The Suits Tell the Tale

July 27, 2001 • Commentary
This article appeared in National Review Online on July 27, 2001.

For at least nine months now, California Gov. Gray Davis has been screaming bloody murder about how corporate power pirates out of Houston have economically raped and pillaged the state of California, creating an artificial electricity crisis out of thin deregulated air. The story didn’t appear to add up. But because the governor’s office refused to release information about how much the state paid to whom for electricity over the past several months, who was to say?

Lawsuits finally pried that information out of Davis last week and — lo and behold! — “the biggest snakes on the planet” (Davis’s words) were charging less than the publicly owned utilities of California itself and even less than the price charged by his right‐​hand man, David Freeman, head of the L.A. Department of Water & Power. And Davis turns out to have known it all along.

Until Davis coughed‐​up the data, the Left was in hog heaven, scoring point after point about how socialism — at least in the electricity business — was far preferable to capitalism. Alan Richardson, president of the American Public Power Association, recently told an audience that, “California is a great example of municipal utilities that have … taken care of their customers while investor‐​owned utilities have taken care of their shareholders … Every customer of a private utility is seen as a profit center. With public power, every customer is seen as our owner and neighbor.” Anti‐​utility activist Harvey Wasserman wrote in The Nation that, “dereg apologists are having a hard time explaining why two California power companies were immune to the crisis: the Los Angeles Department of Water & Power and the Sacramento Municipal Utility District. Both are owned by the public … during the crisis, rates charged by both companies have been stable.”

It turns out, however, that publicly owned utilities charged the state an average of $344 for a megawatt of electricity during the first three months of the year. Private companies were meanwhile charging less than an average of $250 per megawatt. And those Houston‐​based “snakes” — Reliant, Dynergy, and Enron — were charging less than the publicly owned utilities, less than the sainted and celebrated L.A. Department of Water & Power ($292 per megawatt), less than the Sacramento Municipal Utility District ($330 per megawatt), less than other investor‐​owned California‐​based power marketers, and less than the overall market average. Other more ambitious sellers include those municipal “good neighbors” at Seattle’s City Light Department ($634 per megawatt), BC Hydro ($498), and virtually every other socialist power entity that bellied up to the California wholesale power market.

But that’s not to say that the municipals did anything wrong. They had an obligation to local taxpayers to maximize their revenues. Moreover, it turns out that the markups weren’t all that great. The cost of producing electricity at the margin was so high because of the run‐​up of natural gas costs; most of the asking price reflected the cost of spinning electrons back at the plant. “It’s insulting to ask for any money back. We weren’t part of the problem, and we helped the state in a crisis,” Peter Fletcher of the Sacramento Municipal Utility District told the San Francisco Chronicle. “And it’s not like we’re doing well.”

Another interesting revelation is how inept California state agents were when they tried to run a power system previously managed satisfactorily by the utilities. The state “called us and said, ‘we’re looking for power at $500 a megawatt hour for a seven‐​hour period,’ ” Kate Hora of the Modesto Irrigation District told the Chronicle. “There was no negotiation. We just helped them out at the price they named.” These are the business wizards that Davis wants to take over the whole system?

It should go without saying that this doesn’t help the governor’s price‐​gouging argument. The story Hora tells of how the state behaved with her utility is consistent with the stories related by the private marketers. The state asks for power and names a price. The company agrees. And several weeks later, Davis & Co. scream about “the gougers.” The story Fletcher tells — of prices mostly reflecting costs — likewise belies Davis’s contention that greed explains all. If Sacramento’s municipal utility found it hard to make any money even with sales of emergency power at $330 a megawatt, what makes anyone think it was easier for Enron et al.?

The Left’s entire California story, it turns out, was built upon a breathtaking series of gubernatorial falsehoods and demagoguery. If Davis and his duplicitous henchman, David Freeman, have an ounce of credibility left, it’s only because the nation is too riveted on the Chandra Levy matter to pay any attention to the bomb that went off in Sacramento last week.

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