A Yes Vote Is No on Repeat of California Energy Crisis

The voters are in a “NO” mood – “just vote no on everything.” But coming up on the November California ballot is an initiative that proposes to suspend Assembly Bill 32– where voting YES is actually voting NO on the legislature’s infamous Global Warming Solutions Act.

Not only does this initiative stand little chance of passing due to this confusion but because it is, unfortunately, being backed by large Texas oil companies – a sort of kiss of death. This would be sort of like asking Californians to root for Texas in the Rose Bowl against USC or Stanford.

AB 32 requires the gradual process of increasing the amount of clean green power from 10% to about 30%, or higher, beginning in 2012.

The supporters of this initiative, called the California Jobs Initiative, want to suspend the provisions of AB 32 until the unemployment rate drops to 5.5% or below for four consecutive quarters. Link:

http://ballotpedia.org/wiki/index.php/California_Jobs_Initiative,_the_Suspension_of_AB_32_(2010)

Already a campaign has started called Californians for Clean Energy and Jobs that opposes the initiative and is backed by unions, environmental organizations, green energy companies, health care organizations, and a number of liberal organizations such as the NAACP, AARP, and liberal religious organizations. Their website has a silhouette of a polluting oil refinery with the words “STOP Texas oil companies” on it, sure to galvanize suspicious liberal Californians into voting no on initiative. They claim that creating green power will create more jobs than it will cost.

The proponents of this initiative claim that AB 32 is a jobs killer that has caused many businesses to leave California especially during a prolonged economic downturn. But their opponents may have already stolen the jobs issue away from the them by continuing to create jobs in the solar, wind power and clean technology industries and by pointing to dirty air at Los Angeles’ and Long Beach’s ports. The proponents have nothing visible to point to except possibly the persistent unemployment rate.

One of the few things this initiative may have going for it with independent voters is that “global warming” has recently been discredited scientifically by the scandal involving the disclosure of emails from East Anglia University in England.

But like most initiatives, the media stories and spin that both sides put to an initiative rarely have much to do with the real implications of voting for or against the measure. Both sides are self-serving and highly selective in their arguments. What the California Jobs Initiative is all about is a tug-of-war between two factions both of which want to steal jobs from the other. We need to look deeper and think a second time about whether a YES or a NO vote is the most wise. To do this we need to tune out the media spin by both sides. And we need to learn the lessons of the California Energy Crisis of 2001, the Real Estate Bubble from 2003 to 2008, and the 2008 meltdown of our financial system.

Like “affordable housing” that broke our national banking system, “green power” is a laudable goal. But what are the long-term consequences? No one thought several years ago that the pursuit of the American Dream of home ownership and laws against home loan red lining would melt down our entire financial system. In 1977, no one thought that the Community Reinvestment Act would end up bankrupting the banking system. In 1977, the Eagles came out with their song “Hotel California.”

In 2008, sub prime loans comprised 16% of all U.S. mortgages. By 2012, AB 32 – the Global Warming Solutions Act – will mandate shifting 30% of our electricity use to Green Power.

California under AB 32 has already contaminated the energy industry with toxic green power investments financed by government tax write offs and subsidies which are tantamount to sub prime loans in the housing and banking industries. The unintended, but foreseeable, consequence of putting two good things together – Green Power and choice of energy supplier via the recent defeat of Prop 16 is likely to result in greater competition in energy markets. But it will be competition for higher priced Green Power, not competition for the lowest priced electricity as occurs in true energy markets. The institutional incentives for Green Power are to produce higher priced energy than conventional sources of energy. This is called inflation (AKA, a bubble).

All of us want energy competition and clean skies. But life is full of trade offs where we can’t have both of what we want – in marriage, in our jobs, in politics, in war, or in our energy policies.

We need to remember the lessons of the California Electricity Crisis of 2001 before flipping the switch for AB 32 and Green Power. The California Energy Crisis was started in 1996 by the Federal EPA mandating that California clean up its air pollution or Federal highway and school funds would be cut off by 2001. So we weren’t running out of electricity in 2001, we were running out of clear skies. In 2001, the only way to comply with the Federal EPA was to shut down old polluting power plants of PG&E, Edison and SDG&E (the electric monopolies) along the coastline. But the bonds (mortgages) on these mothballed power plants weren’t paid off.

The State legislature devised a scheme to shut down old dirty power plants and pay for the bonds by energy deregulation. The price of paying off the bonds would be included in the lower energy prices. This failed not because some Texas energy company called Enron gamed the system but because there was a political sea change that pulled the rug out from under 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 caps 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. This Democratic Party backed effort failed too because price caps and price bubbles are always bound to fail.

Finally, the old bonds (stranded debts) were folded into a $40 billion bond to be paid off by long term contracts for power at higher prices than could be found in the spot market. These long-term contracts will be paid off in 2012 – the same year that AB 32 – the Green Power law – will kick in.

The moral of the story is be careful what you wish for when you think that cleaning the air can be easily mandated. Be careful with the notion that deregulation and competition can lead to lower electricity prices while paying off old debts at the same time. Be cautious about the ability of Green Power to eventually become affordable and clean up California’s urban air pollution and provide jobs at the same time.

Learning the lessons of past attempts at tinkering with the electricity market in California is imperative before voting on whether to suspend or not suspend a shift to Green Power in California. California needs a citizen circuit breaker on AB 32 – the Green Power law — just as the U.S. needed a check on social lending for affordable housing before the crash of 2008.

Texas oil companies aren’t Texas Rangers wearing white hats and Green Power advocates aren’t progressives about to usher in an era of cheap, clean energy without any negative consequences on our economy. However you vote don’t vote on images. Despite the negative image of Texas oil companies supporting a ballot initiative in California, the apparent safest and wisest choice is to vote YES on the California Jobs Initiative on the November ballot.

Note: The author served on the California Energy Crisis Task Force of 2001 for the Metropolitan Water District of Southern California.