Instead, he decided to try and slip things under the rug with subsidies until it got too much for even the government to face. The real problem was that adding government money to the equation made it clear that the utilities could get any price they wanted. The result was the lunatic price spiral of 2001.
If he gets into a debate with Simon, he's toast, because even the mildest rebukes about the energy mess are going to set him off. He shouldn't run for re-election if he can't take the heat.
Finally, did anyone notice that Enron was the nicest of the energy companies? Is it a coincidence they gave him massive contributions?
D
I concur with that. This is a guy who is losing it.
He has an impossible task. He is trying to convince people that he did a good job when it's obvious that he was an abysmal failure. He can't spin that he did a good job when he's begging the Feds to undo what he earlier bragged about.
What's unfortunate is that he messed things up so badly that his successor can't easily repair the damage. It's serious and long-lasting.
It sure is nice to see how defensive and worried he is.
Intersting that you mentioned that, when you consider that Davis himself knew it all along. Didn't he make some comment to the effect of "I could solve this problem in 10 minutes if we allowed rate increases."
I'm not from CA, so I only know a little bit about Davis. I always thought of him as just boring and slow. Based on this article, I wonder if he is also a little bit delusional.
How right you are. Here is an example:
"how do we solve the problem" [by JasonC]
That is tolerably obvious. The only reason the problem continues, is that those who have to take the hit to adjust to realities, are the most powerful actors in the story. Meaning the governor, the state government generally, consumers/electors, and the green left.They are trying to shift the costs and adjustments onto others, by using their political muscle. Those shifts are not what a "technocratic", direct solution to the problem requires, and in fact as likely to make things worse without solving anything. And of course the powerful actors in the story, are surrounded by flatterers and syncophants who tell them what they want to hear, tell them it is all someone else's fault, and peddle useless patent-medicine "remedies", simply because the peddlars want those things done anyway.
What is the real solution to the problem? You treat it seriously like a crisis, and move every lever to help reduce the problem, and you don't pay any attention to whose ox is gored (within charitable limits), and you don't play blame-games, or fight over it. You accept it, pay for it, solve it, and get moving again. Trusting that getting moving again will help everyone far more than the direct things at stake in the crisis.
So much for the abstract points about how it ought to be dealt with and why it isn't. You probably still want to know what will solve the crisis, what practical steps are needed.
In the short run, new supply is not available, and supply in demand are not in balance. Ergo, like a force of nature, demand must be reduced. There is one and only one known mechanism that will reliably do that every time it is tried. Higher prices on the user end. (Higher prices up at the producer end will not reduce demand one iota). That is what high prices are for, to ration an available supply over the users. They also ensure that the decision, who shuts something off, is made on a basis of economic urgency. E.g. a high energy price will make an energy-intensive process unprofitable; then use of that process will cease until the price of energy falls again. The amount the price needs to go up to ration is an empirical matter, but it is going to be on the order of 5/3rds to 2 times the old prices.
A charitable limit here is that some provision can be made for the poor facing higher energy bills. It would defeat the entire purpose to do so by fixing prices, or to leave no incentive to switch things off. The two purposes are easily combined. You just leave the price for them the same as for everyone, but subsidize their budgets with direct checks, for 2 years, starting at ~75% of the amount the bill is expected to go up, and phasing out by ~$30K family income. It is very important that these folks face the same price of power, thus the same incentive to economize. They just have more money to deal with the situation while adjusting.
Next, everything possible must be done to increase future supply, and ASAP. And everything means everything, not 2-3 pet or patent remedies. Emmission caps should be waived for this year and the next. Regulations restricting entry into the power-generating business, co-generation, etc should all be waived for 2 years and if necessary extended for 2 more.
(continued)
35 Posted on 05/12/2001 02:06:52 PDT by JasonC
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(continued)
But those are minor items, and the major ones, the ones the dispute is mostly focused on, are about returning the state to a place were power companies can do business, without losing all of their capital. Attacks on the power companies must cease. Lawsuits against them must be dropped. Pursuit of "price gougers" and "profiteers" and all the rest of that dismal litany of tyranny in high dudgeon, must be ended immediately. Power companies should be thanks for their efforts, apologized to for past regulatory mistakes and excesses in the heat of the moment, etc. "But really, they are..." Who cares? It doesn't matter. The idea is to make it attractive to supply power to the state, not to dispense olympian justice.
And that means among other things that those who lost all of their property because of state regulatory mistakes, should be made whole by the state. How? By the state buying the two grid companies, SCE and PG&E, for prices equal to their averages last summer. And paying all of the bills of those companies. And funding whatever maintenance was forgone during the crisis, recapitalizing the system, etc. (The existing bonds of the companies can temporarily become industrial revenue bonds, i.e. taxable state obligations with a limited claim, to the stream of earnings of the power companies only). This will pay most people's bills and stop most of the fighting. The approval of the PG&E bankruptcy judge is needed for this, but the offer is sufficiently generous no one else is going to exceed it, so the creditors will approve it quickly. Funding this will, up front, require a large state bond issue; more on that later.
The grid companies will then be state owned. The state should make clear that it does not intend to hold them indefinitely, but will instead resell them in the stock markets in 2-3 years, after things settle down. By an intial offering of 10% of them, the remainder sold gradually to pension funds, mutual funds, etc.
All of the proceeds from eventual re-privatization should be earmarked to retire principle from the bonds needed to fund thing in the first place. Thus the state will have more bonds outstanding for 2-3 years, gradually reducing over 5 years or so. After that period, only the net cost of fixing things will have been paid. The capital value of the utilities will be roughly the same paid out (last summer prices) and received (resold, fixed, into a stabilized market).
However, the grid companies broke for a reason - poor regulation at the time the demand imbalance hit. The deregulation from several years ago is obviously not working as intended. Personally, I think it is obvious why - consumer prices were not freed at the same time as producer prices. But I am not selling a patent remedy during a crisis. The time to deregulate the CA power market, is later after all of this has settled down, and the immediate crisis is over. Therefore, it is time to take a step back here. "Doctor, it hurts when I do this." Then don't do "this".
The state should go back to a cost-plus system of regulation in the power market. Because it is true and tried. Use it until the situation has been restored to calm and balanced, and worry about ideal solution later. What does "cost plus" mean? It means that power suppliers are offered their full economic costs (including bonded debt) plus a decent, 12% return on their equity. Rates are set high enough to achieve this. When costs increase, rates must increase. In principle, this can be done with long term contracts rather than direct regulatory orders, but the latter will probably work better until things calm down, simply because it is less clear at the moment what future prices will be, etc.
(continued)
36 Posted on 05/12/2001 02:08:58 PDT by JasonC
[ Reply | Private Reply | To 18 | Top | Last ]To: kattracks
(continued, 3rd and last part)
Now, all of the above is going to require laws to be passed, bills to be signed, regulators to be given instructions. Much of the initial hurt of it all will fall on ratepayers, who elect the pols who have to do these things, which is why it is hard to get it to happen. "But will the power supplier companies go along?" For an end to the fighting, and all of their past bills paid off, and all of the lawsuits and name calling dropped, and a stable environment to operate in afterward? You bet, in a New York minute.
In addition, it will require some upfront funding, in the form of a state bond offering, probably on the order of $25-50 billion initially, but cut in half after the grid companies are resold. The next costs of the crisis will thus be capitalized and on the books of the state. The real economic cost will come gradually, as this debt is retired. To meet it, the state should reduce spending (besides the charitable outlays mentioned above, which will be temporary). Everyone else is going to have to tighten their belts, and the state government should not be an exception. On the contrary, it should lead. 5-10% cuts in salaries for all elected officials would be a good place to start.
Above all, the state as an entity should accept the blame for the whole affair, along with accepting the bill for it. In "buck stops here" fashion. "But it was Johnny's fault!" This is not a nursery school playground. Leaders are expected to be above such pettiness and capable of a little greatness of soul when the moment requires it. It is in fact more honorable to accept a blame not truly due, than one that is. "We screwed up, we are sorry, we will fix it and we will pay". That is the way to fix this; above all it is the way to end the fighting and get everyone working on a solution instead of against each other.
And the overall cost of the whole thing, if tackled head on in that sort of businesslike, technocratic, realistic fashion, will not be daunting. California is a very wealthy state. The state economy is $1 trillion, bigger than most of the nations of the world. In an ordinary year of growth working Californians add new income - wealth every year - on the order of $25-30 billion. This whole crisis will wind up cost a year's raise, and that is about it.
Provided that the fighting is stopped, and the crisis is not allowed to kill the golden goose, growth. The sooner everyone gets back to work, the better, and that matters far more than who gets the tab for mistakes already made, costs already irrevocable. Everybody is going to pay for those mistakes. Ratepayers are with higher rates, lower government spending too, and higher debt that gets paid off by taxpayers in the long run.
It is stupid to try to get the power suppliers to pay instead. Because doing so reduces the available supply, drives potential entrants away, punishes those trying to help in the supply-demand imbalance. The reason it is being attempted anyway, is those entities do not have the political power that the pols and the ratepayers do. But that way lies sorrow - no reduction in demand along with reductions in supply or increase in suppliers' real costs, which can only drive wholesale prices still higher, not lower. The first thing to do if you find yourself in a hole is to stop digging.
All of this is, as I say, tolerably obvious. The reason things aren't handled this way is that the leaders in California don't have the guts for it. In fact, if they solve the problem they will get credit not blame, no matter how much some grumble over who paid.
But the existing leaders are too timid to realize that, and instead flail uselessly in the other direction. Why? They are scared of their masters, the voters, that is why. Scared to tell them the truth, that the state screwed up and now the people are going to have to pay to fix it.
37 Posted on 05/12/2001 02:09:34 PDT by JasonC
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My favorite line was... I should at least get a round of applause. I don't get squat.
Which appears to me to be Gov trying to show himself as victim and as unappreciated. I will be sexist for a moment, but there is nothing like a girlfriend, wife, mother, sister, or even child who says you don't appreciate me and what I do for you, you don't love me anymore. I think the Gov. is trying to use this line of guilt trip argument on the press& voters in an act of absolute despiration.(/sexism)
I suspect Davis knows how deep a whole he is in and except for all the campaign money he has sitting in the bank to buy media time to spin lies, he knows the odds are long against his winning this election if it is fought on the issues or decisions are made on anything but habit (i.e dems vote for dems) or emotions (so groups vote on pandering promises to them). So I suspect we will see all kinds of outrageous adds.
Maybe a pro-symons truth squad can be started. Remember in the Gore speeches, how it became a media event to count the number of lies that Gore made in each speech? Maybe a group can start publishing the lies Davis makes each time he runs and ad, each time he makes a speech and then start feeding that score to the media and see if they pick up on it. It really helpded discredit Gore and make a lot of independent voters question him. The same tactic might work on Davis. Just a thought.