California power crisis could have grave repercussions

By DAVID MOON, Moon Capital Management
January 28, 2001

There is a crisis brewing in California. As troublesome, scary and inconvenient as the California electric power situation is, this looming crisis is potentially much farther reaching. This ramifications of a negative outcome would impact the fiber of our society and the foundation of our democracy. Some of the proposed 'solutions' to the California energy crisis are worse than the problem itself ' and they threaten the security of every American.

Last month, then-Energy Secretary Bill Richardson, ordered the state's power generators to sell electricity to the state's utilities. California state lawmakers are considering a plan under which PG&E and Edison International would 'donate' their California hydroelectric plants to the state in exchange for a state promise to buy power from the two private companies. Governor Gray Davis proposed making it a criminal act for power producers to refuse to provide electricity to California utility companies ' on the state's terms. He signed a law preventing power companies from selling their California plants ' a law that also requires the producers to sell power in California at 'reasonable rates' ' whatever that term means.

Just like the Iraqi government seizing the foreign assets of US oil companies, these are acts of nationalization ' the state taking private assets for the presumed benefit of everyone. If I lived in California and was concerned about a potential rolling power outage, that prospect might sound appealing. After all, what could be more important than electricity?

Private liberty, perhaps?

As much as some people would like to demonize corporate America, corporate America is nothing more than people. The property of PG&E belongs to its shareholders, just as much as those individual shareholders own their refrigerators or clothes. And the danger of a public taking of PG&E property is no less scandalous than if the California National Guard came into the home of every PG&E shareholder and absconded with the property of the governor's choosing.

Of course, it is easy for many people to support such actions for the 'public good.' Most people are not PG&E shareholders. Most people do not own an electric power plant. It is convenient for the majority to support usurping the rights or property of an unseen minority.

But the danger is that everyone is a member of some minority group. If the owners of California power plants are at risk, what about your business? What about your employer's business? Why would anyone strive to create wealth, value and productive assets, if the government ' the people ' could appropriate those assets at will?

Why would anyone build another power plant in California (even if the environmentalists begged them to) if the state could seize the economic value of that plant when it suits them? Why would anyone risk investing any capital in the state, if the potential cost of success was a public taking of that success? These types of public takings depress entrepreneurship and, eventually, societal advances. If the companies (read: the people) who build power plants, invent light bulbs, create software, provide capital and design automobiles are faced with the prospect of losing their investment, why even bother? Are we willing to depend on a government committee to produce the rapid technological advances and efficiencies to which we are accustom?

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Add me to your commentary distribution list.

MCM website