By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
In recent weeks, an idea much in favor in Sacramento, then, was not simply to establish such a public authority, but to have it take over the hydroelectric facilities or, more promising yet, the power grid of SoCalEd and PG&E, in return for the state‘s paying off the companies’ debt. If taxpayers and ratepayers were once again going to shell out to keep the utilities in business, they should get something tangible in return.
In the past week, however, the governor and Legislature changed that to something in-tangible. They still supported a public power authority, but this new agency would not acquire power lines and power plants as a condition of picking up the utilities‘ debt. Suddenly, the word around Sacramento was “warrants” -- that is, stock options in the utilities that the state would acquire in return for picking up their debt, and that the state could exercise if the utilities’ stock appreciated.
Why warrants? For one thing, Republican legislators were uncomfortable with the state‘s taking real property in return for helping the utilities; that smacked too much of socialism. “Some kind of warrant or option is the more appropriate way to go,” said Jim Brulte, leader of the GOP’s state Senate delegation. Davis -- a leader with all the resolve of J. Alfred (“Do I dare to eat a peach?”) Prufrock -- wanted bipartisan cover for his bailout. He also wanted to please Wall Street, whose disapproval would be a formidable stumbling block to any future Davis presidential bid. By that standard, linking the fortunes of the state to the rising stock price of the utilities was a slam-dunk.
By any other standard, however, it‘s a grotesque idea. The one precedent for the government’s taking stock options in return for bailing out a company is the case of Chrysler back in the ‘70s. But this is an entirely different matter. Chrysler was saved chiefly because it provided too many decent-paying jobs. And when Chrysler stock appreciated, it wasn’t because Lee Iacocca had raised the prices on cars that everybody had to buy.
Under the warrants plan for the utilities, however, the public‘s interest as a ratepayer is diametrically opposed to its interest as a shareholder. If the utilities ask the Public Utilities Commission for a rate hike, or for permission to run their plants more profitably by fouling the air a little more, how does the PUC calculate the public’s interest? If the new public power authority threatens to take business away from Edison and PG&E half a decade from now, how should the PUC respond? Is it in the public‘s interest to promote the Big Two’s profits, or to keep its own rates affordable?
A swap of real assets in return for debt, by contrast, entails no such conflicts. It simply hands those assets to a public sector that in city after city across the state, in regional authorities such as the TVA, and in other states with such authorities (such as New York), has been able to provide reliable, affordable power. Indeed, what‘s striking about the debate we’re now having on how to get out of this fix is that not one opponent of public power has answered why it is that cities and regions and other states can run eminently successful power authorities, but, uniquely, the state of California cannot.
Nor, for their part, have champions of public power sufficiently contested the basic premise of the deregulators: that the distribution of power is best accomplished in the most freewheeling marketplace. The problem with this model is that the buyer is nowhere so free as the seller. A person, an office, a city cannot simply do without electricity for a week if the price is too high, any more than they can do without oxygen. It is the absolute dependence of the buyer that makes this a very unequal exchange -- unless the distribution is regulated, or publicly controlled, or both. Instead, what California established when it deregulated the industry in 1996 was a system that maximized the buyer‘s vulnerability, forcing utilities to buy their power on a daily basis on the spot market.
That’s not a crisis of the supply and demand for natural resources. That‘s a crisis of a marketplace that gives all power to the seller.
For the new administration in Washington, however, California’s deregulation debacle provides a marvelous opportunity to remedy an entirely different crisis -- the heart-rending inability of the American oil and gas industry to realize profits that transcend the obscene. To be sure, Enron, Reliance Energy and Duke Energy -- the companies that are peddling power to California now -- are unveiling their best quarterly reports ever. But for the Bush administration -- which, to judge by its mindset and resumes, is really the oil industry vested with state power -- the California crunch creates the opportunity to remake the world in the image of East Texas.
In just the past few days, both Dick Cheney and W. himself have called for drilling in the Arctic National Wildlife Refuge. Cheney has called for establishing power plants just across the border in Baja -- oil maquiladoras, free to churn out power without having to observe those costly environmental safeguards. (Bush has called for reducing our dependence on foreign oil, but, hell, Baja‘s just California without the regs.) Both have said that California needs to have its plants run at full capacity, even if that means weakening the standards set by amendments to the Clean Air Act that Papa Bush signed in 1990. And, lest anyone conclude that the new administration is eco-insensitive, Lawrence Lindsey, Bush’s economic adviser, has opined that higher prices for California ratepayers “would certainly encourage conservation.” In his very first week on the job, W. has shown himself to be the president of, by and for the Houston boardrooms. All the more reason why Californians need a public power authority of their own.