By Jonathan Wilcox
June 22, 2001

An old adage offers sound advice whenever you find yourself in a hole:  stop digging.

Knowing this, it's puzzling that Gov. Gray Davis, sinking in the estimation of the public, just keeps shoveling aside more dirt and plunging California deeper into the energy mire.

He does most recently through a full-throated support of price caps on power costs and his insistence that the idea will solve the state's energy crisis.  This is both inaccurate and insincere.

Media reports (and breathless press releases from the Governor's Office) have told us that the Federal Energy Regulatory Commission imposed price caps this week.  Well, not really.

Under the new guidelines, price caps already in place during certain power emergencies in California will be extended all day and throughout the 11-state Western power market.  Also, when the state's energy supply isn't at critically low levels, power prices will be limited to 85% of the price in effect during the final hour of the most recent power emergency.

Complicated stuff, to be sure.  But think of it this way:  Essentially, California has three major energy problems – too much demand, not enough supply and dwindling reserves.  What, exactly, will price caps do to improve any of those conditions?  After these controls are put into place, the crisis will look exactly as it did the day before.

Looking back, it was hardly surprising that Davis didn't plunge pell-mell into this issue when it first surfaced.  If nature abhors a vacuum, politicians abhor difficult problems.  But this issue isn't going away, and can't be solved simply by throwing money at it.  We know this because Davis tried that already.  

Earlier this year, Davis stepped in and, trusty state credit cards in hand, began to pick up the energy costs for California's cash strapped utilities.  He seems not to have thought of what to do next.

By the end of January, California was paying $40 million per day, a staggering sum that would soon reach $100 million per day.  To date, Davis has spent more than $5 billion, an amount akin to a full five percent of the entire state budget.  

No wonder Davis started screaming for price controls – given his selected strategy, he would have bankrupted the state by Thanksgiving.

In so many words, Davis then railed at the federal government to “Stop me before I spend again” and began his price caps gambit.

Davis surely knows that price fixing won't bring a single extra megawatt of electricity to a single California home, and that it may even discourage private sector investment in our energy infrastructure.  In fact, the Department of Energy has reported that California could face 235 hours of blackouts this year (rather than the projected 113) because of price controls.

This is because when price controls decrease profit making, energy suppliers sell their power elsewhere.  A price cap may only ensure that investors won't invest in badly needed power plants, and this is precisely how California got into its blackout mess in the first place.

Worse, some energy suppliers can evade caps entirely by selling their product to competitors who aren't affected by the controls.  For example, our federal government cannot regulate many municipal utilities or any of the large Canadian and Mexican generators.  What if they hold the power we need on a given day?  Gray Davis will have to show them the money – lots of it.

In addition to energy, California is in low supply of leadership as well.  So, it may well be up to Rep. Doug Ose (R-Sacramento), the current Chairman of the House Subcommittee on Energy Policy, to inject much-needed common sense into this debate.  While giving qualified support to the FERC action, he has at least tried to advance a comprehensive solution that will bring more supply on line, more quickly, at an affordable price.

Contrast this with Davis, who prefers to play politics when he should be playing public leader.  Every day, he hurls insults at energy companies, threatens generators with seizing their power plants and blames the 151-day tenure of the Bush Administration for a California problem that is well into its second year of crisis mode.

Finally, however, one has to admit the price controls may perform a valuable public service:  exposing the fact that Davis has no idea how to lead us forward.

But while celebrating the issuance of price controls and preening that he backed down his opponents, Davis should keep in mind a second trusted adage:  Be careful what you wish for – you just might just get it.

 
 
 
 
 
 
 

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