California is in the midst of an enormous stupidity crisis. Californianshave been sitting in the dark because ... they didn't turn the lights on.
They say they're short of electricity. Yes, they are. Between 1988 and 1998,California's electricity consumption increased by 15 percent. MeanwhileCalifornia's capacity to generate electricity shrank by five percent, evenas the state hesitated to build new power lines to tap into neighboringstates' power supplies.
Californians didn't want dams across their rivers, derricks on their ocean,power lines across their borders, or fossil fuel smoke in their sky. Thesemight interfere with all the smart things Californians do, such ashang-glide. California was going to rely on "negawatts" – dramatic powerconservation. (But California regulators put price controls on electricitythat lowered prices, and even Californians weren't dumb enough to skip abargain.) And California was going to rely on alternative power generation.
With all the puffery from Silicon Valley dot.com start-ups, wind farmswouldn't be a problem. But it turns out that alternative power generation isan alternative, mostly, to generating power.
President Bush was wrong to grant an extension of executive orders requiringout-of-state utilities to supply power to California. And everyone is wrongto listen to Californians whine about electricity deregulation. There neverwas any deregulation. The California Public Utilities Commission merelychanged its regulations, which apparently weren't stupid enough to meetGolden State standards.
Under California's 1996 re-regulation plan, electric companies sold theirgenerating plants and became distributors. They were required to buy theirpower on the wholesale spot market and forbidden to enter into any long-termpower supply contracts. Retail electricity prices were lowered by 10 percentand frozen at the new rate until March 2002.
This is like requiring A&P to sell you porterhouse at $2 a pound, no matterwhat the price of beef on the hoof. Imagine how many steaks there would be,and how many supermarkets. Go to one of those boarded-up grocery stores,purchase a phantom T-bone, screw it into a ceiling fixture, and try to lightyour house. You're in California.
La-la Land, however, is a state of mind as well as a state of the Union. Theworld is full of mental Californians who, despite a century of socialistcatastrophes, are willing to blame the free market for things like theCalifornia energy crisis. "What brought [California] to its knees is ...blind faith in the market to provide for people's basic needs," says a piecein the Toronto Star by a member of the Star's editorial board.
The critics of economic liberty are right: the free market did causeCalifornia's energy crisis. Hooray. Capitalism is doing its job. The criticsare right without knowing what they're talking about. The free market isn'ta means "to provide for people's basic needs." It doesn't come in or out ofpolitical fashion or lose its mind. The free market is a precise measurementof voluntary price settings.
Californians devised a system of electricity sales that ignored everydimension of the free market. (Interesting that the "Information Economy" iscentered in a place that's immune to information.) The free market is ayardstick, and Californians got smacked with it. Mideast oil jitters, coldweather, natural gas price spikes, and the plain unpredictable freedom ofthe free market caused wholesale electricity costs to rise and Californiautilities to go $12 billion into the red.
California's governor, Gray Davis, responded with the full force of bikinibeach brain. In a January 8 speech to the state legislature, Davis proposedcreating a state agency to buy generating plants and build new ones. Hethreatened to expropriate power generators and transmission grids. He calledfor laws to allow criminal prosecution of wholesale suppliers who withheldelectricity from California markets. And he said the state's universitiesand community colleges would build co-generating plants and become energyindependent. (With gas produced by the cafeteria food?)
Gray Davis sounded like Joseph Stalin with the IQ of Keanu Reeves. "Everyoneshould understand that there are other, more drastic measures that I amprepared to take if I have to," Davis declaimed. "Take" is the key word.Grabby Californians tried to regulate themselves into some cheapelectricity. Hoggish California power companies went along because thestate-imposed retail price ceiling was also a retail pricefloor. According to the Los Angeles Times, during the first 28 months of thescheme, Pacific Gas and Electric and California Edison made $20 billion fromthe legally required mark-up between wholesale and retail electric prices.
It would be wrong to call Californians stupid. They're sleazy, too.