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In early 2001, like in many third world countries, the power was going out due to mandatory rolling blackouts. What had happened was that after years of failing to build new power generating plants, the demand exceeded available supply and the lights started going out in California.
To assure a steady supply of power, Governor Gray Davis negotiated and signed long-term contracts with power companies to lock in both supply and price. Unfortunately for California, Governor Davis locked in at what turned out to be record prices, costing the state billions of dollars.
Now the Governor is seeking to have Federal Energy Commission (FERC) overturn those contracts on the basis that those long-term agreements were negotiated under duress and are therefore not valid.
The facts, however, tell a different story. After mismanaging the California power situation, Davis was eager to lock in the needed power, regardless of price. At the time he said these contracts were “the bedrock of a long-term energy solution,” hardly the words of an upset customer. As long as the market price of electricity remained high, Davis was willing to tout his brilliance as a “tough” negotiator who landed a good deal for California.
But now that the electricity price dropped, he wants out.
He misses the key point that a deal is a deal, period. Had the market price of power continued to climb, would Governor Davis have allowed the power companies to cancel the deal? I think not.
In the future, power companies will be reluctant to accept any agreement from Davis because any adjustments will be only one way: his way. The Sempra Energy company invested over one billion dollars in a new power plant to serve California after signing a long-term contract with California. Now, that contract may be torn up.
In third world dictatorships, businesses expect governments to arbitrarily void and change agreements, but not in the U.S. The result of canceling long-term contracts will be power companies hesitating and even refusing to supply California with power, making the next energy crisis worse and turning out more of California’s lights.
Steve Marr is the former CEO of the fourth largest import-export firm in the U.S., a company which facilitated international trade for many of the largest companies in America. Currently, Steve consults with with businesses and ministries utilizing ancient Biblical principles for success in today’s marketplace. Click here to contact Steve, or visit his website at www.businessproverbs.com.
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