Henri Reynard Speaks Out

Piece of Cake

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"Let them eat cake", is a quote that could describe the FERC position on California's current crisis, which is one of energy costs and not supply at all in these waning days of winter and early spring. There is a more than adequate supply of electrical energy available in California and in the rest of the west to meet demand until the heat of summer attacks everyone. This administration is supporting the quaint idea that if there is enough cake to go around everyone should be happy even if the bread supply is controlled by a monopoly and the price of bread is therefore five times higher than the cost of production and delivery combined. Let's examine the "cake" and see if it is spoiled enough to ruin this strategy for draining dollars out of the general population.

There are three major costs that define the quality of life in America by determining how much discretionary income people will have left at the end of each month. It is the discretionary income in households that define whether the economy is roaring along as it was in the 1990's or limping along as it is today. The big three are taxes, interest, and utilities. Our country is blessed with ample food production and a reasonable water supply so food and water, which are a part of this equation in most nations, seldom bear mention here. Utilities are largely energy sources if you exclude water from the picture. Increases in utilities prices to consumers are equally as important as taxes to the household budget in America, and rank only slightly lower in cost than interest on the home that we all desire and a few of us own. Gasoline is a fuel seldom included in the utility picture, but transportation is so important that we will include it here by implication.

No one in this country can prosper by living without a home, which means interest payments are a part of their budget, far more than half of their monthly payment for their home or apartment. Even renters cannot escape because our entire housing market is driven by the cost of interest. Interest rates are high today compared to the 1950's and early 1960's and they are likely to remain high. Costs of taxes are also high today but they provide us with a fund that is in control of our representatives and reflects our national will at least to some extent. The amount of the average household's budget devoted to paying for public utilities has risen inordinately during the last two years not only in California, but also across the nation. These facts are now depressing our economy. The DOT COM debacle pales in comparison. The question is how will we divide the cake. You remember the cake we are supposed to eat because the bread is now too expensive.

If the portion of the cake devoted to energy supplies, which are an essential requirement of every household, goes up the amount left in the hands of the average citizen is smaller. If the amount of cake devoted to interest rates goes down this may compensate to some degree but it is unlikely to equal the increases that we are experiencing today in energy (utility) costs. If the amount of cake devoted to taxes goes down at the same time it may help, but it will still not defray the total rise in utility costs. So the amount of cake left in the family discretionary fund is inevitably smaller. This means a slower economy or even a shrinking economy due to the fear and uncertainty that results from these changes in how money is flowing through our economy. The true question here is how to keep this nation prosperous while fairly compensating the energy companies for their investment and risk.

We had a system for the last seventy years based on the quaint idea that utilities are a special case because they provide an essential commodity to households that are captive customers of their local supplier. We regulated them and they were guaranteed profits. That was after the last failure of deregulation, which resulted in massive losses in the stock market and other economic disasters. Disasters caused by fluctuating prices that added significantly to the impact of the great depression if in fact they were not the primary cause of that period of economic malaise. We have dismantled that system of regulation, welcome to the free market for energy. A market where the electricity producers now have all of the power, and will sell it to you at their fixed price. The cake is shrinking, folks and the bread is costing more because of the energy it takes to bake it. It looks to me like the revolting truth is we are led by venal fools who cannot see the storm they are creating even though it is clearly visible to even such a poor student of history as I. Lead on small w, lead on. Your place in history is assured alongside Herbert Hoover's and what was her name? Marie, I believe, Antoinette I presume. Whatever happened to her anyway, and that little guy that liked those fancy chairs?