Asking voters to suspend Assembly Bill 32 – the Green Power law – on the upcoming November ballot may mistakenly be thought to be like asking California voters to root for Texas against USC in the Rose Bowl.
Proposition 23, the California Jobs Initiative, would suspend the expansion of green power until the unemployment rate drops to 4.8 percent or below for four consecutive quarters. AB 32 requires the gradual process of increasing the amount of clean green power in California up to 30 percent, or higher, beginning in 2012. The initiative is receiving financial support from two Texas oil companies that have refineries in California.
The initiative evokes images of the California energy crisis of 2001, where it was widely believed that Houston-based Enron gamed the California energy market causing a huge spike in electricity prices despite evidence to the contrary.
Already a countercampaign has started called Californians for Clean Energy and Jobs that opposes the initiative, and is backed by unions, environmental organizations, green energy companies, a number of liberal organizations such as the NAACP and AARP, and liberal religious organizations. Its website has a silhouette of a polluting oil refinery with the words “STOP Texas oil companies” on it, which is sure to evoke images of the 2001 energy crisis.
We need to remember the lessons of the California electricity crisis of 2001 before flipping the switch and proceeding with AB 32 and green power.
The California energy crisis was started in 1996 by the federal Environmental Protection Agency mandating that California clean up its air pollution or federal highway and school funds would be cut off. The only way to comply with the EPA was to shut down or modernize old polluting power plants along the coastline. But the megabillions of dollars of bonds on these mothballed power plants weren’t paid off. And new replacement power plant construction was delayed in 2001 due to bureaucracy.
(California’s budget deficit is in part due to its reliance on out-of-state energy suppliers because of the air pollution by power plants mainly in California’s large coastal cities. Importing energy and exporting pollution has become the de facto state energy policy. Hypothetically, AB 32 would reverse this policy of hemorrhaging of revenues to other states. But because green power is unpredictable and still requires expensive backup power from conventional power plants, no reduction in pollution or price is likely.)
In 2001, the state Legislature devised a plan to pay for the bonds on old polluting power plants by energy deregulation. The price of paying off the bonds would be included in the lower energy prices brought about by competition. This failed not because Enron gamed the system but because the governor and Legislature pulled the plug on deregulation to keep out-of-state energy providers from capturing a larger share of the state electricity market.
The second scheme to pay off the bonds involved creating an energy pricing fever by putting price controls on retail electricity but not on wholesale energy. The goal was to inflate electricity prices so high that all the bonds on old power plants would be paid off by energy providers while customers would have their electricity bills frozen at the old prices. This was what we experienced as the energy crisis with rolling blackouts and skyrocketing electricity prices. This effort failed too because price controls and price bubbles are always bound to fail.
Finally, the old bonds were folded into a $40 billion bond to be paid off by long-term contracts for power. These long-term contracts will be paid off in 2012, the same year that AB 32 – the Green Power law – will kick in.
What we should have learned from the 2001 energy crisis is to be skeptical about any energy policy that promises an energy utopia and is not market based. AB 32 incredibly promises to eventually make green power affordable, reduce air pollution and create new green jobs that will cost less than the new economy it will create (not considering tax credits and subsidies).
Texas oil companies aren’t gaming the state energy pricing system and green power advocates aren’t progressives about to usher in an era of cheap, clean energy without any negative unintended consequences on our economy.
The California Jobs Initiative is less about jobs and more importantly about whether California wants to shift from democratic capitalism to the new emerging “state capitalism” of green power, state-funded stem cell research, infill affordable housing mandates as described in Ian Bremmer’s new book “The End of the Free Market.”
Despite the negative image of Texas oil companies supporting a ballot initiative in California, you might consider a “yes” vote on the California Jobs Initiative as a circuit breaker to prevent a continuation of our financial meltdown.
Wayne Lusvardi served on the California Energy Crisis Task Force of 2001 for the Metropolitan Water District of Southern California. He lives in Pasadena.
