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A Lesson On Government Shutdowns

October 16, 2013

The inside story of Democrat Gray Davis’s tenure as Governor of California when Enron was manipulating energy pricing, leading to the Western Energy Crisis of 2000-1, is instructive with respect to the current U.S. government shutdown.

To provide background to this, see this from Wikipedia’s summary:

The California electricity crisis, also known as the Western U.S. Energy Crisis of 2000 and 2001, was a situation in which the state of California had a shortage of electricity supply caused by market manipulations, illegal[5] shutdowns of pipelines by the Texas energy consortium Enron, and capped retail electricity prices.[6] The state suffered from multiple large-scale blackouts, one of the state’s largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis‘s standing.

Drought, delays in approval of new power plants,[7] and market manipulation decreased supply. This caused an 800% increase in wholesale prices from April 2000 to December 2000.[8] In addition, rolling blackouts adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers.

California had an installed generating capacity of 45GW. At the time of the blackouts, demand was 28GW. A demand supply gap was created by energy companies, mainly Enron, to create an artificial shortage. Energy traders took power plants offline for maintenance in days of peak demand to increase the price.[9][10] Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value. Because the state government had a cap on retail electricity charges, this market manipulation squeezed the industry’s revenue margins, causing the bankruptcy of Pacific Gas and Electric Company (PG&E) and near bankruptcy of Southern California Edison in early 2001.[11]

The financial crisis was possible because of partial deregulation legislation instituted in 1996 by the California Legislature (AB 1890) and Governor Pete Wilson. Enron took advantage of this deregulation and was involved in economic withholding and inflated price bidding in California’s spot markets.[12]

The crisis cost between $40 to $45 billion.[13]

Prior to this costly scandal, which led to Davis’ recall election and Republican Arnold Schwarzenegger’s special election win to replace Davis, Davis was actually being touted as a possible presidential candidate.

Davis’ political aspirations play a central role in the story as it unfolded.

Davis, like Obama now, was confronted by extortionate moves by, in his case, Enron, that had close ties with the Republican Party and George W. Bush in particular. The outrage, cost, and distress over this energy crisis led to Davis to shoulder the blame and not only destroy his chances to become president, but left him a disgraced governor ushered from office prematurely by recall.

In the excellent film “Enron: the Smartest Guys in the Room” that details the manipulation of energy prices in California and nationally, there is an outtake segment that you will find on the DVD that did not make it into the main film. A former aide to Davis explains in this segment that she tried to persuade Davis during the power crisis that he should take over a power plant using his power as governor to ensure the continued flow of requisite electricity to the state. Davis refused to do this because he had presidential ambitions and to have confronted Enron this way also meant that he would be taking on Wall Street bankers because Enron was Wall Street’s darling at that time.

Davis did not want to antagonize Wall Street because he knew that if he was going to run for the presidency that he would need Wall Street’s support. So he did nothing and instead of acting on behalf of the state’s population and thereby calling out Enron as the bad guys, he instead took the blame and saw his political career end ignominiously.

His replacement by Schwarzenegger was ironic because Schwarzenegger’s campaign manager was none other than Gov. Pete Wilson. Wilson, as Mayor of San Diego before becoming California Governor, was part of the brain trust of brilliant “marketers” whose idea was to privatize power on the supposed grounds that this would produce savings for customers.

There is a reason why utilities prior to this simply brilliant idea were/are regulated monopolies: because they provide indispensable services and if they aren’t regulated then energy extortion can be carried out, as Enron so famously demonstrated.

So what does this have to do with the current U.S. government shutdown?

The Democrats are susceptible to GOP strong-arming and will not call them out for that and go over their heads as needed in the public’s interests because they are in collusion – even while they clash at times – with their brethren across the aisle. The public gets gored in the process.

As I have been writing about this scandal, what we are witnessing is a kind of rolling coup in which a tiny handful of public officials, secure in their carefully gerrymandered “Tea Party/Evangelical” House districts against ouster, can set public policy’s overall course, even though they are extremely and increasingly unpopular in the country as a whole. They are hell-bent on this path and will not stop.

Pay attention to the “grand compromise,” or whatever it ends up being called, that will result from this as Obama fails to override this relative handful of reactionaries and invoke his powers under the 14th Amendment to allow the government to pay its debts. The ground is being prepared for extraordinary steps to be taken to “rescue” the Republic from this (induced) crisis. (See, for example, as part of this overall atmosphere, the moves for impeachment hearings against Obama by House Republicans and their talk about “Obama put down the Quran.”)

It’s the Shock Doctrine brought home to the U.S.

We have no interest in siding with either major party in this fight but have a huge responsibility to bring to people’s attention what is really afoot and where our real interests lie.


About the author: Dennis Loo is Professor of Sociology at California State Polytechnic University, Pomona. He is a Harvard honors graduate in Government and received his Ph.D. from the University of California, Santa Cruz. He is the author of “Globalization and the Demolition of Society” and Co-Editor/Author of “Impeach the President: the Case Against Bush and Cheney”.Website: Dr. Dennis Loo


4 Responses to A Lesson On Government Shutdowns

  1. jamese on October 19, 2013 at 7:40 pm

    Wherever regulations are lax and no one is watching out for the People, the People will get the shaft. The Enron crew were such crooks and actually, quite unpatriotic in real terms. The Supreme Court put the friend of Enron’s CEO and loser of the election into the Executive Office. We should never forget what a sham it all was.

  2. SteveH on October 19, 2013 at 4:56 pm

    We need a revised constitution; revised voting laws, and a new class of politicians who are better educated, more diverse, and not such ideologues. OK, so that wish will never come true! The Senate rules need to be changed ASAP. How undemocratic can a body be? Most of the democratic thinkers around the world regard our Senate rules (many of them, at least) as absurd and anti democracy.

  3. tomp on October 19, 2013 at 4:29 pm

    The Enron case is a perfect example of what good capitalists will do to their fellow citizens. There is no sense of loyalty to country and no code of morality that trumps their cupidity and narcissism.

  4. E.Brock on October 18, 2013 at 10:42 pm

    Well, amazingly, Boehner and the handful of sane Republicans in the House obeyed their masters on Wall Street. Sadly, the Tea Party is not going away and as Ted Cruz has made clear, neither is his horrible attitude. You’re right, it is a kind of coup. It failed only in the short term since Obama will be making big concession no doubt to keep the House maniacs in check.

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