Energy
This
is the longest of my position statements – partly because of its current
importance, and also because it deals with the separate issues of
electricity, natural gas, and gasoline. I hope that you can make it through
and find the effort to be worthwhile.
I
tried to raise the issue of an impending electricity crisis during the
November 2000 campaign, but the press was not interested and voter attention
seemed to be focused on other issues. This lack of concern was, in fact,
orchestrated by the Democrat leadership in Sacramento, who did not want
voters distracted by a real problem. Now, it is clear that we
need legislators who will look ahead and be willing to act to head off
clearly apparent future problems, instead of viewing them as a political
inconvenience that can be swept under the rug until after an election.
Energy
related problems are still with us. Instead of developing long-term solutions
that recognize the concept of supply and demand, our Legislature has largely
avoided dealing with the root causes of these problems. This negligent
approach to governance must be changed if California is to continue to offer opportunity and prosperity now
and for future generations.
There
are no clean hands in the state’s electricity fiasco. The law pretending to
be deregulation was passed with the unanimous support of a Democrat
controlled legislature and a Republican governor. Despite, or perhaps because
of, this bipartisan support, the deregulation law was seriously flawed by
requiring caps on what private utility companies could charge, while having
no limits on what they might have to pay, and by prohibiting private utility
companies from entering into long term contracts at favorable rates. These
were stupid mistakes, but could have been overcome. The more serious failure
that is directly responsible for our present crisis occurred when both the
State Legislature and the Governor ignored clear warning signs of trouble
ahead at the point where wholesale prices for electricity jumped above the
cap on rates that private utility companies could charge. This occurred in June
of 2000, but was swept under the rug until after the November election
despite pleas for help from the utility companies and attempts by Republicans
to call a special session to deal with the problem. Apparently Democrats in Sacramento believed that private utilities could afford to lose
billions of dollars every month without serious financial consequences. But
when the freshly reelected Legislature convened in January 2001, they found
the state’s private utility companies in a state of financial ruin. Everything
that has happened since this time has been political spin and damage control.
The
energy crisis was caused by two related problems. Most immediately, there was
a crisis of credit where utilities couldn’t pay their bills, so no one would
sell them electricity. And in the longer term, we have a shortage of supply
until more new power generating plants are completed. Former Governor Davis’s
solution to the credit crisis was to have the state buy electricity and then
pass it through to the private utilities. In the process, California has put up billions of dollars that the state is
recovering by selling bonds, which are being repaid, plus interest, from
increased charges in our monthly utility bills. So we, and our children, will
be paying for this electricity for decades to come. A more sensible solution
would have been to raise the price caps on what utilities could charge, which
the state finally got around to long after the damage had been done,
authorize the private utilities to enter into long term contracts (which
municipal utilities have always been able to do), and then provide state
loans that would have allowed the private utility companies to effectively
compete for lower rates through long term contracts. Instead, the state
became our power broker and, as a result, we paid top dollar for every
kilowatt.
Over
the long-term, shortages of all types of energy have been created in California by ignoring the need for increased supply to serve a
growing population. In the case of electricity, there has been much noise
made about an increase in the number of permits for power plant construction
and the need for conservation. However, the number of permits is small
relative to long-term needs; and these plants must still face the gauntlet of
state regulatory and permit approval requirements before they are actually
built. Meanwhile, Democrat rhetoric about seizing control of private
generating plants has discouraged new investment in future energy production facilities, and power companies are now backing out of
commitments to build more electric generating plants.
Conservation
has greatly reduced the rate of growth in demand for energy of all types over
the past 30 years, and is now helping to prevent shortages on a daily basis.
But conservation alone has not stopped the increase in demand that is
outstripping the slow growth of supply. Working our way out of this hole must
be approached from all angles - large and small projects, local and
state-wide viewpoints, and out-of-state cooperation. Ways that the state can
help include providing off-the-shelf designs for photo-electric systems on
both houses and businesses; encouraging the development of small private
generating firms and local utilities with generating facilities; and
identifying sites that are suitable for large generating plants, with
expedited review of environmental studies and construction permits to
encourage private development of power plants at these pre-determined
locations.
The
supply of natural gas has also become a problem in California. Here, we have had shortages and high prices caused by
lack of pipeline capacity, while other parts of the country have an abundance
of gas at much lower prices. This, again, goes back to the lack of planning
at the state level and the difficulty and expense of undertaking large
construction projects in the California regulatory environment. The solution is not
complicated – build more pipelines. This is especially important if new power
plants rely on the availability of natural gas to produce electricity, and it
will require cooperation from the state regulatory bureaucracy and the State
Legislature.
Gasoline
and diesel supplies have also been restricted by state policies requiring
special formulations that are not generally available from out-of-state
sources and are primarily produced by refineries in California. Coincidentally, we are not building enough new
refineries to keep up with demand. In the case of gasoline, California has required the use of MTBE as a pollution reducing
oxygenate. Now, MTBE is being eliminated because it is polluting water (which
was known to be a problem in the first place). And since MTBE currently makes up more than
five percent of our gasoline, removing it without using another oxygenate
will actually reduce supply. The alternative oxygenate is ethanol, which is
produced from fermentation of plant materials. Right now, most of the ethanol
made in the United States comes from corn grown in the mid-west. But it could
also be produced at ethanol plants constructed near our rural communities
from crops grown on farms in this Assembly District – which would provide
good paying jobs and alternative crops for farmers and workers who have been
hit hard by processing plant closures and low prices for traditional crops.
It is hard to understand why a supposedly environmentally friendly Democrat Legislature
is not supporting the use of a renewable energy resource that can be produced locally
and would help to both maintain supply and reduce the price of gasoline in
California.
So
we are now faced with shortages and increasing prices for all forms of
energy, and at every turn it is apparent that the leadership in Sacramento has ignored the long-term needs of California in favor of short-term, politically expedient fixes.
And the same short-sighted approach is being used to guide the state’s
decisions about water supply and transportation. At best, this demonstrates
incompetence, while at the worst it shows a willingness to trade off the
interests of most Californians to satisfy the desires of politically
influential special interest groups. In either case, it is time for a change.
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