Energy in the Executive: How to get power to the people

National Review, Jan 22, 2001 by John Derbyshire

We can congratulate ourselves on our good luck in having survived eight years without any national energy policy. The principal events in Bill Clinton's custodianship of the nation's energy have been as follows: the failure to get the job-killing "BTU tax" through Congress in 1993, the failure to foist ethanol on a reluctant public in 1994, the throwing open of nuclear-weapons labs to Chinese military intelligence, and the release of 30 million barrels of crude oil from the Strategic Petroleum Reserve last fall.

Only the first of these was a matter of actual policy. The others were aspects of those activities that dominated federal decision-making during the Clinton years: campaigning and fundraising. The ethanol fiasco-Clinton's 1994 executive mandate was ultimately struck down by the federal courts-was driven by the need to appease the farm lobby and major campaign contributor Archer Daniels Midland. The collapse of security at Energy Department labs was made possible by New Class disdain for national-security concerns, but it was also linked to Clinton's pro-Beijing policies and his fundraising approaches to Chinese and overseas-Chinese donors. (The precise nature of the links is exposed in Bill Gertz's recent book, The China Threat.) The September 2000 releases from the Strategic Reserve were not in response to any national emergency-the purpose for which the Reserve was established-but rather to assist Al Gore's presidential campaign.

George W. Bush has named former Michigan senator Spencer Abraham his energy secretary. With serious people like Bush and Abraham now in charge, it is reasonable to hope that we shall at last have an energy policy; but what should a conservative energy policy look like?

Libertarians would no doubt say that it should not look like anything: Energy is a commodity, like potatoes, so let the market take care of it. There is something to be said for this approach. The current electricity crisis in California, for example, has been caused mainly by a half-hearted deregulation of that state's electricity industry-in which wholesale electricity prices (charged by generators like Enron Corporation to local utilities) were deregulated, while retail prices (charged by utilities like Southern California Edison to consumers) remained under state control. This seemed like a good idea to the utilities when they signed on to it in 1996, with wholesale prices low and falling. But four years later, a combination of weather problems and restraints on supply imposed by California's powerful environmental lobbies sent wholesale prices through the roof, and the utilities discovered how shortsighted their calculations had been. At one point last fall, their wholesale suppliers were demanding $1,200 per megawatt-hour-while their consumers (and soon, of course, those consumers' representatives in the state legislature) were expressing fierce resistance to retail prices any higher than $65 per megawatt- hour.

But while energy perhaps should be left to the markets, the extremely political nature of energy generation and distribution ensures that, at present, it cannot be. In a free market, energy supply matches itself to energy demand-but in the U.S. today, this can't happen. As the case of California illustrates, public attitudes to electricity pricing are still dominated by Santa Claus economics and environmentalist zealotry. When it comes to fossil-fuel products-gasoline, heating oil-it can't happen for the further reason that most (57 percent) of our oil comes from other countries, and its supply and pricing are therefore tangled up with issues of foreign policy and national defense. (It is not widely known, for example, that 8 percent of our oil currently comes from Iraq, a nation on which we still occasionally drop bombs.)

The new administration, then, will have no choice but to involve itself in energy policy. What should be the direction of that involvement?

A Republican administration should, to begin with, oppose all efforts by legislatures-both state and federal-to hide the realities of electricity pricing from consumers by regulation and market-rigging. It is quite understandable that people do not want to see big new power stations erected in their neighborhoods. It is equally understandable that people do not want to pay high prices for electricity. The two things are, however, connected in a rather obvious way. Environmentalist squeamishness carries a cost, and this cost should be brought to the attention of consumers. If they persist in their NIMBY attitudes, they are then at least doing so rationally, with full understanding of the economic realities.

In fossil-fuel management, we should make the most of our domestic resources. This certainly involves access to the deposits in Alaska's Arctic National Wildlife Refuge, which could provide a peak output of 800,000 barrels a day-10 percent of current U.S. production. Bush indicated in the campaign debates that he will support opening the area to drilling; Secy. Abraham should follow through on this commitment.