Perng is a fifth-year political science student. He serves as
the chairman of Bruin Republicans.
By Simon Perng
Here are some notable arguments you might have heard during the
energy crisis:
“Those greedy out-of-state producers ““ they’re
price gouging us and making a killing off of the energy
crisis.”
“Those local utilities ““ they’re not bankrupt
““ they must be hiding something.”
“It’s all Gov. Pete Wilson’s fault. Wilson
signed that deregulation bill into law in 1996 and deregulation is
killing us.”
These are the typical responses of Sacramento Democrats
attributing fault to one party or another. Not surprisingly, as
California’s energy crisis gradually festers into a political
crisis, Sacramento Democrats have resorted to playing the blame
game.
Have these Democrats offered any real plans of action for
dealing with the energy crisis?
So far all they’ve done is mount a smear campaign against
easy targets and straw dummies ““ the utilities and energy
producers ““ to cover their own political hides.
Their emergency purchases of electricity continue to gut state
budget revenues in an attempt to forestall political fallout
against the Democrats.
There’s a “black hole” of real leadership in
California and it emanates from Gov. Gray Davis and the ruling
Sacramento Democrats.
This “black hole” can be traced back to the
’80s, when Democrats in the state legislature neglected
California’s energy infrastructure by failing to construct
new power plants. During this time, energy demand continued to soar
with major population increases in the ’80s and
’90s.
This neglect increased our dependence on out-of-state producers
to supply our energy needs, putting our energy fate in the hands
producers in Texas and North Carolina.
What lame excuse did these liberals in the legislature have to
justify prohibiting new power plant construction just as consumer
demand was rising fast?
They wanted to appease extremist environmentalist demands to
meet hyper-stringent air quality standards. Tom Atkins words ring
better than mine: “Ten years ago, in a blissful attempt to
commune with Mother Earth, California outlawed new power plants. No
more burning that icky fossil fuel and stuff.”
Then came seven million more people. And Silicon Valley. And an
economic revolution.
Since 1990, California power usage has doubled. So, where does
more power come from? Good question.
There’s no more nukes. No more coal. No more oil and no
more gas. Unfortunately, there’s also no more electric.
California now faces massive rate increases and developing nation
electric blackouts (www-acs.ucsd.edu/~ucsdgop/adkinselect.html).
At the same time, these same Sacramento Democrats hogtied the
operating options of our own local utilities to provide energy to
consumers with the so-called deregulation law in 1996, forcing
several of them to go bankrupt.
Even though Gov. Wilson signed deregulation into law in 1996,
liberal Democrats stuffed the deregulation bill with numerous inane
regulations that severely distorted the market at the expense of
utilities.
Now utilities must play by the Democrats deregulation
regulations:
1. Utilities must pay the market price for wholesale electricity
at all times, no matter how high or low.
2. However, utilities can only sell electricity to their
customers at a fixed price (www-acs.ucsd.edu/~ucsdgop/electrsaga.html).
Thus, even when the market price is high, utilities must somehow
magically absorb the losses. If utilities continue to operate like
this, however, they go bankrupt and jeopardize their ability to buy
wholesale electricity for consumers. This then, creates energy
shortages.
Democrats also inserted several other market distorting
regulations into the deregulation law, forcing privately owned
utilities to jump through a lot of hoops and obstacles to supply
electricity, while sparing local utility monopolies the same
burden.
Among these obstacles, publicly owned utilities had to sell off
their power plants and were forced to buy their electricity through
a heavily regulated Power Exchange (PX).
Furthermore, utilities and suppliers could not make individual
contracts; they were mandated to take the prevailing price of the
PX.
With no power plants to raise supply and little control in how
much to charge consumers or buy from suppliers, utilities remained
extremely vulnerable to fluctuations in the energy market. So
deregulation actually made publicly owned utilities powerless to
stop the energy crisis from becoming the energy pandemic it is
today.
The Democrats’ heavy hand of government intrusion limited
utilities’ options and flexibility in providing cheap power
to consumers.
Now that years of energy infrastructure neglect, severely
distorted markets and deregulation regulations have taken their
ultimate toll on California consumers, Gray Davis and Sacramento
shamelessly fail to admit their mistakes.
That’s fine, because coincidentally, they also fail to fix
them.
In the wake of utility bankruptcies, Gov. Davis and the state
Legislature exemplify political cowardice by purchasing electricity
on behalf of Californians to shield them from the full market
effects of the energy crisis with the added benefit of maintaining
their approval ratings.
Davis’ rash and sudden emergency purchases have eroded the
state surplus, such that they will adversely impact the fiscal-year
2002 budget, thus limiting funds for state services (“Budget
drafts may hurt UC schools”, Daily Bruin, News, July 9).
Worst of all, Davis will continue to fund future energy
purchases with “the biggest loan any state or local
government has ever sought, a $13.4 billion bond measure to cover
the cost of buying power, a 15-year mortgage for maybe 15 months of
electricity (www.sacbee.com/voices/news/voices04_20010712.html).”
The immense magnitude of this loan will erode California’s
credit rating and undermine its fiscal flexibility to fund its
priorities.
How do we repay this massive bond measure?
Davis will screw consumers a lot later when he won’t pinch
them now and start raising utility rates significantly for many
years, conveniently after his reelection campaign in 2002 (www.ocregister.com/commentary/guestcol.shtml).
It would have been more practical just to have sent back the $9
billion state surplus to the people and let them use it towards
their electric bills.
However, when Gray Davis gets his way, we’ll be paying a
lot more than $9 billion in future electric bills, thanks to the
compounded interest rates on the bonds.
Californians should realize that its continued economic
prosperity might not be held hostage by the energy market had
California participated actively in the energy market, by beefing
up its energy infrastructure, untangling its deregulation
regulations and allowing consumer prices to float.