California energy debate heats up

Published August 1, 2001

Political rhetoric on energy issues from the state of California continues to heat up along with the rising summer temperatures. Democratic Governor Gray Davis has escalated the war of words by placing blame for the state’s energy troubles squarely on President George W. Bush and his political allies.

Davis, facing plummeting poll numbers in the wake of the state’s energy troubles, signaled an escalation of the political rhetoric when he announced on May 18 that the state had hired jaded former political operatives from the Al Gore presidential campaign.

Facing state polls showing his popularity dropping well under 50 percent, including a 20 point drop from January to May 2001, Davis spent California taxpayers’ money to hire former Gore press secretary Chris Lehane and former Gore deputy campaign manager Mark Fabiani as state energy advisors. Davis said the former Gore operatives will coordinate the governor’s communications staff regarding energy issues.

Outraged Californians noted that Lehane and Fabiani, the self-proclaimed “Masters of Disaster” for their aggressive tactics in turning Clinton-Gore political scandals into attacks on the opposition, have no energy experience, and asserted that Davis was spending taxpayer money for inappropriate partisan purposes.

“California taxpayers should not be asked to finance political consultants,” averred State Senate Republican Leader Jim Brulte and Assembly Republican Leader Dave Cox in a letter to Davis. “Should you insist on maintaining this relationship, it would be most appropriate to pay the bill with campaign funds.”

Brulte and Cox also objected to Lehane and Fabiani’s involvement regarding energy policy formulation because the pair had previously advised Southern California Edison, which is requesting state help in avoiding bankruptcy. Such ties create an undeniable conflict of interest, asserted Brulte and Cox.

Objections to placing Lehane and Fabiani on public payroll reverberated as strongly outside the Republican Party. Harry Snyder of Consumers Union called the state’s hiring of Lehane and Fabiani “the worst abuse of power that I have seen in 25 years.”

Davis steps up the rhetoric

The influence of Lehane and Fabiani appeared immediately in the governor’s public appearances. Davis asserted in a May 17 press conference that the Bush energy plan lets power generators “get away with murder.”

“We are literally in a war with energy companies which are price-gouging us,” Davis told the news conference. Pulling Bush into the mix, he accused the administration of “turning a blind eye to the bleeding and hemorrhaging that exists in this state.”

Davis’ Attorney General, Bill Lockyer, followed the governor’s attacks in kind. “I would love to personally escort [Enron Corporation Chairman Kenneth] Lay to an 8 x 10 cell that he could share with a tattooed dude who says ‘Hi, my name is Spike, honey,'” stated Lockyer.

Davis called on the federal government to cap California energy prices, but his argument did not appear to be making much headway with the Bush administration. Vice President Dick Cheney affirmed the administration would not support price controls and chastised Davis for his political finger pointing. “We get politicians who want to go out and blame somebody and allege there is some kind of conspiracy, whether it’s the oil companies or whoever it might be, instead of dealing with the real issues.”

“There are peak problems right now because California hasn’t brought any new supply into place in 10 years, no new facilities, and so they’ve got an imbalance. But the way to solve it isn’t price caps, that only makes matters worse,” added Energy Secretary Spencer Abraham.

Davis advisor repudiated price controls

Complicating Davis’ efforts to sell his price control plan are the writings of one of Davis’ chief energy advisors. Alan Blinder, a Princeton economist and former member of President Clinton’s Council of Economic Advisors, has been retained by Davis to argue for energy price controls. However, Blinder’s own writings undercut the rationale of Davis’ appeal.

“An attempt by government regulations to force prices above or below their equilibrium levels is likely to lead to shortages or surpluses, to black markets in which goods are sold at illegal prices, and to a variety of other problems,” Blinder wrote in his 1999 economics textbook, Economics: Principles and Policy. According to Blinder, “The market always strikes back at attempts to repeal the law of supply and demand.”

Refuting Davis’ argument that California price controls would create few if any harms because they are requested only as a temporary measure, Blinder writes, “Virtually every price ceiling or floor creates a class of people that benefits from the regulations. These people use their political influence to protect their gains by preserving that status quo, which is one reason why it is so hard to eliminate price ceilings or floors.”

“Any government that sets out to repair what it sees as a defect in the market mechanism runs the risk of causing even more serious damage elsewhere,” continued Blinder. “Investment in the industry generally dries up. Because price ceilings reduce the monetary returns that investors can legally earn, less capital will be invested in industries that are subject to price controls.”

James Hoecker, a Clinton appointee to the Federal Energy Regulatory Commission, agreed. “As disappointing as it may seem to some, we cannot ‘price cap’ California out of a supply shortage.”

Solutions to the California energy problem, according to the Bush administration, require the building of more California power plants, the easing of regulations restricting the generation and flow of power, and a more balanced approached to the zero-energy-growth policy of anti-market environmentalists.