Ripping off California?

Posted: Jun 03, 2001 12:00 AM
Whatever happened to the presumption of innocence? California Attorney General Bill Lockyer apparently missed that lesson in law school. As Californians face rolling blackouts in the grip of their so-called energy crisis, the state's top politicians busy themselves with finger-pointing. For example, Governor Gray Davis blames "price-gougers," and just filed suit against the Federal Energy Regulatory Commission for refusing to cap rates. "If you're looking for a culprit, I'll give you a culprit," Davis said, "The culprit is the Federal Energy Regulatory Commission. They've consistently turned a deaf ear to my pleas ... the pleas of the governors and representatives of Oregon and Washington. So if there is a villain, it is clearly the Federal Energy Regulatory Commission." But the there-is-such-a-thing-as-a-free-lunch prize goes to California Attorney General Bill Lockyer. Lockyer launched a withering attack on "economic buccaneers" -- also known as energy wholesalers. Enron Corporation, a Texas-based energy wholesaler, operates some power plants in California. About its alleged "price-gouging" CEO Kenneth Lay, California's top law enforcement officer said, "I would love to personally escort Lay to an 8 by 10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'" Hold the phone. Care to put up or shut up, Mr. Attorney General? See, in America, law enforcement officers generally refrain from publicly declaring guilt, at least until a few procedural things take place, such as charges, trial, and then conviction. For the state's top cop to publicly accuse a CEO of felonies and to do so without charges quite simply smacks of McCarthy-ism. Suppose Attorney General John Ashcroft, before Timothy McVeigh's conviction, publicly stated, "I would love to personally escort Timothy McVeigh to an 8 by 10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'" Before you could say "Innocent until proven guilty," the ACLU would jump up and down and quite properly accuse Ashcroft of compromising McVeigh's rights. Then the American Bar Association would condemn the statement, "What about his right to a fair trial? The accusatory remark taints the potential jury pool!" The Association of Trial Lawyers of America would go ballistic, calling Ashcroft "the equivalent of a modern-day Gestapo." When four New York cops shot Amadou Diallo as he reached for his wallet, then First Lady Hillary Rodham Clinton pronounced the officers "murderers." But she apologized, acknowledging the inappropriateness of her remarks, since the jury had not yet spoken. Not only do accusations of "economic buccaneering" unfairly malign business people, the charge, if sincere, demonstrates a stunning ignorance of Economics 101. Under California's flawed "deregulation" scheme, the state legislature unanimously voted to unfreeze wholesale prices while capping retail prices. Demand for energy increased in a state where environmentalists successfully stopped, delayed, or increased the cost of additional power plants. Wholesale prices skyrocketed with utility companies, given the retail price cap, unable to pass along its cost in the form of higher prices. Polls show Californians are more willing to face "rolling blackouts" than increased prices. So the governor, therefore, scapegoats wholesale energy suppliers. After all, less than a year-and-a-half ago, the wholesale price per megawatt-hour was $32, and now the price stands at $278. Consider this. A trial lawyers' association gathers to celebrate their outstanding year. An asteroid, God forbid, appears and smashes into the hotel hosting the event. Only two law firms fail to attend the event: the firm of Lovem, Likem & Howe, and the firm of Dewey, Cheatum & Steal. Business now explodes as these two firms become the only game in town. Now both firms run full-tilt, given the increased demand for their services. But Lovem, Likem & Howe fails to raise prices. After all, why "gouge" their beloved customers? Dewey, Cheatum & Steal feels no compunction, and triples fees. Dewey, Cheatum & Steal, flush with money, now pays more for advertising, spends more to upgrade its offices, pays its associates more, and hires a headhunter to steal Lovem, Likem & Howe's associates and staff by offering more money and spiffier perks. But Lovem, Likem & Howe rides out the storm. Out-of-town lawyers, and newly minted ones from state law schools enter the market. Prices fall. But Dewey, Cheatum & Steal, still brimming with money from the good times, reduces its fees under Lovem, Likem & Howe's. Now, the beloved clients face a dilemma: Stay with Lovem, Likem & Howe and pay higher fees, or jump ship, reduce costs, and please their bosses. Moral to the story: Don't confuse a business and a charity. A CEO has a fiduciary responsibility to legally maximize shareholder return on equity. If he doesn't, the competition will. So, to Governor Davis, let's say it one more time, "There ain't no such thing as a free lunch." Even some tattooed dude named Spike knows that.