What went wrong and
whose fault was it?
We need to remember that the ridiculous energy
bill, that also was mismanaged, was passed on Governor Wilson’s
watch. The bill was passed unanimously. That means that it
is the fault of both major parties. Most of those folks are
still in one office or another. We should remember that at
the next election.
But what went wrong? Simply put, Socialism
failed. This is a crisis caused by socialist mismanagement.
The PUC was the major culprit. As well as being an immoral
philosophy of collective theft, socialism flunked Econ 1A!
Supply and demand still work fine even under socialism.
If you will pay any price for a commodity, count on it, you
will find someone to sell it to you—but you won’t
like the price!
If we had put a cap on the prices we would
pay energy suppliers, then it would have been necessary to
have rolling blackouts. That would have been terrible, but
not as bad as what happened! If we had scheduled them, that
would have moderated their impact. That would have been similar
to the regulation of demand by inconvenience instead of price.
We used to laugh at the Soviet Union for their long lines,
but it was basically the same idea.
Now this would have been a terrible solution,
but it would have been temporary, would not have left us with
a mountain of debt and over-priced energy contracts, and would
have softened the blow to the energy companies. This is because
state mandated lower demand would have lowered prices. This
notion was rejected because of the immediate political price
that would have been paid for it.
The next idea was to make an outright theft
of the property of the electrical utilities by seizing them.
This is not out of character for a socialist, but it was a
mode of theft to which we were not accustomed. And it would
have been successfully challenged legally. Socialists have
“nationalized” property, but no State has done
something similar successfully. The only way a State can seize
property is by convicting some one of a crime or getting a
civil judgment against them.
Instead, the Governor and the PUC followed
another strategy. Using the regulatory power of the PUC they
placated consumers and their so-called ‘advocates’
by keeping energy prices artificially low. Then they passed
the ridiculously high prices that the energy malregulation
bill mandated onto the energy companies. This was using a
combination of government regulation and the market to steal
from California energy companies.
They also tried to urge
conservation measures on the populace. This succeeded in reducing
demand somewhat, but not sufficiently to avoid paying the
ruinous prices that the energy malregulation mandated that
we be willing to pay.
The energy malregulation system forced us
to pay any price necessary to get energy on the “spot
market.” Because of this mechanically regulated and
hence predictable policy, we were taken to the cleaners fair
and square by market manipulation. They say a fool and his
money are soon separated. We were fools. We were fools to
trust our socialist legislature and governor to devise a rational
Our energy malregulation policy inflicted
such a policy on us. We had no sales resistance built into
the system. Its policy was a matter of public record. Under
these conditions, it was only a matter of time before someone
took us to the cleaners.
All this was to avoid paying an immediate
political price. It sure doesn’t seem to have averted
a very serious delayed political price—the recall of
the Governor! And that is only just.
This tactic of theft only lasted as long
as the bankrolls of the energy companies lasted. Some energy
companies went bankrupt. That forced the State to start buying
the power for the energy companies. This was all because of
an unwillingness to restrict energy demand by higher prices
which was within the power of the PUC. So we were sliding
into debt at a great rate. The State, unlike the Federal Government,
didn’t have a quasi-regulated, privately owned, money
machine, like the Federal Reserve to back it up.
So then the only solution was to negotiate
long-term contracts for energy. We were not exactly in an
advantageous bargaining position! That is a severe understatement.
Not only that, it turns out that the Governor’s chief
negotiator had a conflict of interest! Whether it affected
the ridiculously high prices we ended up promising to pay
in long-term contracts or not I don’t know.
The good news is that this alleged conflict
of interest may give us legal grounds to challenge these contracts.
But the Governor couldn’t bring himself to allege malfeasance
by his own agent! Any replacement Governor will not face a
similar hurdle. If that replacement Governor has the will,
he can at least try to use this argument in court. Whether
it will succeed or not, I don’t know. However, 40 billion
plus in disadvantageous contracts sure gives us an incentive
to give our feckless Governor the old heave ho!
There were more
ins and outs to this story of course. The difficulty of building
plants quickly enough was one of them. Again this was the
combined fault of governments and self-centered interest groups
who said either “Not in my backyard!” or, if they
were environmental extremists, “Not in any backyard!”
Another part of the story was a holding company
set up to avoid liability by utility company stockholders.
It made sense. Utility companies were forced with a gun at
their head to sign contracts under the crazy malregulation
that even the dimmest capitalist could see had a real vulnerability
to a supply crisis caused by a heat wave in summer or a cold
snap in winter. It was like the body walling off an infection
in a cyst in order to survive.
One more part of the plot was forced divestiture
of transmission facilities. Without a guarantee of a sufficient
return to make capital investments and pay a reasonable return
to shareholders, it was inevitable that there would be a problem
like the one the Northeast recently suffered, for exactly
the same reason—no sufficient incentive to build new
transmission facilities. Obtaining rights of way for transmission
lines was also a problem.
There you have it—the sad and cautionary
tale of the California Energy Crisis—which was a great
part of the origin of the current deficit crisis. But as bad
as the Energy Crisis was in its effects on the budget, it
is not the whole story.
The Governor, remember, is armed with a mighty
power—the line item veto. Because of the 2/3rd
requirement to pass budgets, he could have given cover to
members of his own party to resist its profligate spending
habits and if it didn’t, then he could have gutted their
budget with the line item veto!
But the Governor’s leadership on the
budget wasn’t any better than in the Energy Crisis.
In fact, just as in that case, he contributed to the problem,
not to the solution. By yielding to public employee unions,
he raised State personnel costs and liabilities to the skies.
The prison guards and state worker pensions were the two main
culprits. This was simply put a sell-out of the public interest,
to the public employee interest. Of course by now the Governor’s
insatiable appetite for campaign funds and his continual sell-out
of the public interest, to any bidder is as well know as his
dirty campaign tactics and vicious tongue.
The Energy Crisis, the Budget Crisis, and
Political Corruption together are surely sufficient to justify
a recall. We can indeed justify a recall without even mentioning
the Workers Compensation mess that has been abuilding for
many years for which the Governor cannot claim sole blame
indeed. Integrity, courage, and vision have been sorely lacking
in this Governor. It is time for him to go.