independent regulatory agency´s decision did what President Bush and Republican leaders had publicly fought but were privately encouraging FERC to do. While Republican leaders do not believe the price controls will alleviate California´s energy shortage, they were delighted by its immediate political result. It pricked the price-cap balloon that had been rapidly growing on Capitol Hill. Price-control Democrats, among them Sen. Dianne Feinstein of California, have withdrawn their price-cap bills while they wait to see if the agency´s action will work.

The administration, which said for months that price controls would only exacerbate California´s energy problems, was nevertheless happy to see the Democratic offensive collapse. Under advice from political strategist Karl Rove, Mr. Bush embraced FERC´s action, maintaining that it did not impose price controls, although everyone knows that is exactly what it did.

Mr. DeLay was not buying the party line, and said so. While he did not directly criticize the White House´s acquiescence or its behind-the-scenes lobbying for FERC´s action he put out a strong statement reminding his party that price controls cannot and will not work.

"Let´s be clear," he said. "In every place they´ve been tried, big-government price controls have failed to achieve the results their supporters promised. They failed when Republicans used them. And they failed when Democratic presidents used them. All government price controls can offer is the specter of longer and more frequent blackouts."

"The people of California are suffering today because the demand for electricity exceeds the available supply. Until that fundamental imbalance is resolved, their problems will continue," he said.

Mr. Bush argued that FERC´s order "was not talking about firm price controls… . They´re talking about a mechanism to mitigate any severe price spike that may occur, which is completely different from price controls."

To which Wall Street economist and columnist Larry Kudlow replied, "Huh? You can´t be just a little bit pregnant. It´s an administration endorsement of the FERC ruling. Maybe a soft endorsement, but an endorsement nonetheless."

Energy Secretary Spencer Abraham´s support for FERC´s price-control action, reported in my last column, sounded as if it were "right out of the old East Bloc planning handbook before the Berlin Wall came down," Mr. Kudlow said in his column.

Despite Mr. Bush´s embrace of what the White House considers "regulation-lite," there is widespread unanimity across the political spectrum that energy price controls will fail.

Listen to what economist Robert Litan of the liberal Brookings Institution said about them: "Ninety-five percent of economists would say that price controls are always dumb or that that there should be a very strong presumption against price controls. They lead to artificial scarcity and then perpetuate it."

Richard Nixon imposed price controls on oil in the 1970s to lower gas prices at the pump, with disastrous results.

The artificially low prices did not reduce consumption, they encouraged it. They did not lead to more production and supply, they led to less. The price ceilings "removed incentives for producers to increase supply through less efficient means of production or by expanding capacity through investment," said a Heritage Foundation memo explaining why FERC´s action won´t solve California´s energy problem.

"History demonstrates that centralized price and allocation regulatory system led to long gas lines and other problems," the memo said.

California´s fundamental problem is that it has not built "the power plants needed to supply California´s energy-hungry economy," Mr. DeLay said in his memo.

What California needs is not more price controls, but a good dose of deregulation. Texas and Pennsylvania, which deregulated their energy industries, enjoy a plentiful supply of electric power. In fact, electricity prices were already falling in California and around the country long before FERC acted last week.

What is needed in Washington right now is a refresher course on how free markets work. Higher energy prices attract investment capital, and that leads to more power plants, increased production, and, eventually, lower prices. Price jumps also lead to less demand, which in turn promotes conservation. As Mr. Kudlow put it, "Before long, market forces cause prices and profits to retreat to more normal levels."

"Government price controls fly in the fact of the most basic laws of economics," Tom DeLay told his colleagues. It looks as though we are about to learn that lesson all over again.

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