- The Washington Times - Sunday, June 17, 2001

If you liked "Alice in Wonderland," you will love a recorded telephone conversation between a California official and an electricity supplier. The state was on the verge of having another blackout and needed more electricity immediately. But the electricity supplier was well aware that California owed many billions of dollars to many people and he didnt intend to become another one.

"You need to get somebody that has the authority to tell me how I´m going to get paid," the supplier said.

A few minutes later, the California official came back with his reply: "OK, I can´t give you that right now. That will have to wait until tomorrow."

"No, I need that now," the electricity supplier said. "That´s unacceptable," the California bureaucrat declared.

Another power supplier cut off electricity to California until the check that was supposedly in the mail actually arrived. This supplier was already owed $307 million. A couple of hours later, the state wired them the money and the power was turned back on.

Meanwhile, California´s Gov. Gray Davis was unveiling one of his many schemes for dealing with the electricity crisis. According to the governor, creditors should accept 70 cents on the dollar as full payment from Southern California Edison. One of these creditors pointed out that 67 cents out of every dollar they receive goes just to pay for the fuel that produces the electricity. That would leave 3 cents to pay all their employees and maintain their facilities never mind such Utopian hopes as building new generating capacity.

Hardly a day goes by without Mr. Davis accusing somebody of "greed" or "price gouging," sometimes accompanied by threats to use the state´s power of eminent domain to seize power plants. It is not just businesses at whom the governor hurls these accusations and threats. He has similarly denounced municipal authorities in Los Angeles and other communities which generate enough electricity to sell some of it to the state.

Apparently it is "greed" to want to get paid 100 cents on the dollar when someone owes you money. But welshing on your debts or threatening to seize someone else´s property is not regarded as "greed" at least not in politics.

"Price gouging" is an even more nebulous concept, especially when it comes to electricity. Politicians who are demanding "price caps" or "cost-based prices" imposed by the federal government ignore the crucial fact that the cost of generating electricity varies all over the map, depending on when you generate it. It can cost 100 times as much to generate the electricity to run a dishwasher at one hour than at another. For example, when everybody wants electricity at the same time, expensive stand-by equipment may have to be used to generate it at far higher costs than usual.

Mr. Davis´ constant threats to sue suppliers, confiscate property or welsh on what the state already owes drives the price of electricity even higher, by making it a risky deal for power companies to sell electricity to California. Why let yourself in for all these hassles, when you can sell the same electricity to some other state and get paid hard cash with no fuss?

Duke Energy Inc. has admitted that it has added a "risk premium" to the prices it charges California for electricity. This is nothing new. People with bad credit often have to pay higher prices. Yet the San Francisco Chronicle ran this story under the headline, "Duke admits overcharging utilities."

Meanwhile, an Atlanta power company that has gotten approval to build a power plant in California is now hesitating to do so. Threatening talk by Mr. Davis and other California politicians makes Mirant Corp. skittish about sinking $250 million into building more electricity-generating capacity in a state where there is a question whether they will be allowed to make any money and where the whole investment itself is threatened by political mau-mauing.

Virtually everything that Gov. Davis has said and done has made it harder for California to get more electricity. But his constant propaganda barrages have succeeded in getting both the public and the media to shift their attention from electricity to prices. However, only electricity can stop blackouts. Price caps are not electricity. Accusations and threats are not electricity. But these tactics may well enable the ubiquitous governor to fool enough people to get re-elected next year.

Thomas Sowell is a nationally syndicated columnist.

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