CENTRAL VIEW for Monday, June 18, 2001

California tries to shift the blame

With the ice hockey season concluded, baseball and golf are about the only spectator sports available. Oh yes. Almost forgot. There is one other: Watching California’s public officials make fools of themselves over their self-inflicted power shortages.

Of course, the genesis of California’s electrical shortages really begins with the people who elected the legislators who made it virtually impossible for new electrical power plants to be built in California over the last decade or so. They have only themselves to blame.

But do not think for a minute that the voters of California or their elected officials are going to blame themselves for the mess they created. No sir. Like all “responsible” people, they are never to blame and scapegoats must be found.

California Governor Gray Davis wants to blame the power companies and, now that fellow Democrat Bill Clinton is out of office, the White House. The California State Assembly wants to blame the States of Oklahoma and Texas and the power companies.

Putting these unfounded and comical notions aside, let’s examine the real causes of California’s electricity problem. The booming economy that made California the world’s sixth largest economy creates an enormous demand for electrical power. Meanwhile, California’s self-imposed moratorium on the building of new power plants froze their homegrown supply of electricity at pre-1990 levels.

When demand for electricity outpaced the supply of electricity, the price of electricity rose and rose. But wait, there’s more.

Not content to create a situation where supply and demand were so badly out of balance, the People’s Republik of California conceived a plan in 1996 that would drive the state’s two largest utility companies into insolvency.

Step one: Place price controls on the retail price of electrical power. Naturally, this was very popular with consumers. Step two: Place no controls on wholesale prices. They thought competition among the power companies would keep wholesale prices low and it would have – except for the fact that demand went through the roof.

The demand for electrical power absolutely swamped the supply of electrical power. California’s utility companies (already forced to purchase power from other states since California quit building power plants) had no choice but to purchase more and more power at higher rates that are the natural result of the Law of Supply and Demand.

Because of the retail price freeze on electricity, California’s utility companies were having to pay, for example, $2.00 for a commodity they could only sell for $1.00. Red ink began to flow faster than electricity.

To raise the cash they needed to stay afloat, California’s major utility companies were forced to sell some of the few generating plants they had to other investors and then buy more power from other states and from the new owners of their former plants – all at market wholesale rates.

This nutty scheme bankrupted Pacific Gas & Electric Company. Southern California Edison is billions of dollars in debt and may declare bankruptcy at any moment.

Governor Gray Davis and his cohorts in the California State Assembly claim their 1996 “deregulation” of electrical power caused their power crisis when, in fact, deregulation never took place. Deregulation is when both retail and wholesale prices are allowed to move to the pricing dictated by the Law of Supply and Demand. To freeze retail prices is not deregulation.

Meanwhile, some Californians are convinced that Oklahoma and Texas conspired to create a situation in which California must buy electrical power, oil and natural gas from them at astronomical prices. They sure won’t blame themselves.

Texas, in particular, built a large number of power plants over the last few years and the Texas Grid is in good shape. Computer maker Michael Dell is sitting down in Austin with plenty of electrical power while the computer gurus in California’s Silicon Valley are wondering where their next megawatt will come from.

Don’t be surprised if Austin becomes the new Silicon Valley.

William Hamilton is a nationally syndicated columnist and a featured commentator for USA Today.

©2001. William Hamilton

Dr. Hamilton can be contacted at:

Email: william@central-view.com