From: steven.kean@enron.com
To: kenneth.lay@enron.com, jeff.skilling@enron.com, andrew.fastow@enron.com, greg.whalley@enron.com, james.derrick@enron.com
Date: 2001-06-13 14:00:00+00:00
Subject: California's dim bulbs

You may have seen this when it first came out a while back ... but it's worth 
a rerun.
---------------------- Forwarded by Steven J Kean/NA/Enron on 06/13/2001 
01:49 PM ---------------------------
From: Ann M Schmidt on 06/13/2001 01:49 PM
To: Steven J Kean/NA/Enron@Enron
cc:  

Subject: California's dim bulbs

California's dim bulbs
P J O Rourke

04/01/2001
Regulation
64
Copyright (c) 2001 Bell & Howell Information and Learning Company. All rights 
reserved. Copyright Cato Institute Spring 2001

THE FINAL WORD 
CALIFORNIA IS IN THE MIDST OF AN ENORmous stupidity crisis. Californians have 
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. Meanwhile 
California's capacity to generate electricity shrank by five percent, even as 
the state hesitated to build new power lines to tap into neighboring states' 
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. These 
might interfere with all the smart things Californians do, such as 
hang-glide. California was going to rely on "negawatts" - dramatic power 
conservation. (But California regulators put price controls on electricity 
that lowered prices, and even Californians weren't dumb enough to skip a 
bargain.) And California was going to rely on alternative power generation. 
With all the puffery from Silicon Valley dot.com start-ups, wind farms 
wouldn't be a problem. And doesn't Gwyneth Paltrow's star shine bright enough 
to operate a solar panel? But it turns out that alternative power generation 
is an alternative, mostly, to generating power. 
Californians are people who insist on growing their own vegetables, but they 
won't dig up the pretty lawn, won't plant anything for fear of getting dirty, 
and they use fragrant bath salts from The Body Shop instead of smelly 
compost. Let them make their crudites with crab grass. President Bush was 
wrong to grant an extension of executive orders requiring out-of-state 
utilities to supply power to California. And everyone is wrong to listen to 
Californians whine about electricity deregulation. 
There never was any deregulation. The California Public Utilities Commission 
merely changed its regulations, which apparently weren't stupid enough to 
meet Golden State standards. Under California's 1996 re-regulation plan, 
electric companies sold their generating plants and became distributors. They 
were required to buy their power on the wholesale spot market and forbidden 
to enter into any long-term power supply contracts. Retail electricity prices 
were lowered by 10 percent and frozen at the new rate until March 2002. 
This is like requiring A&P to sell you porterhouse at $2 a pound, no matter 
what 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 light 
your house. You're in California. 
Californians devised a system of electricity sales that ignored every 
dimension of the free market. (Interesting that the "Information Economy" is 
centered in a place that's immune to information.) The free market is a 
yardstick, and Californians got smacked with it. Mideast oil jitters, cold 
weather, natural gas price spikes, and the plain unpredictable freedom of the 
free market caused wholesale electricity costs to rise and California 
utilities to go $12 billion into the red. 
California's governor Gray Davis responded with the full force of bikini 
beach brain. In a January 8 speech to the state legislature, Davis proposed 
creating a state agency to buy generating plants and build new ones. He 
threatened to expropriate power generators and transmission grids. He called 
for laws to allow criminal prosecution of wholesale suppliers who withheld 
electricity from California markets. And he said the state's universities and 
community colleges would build co-generating plants and become energy 
independent. (With gas produced by the cafeteria food?) Gray Davis sounded 
like Joseph Stalin with the IQ of Keanu Reeves. "Everyone should understand 
that there are other, more drastic measures that I am prepared to take if I 
have to," Davis declaimed. 
"Take" is the key word. Grabby Californians tried to regulate themselves into 
some cheap electricity. Hoggish California power companies went along because 
the stateimposed retail price ceiling was also a retail price floor. 
According to the Los Angeles Times, during the first 28 months of the scheme, 
Pacific Gas and Electric and California Edison made $20 billion from the 
legally required mark-up between wholesale and retail electric prices. 
Californians want to snatch that money back. "Consumer advocates around 
California... said it did not matter that the utilities were returning 
investments to their shareholders," reported the January 31 Washington Post. 
"They took the money and ran," said state senator John Burton. As opposed to 
Californians, who took the electricity and roller-bladed? Now the juice and 
the jack are both gone, and the California legislature has had to pass a bill 
authorizing $10 billion to try to clean up the mess. 
But the Californians could still pull a scam. The bill mandates long-term 
power contracts at rates that are way above what future prices should be. The 
hope, one guesses, is that Congress, or the President, or somebody will let 
the state skip out on those contracts once the costs are lower. 
It would be wrong to call Californians stupid. They're sleazy, too. 
R J. O'Rourke is the Cato Institute's H. L. Mencken Research Fellow and is 
foreign affairs desk chief for Rolling Stone. He is author of several 
bestselling books, including Parliament of Whores, Give War a Chance, Age and 
Guile, and Eat the Rich.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.