The Natural Resources Defense Council
  & Energy Market Manipulation in California

Copyrights 2003 & 2008 by Mark Vande Pol, all rights reserved.

This article grew out of an acerbic post on freerepublic.com here, and has since been rewritten because of the importance of the topic.

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The research for this article was originally for the California Power Crisis of 2001. The historical background has been added as context since then. The combined length is to use those events to illustrate the mechanics of resource industry racketeering by manipulation of environmental rules and regulations. It discusses who the players were, and shows that this was no isolated incident. It then contrasts their policy preferences with more just and efficient means.

It took four years of independent research for me to understand how this game works and what to do about it. The result was my first book, Natural Process: That Environmental Laws May Serve the Laws of Nature. When I started that work I was in alignment with conventional economic wisdom: “free” trade (in reality heavily subsidized), “harmonization” of regulations, “labor mobility,” etc. I was a subscriber to The Economist and The Christian Science Monitor, and in alignment with every bit of their globalist thinking. In reality, this is a system rigged for big players to use the police power of government to control global markets, particularly by controlling access to natural resources. They hide their profits within tax-exempt "charitable" foundations, using their "donations" to manipulate the academics and activist groups to help put their competitors out of business. The great game is everywhere and it is both hideously complex and absolutely opaque to the average voter.

Hence, the purpose of presenting this example in detail is meant to show the massive scope of this kind of politics and how much it costs you, but please keep in mind: The California Power Crisis of 2001 was but one of thousands of such instances. Neither you nor I have the time nor inclination to follow them all. The scope and depth of this one instance should be sufficient to prove to you that the problem is as rampant and as threatening to your liberty and well-being as I have suggested in both Natural Process and Shemitta.

There is a way out of this mess, but it will be a very long road. While the systemic fix suggested in my patent on a free-market environmental management business method might help, no systemic fix is sufficient without a transforming work of the individual heart. That work begins in churches and synagogues, in families at the dinner table, when you lie down, and when you wake up. . .

Historical Background: Tilting the Playing Field

The supply regulation game is effectively an extension of 17th and 18th Century European mercantilism, an odious imperial system of government-enforced monopolies and restrictions upon colonial manufacturing. The system concentrated production into a very few hands, effectively making the colonists completely dependent upon European capital and equipment, and forced colonists and subjugated peoples to subsist upon resource extraction alone for an income. These companies were no mere collection of stockholders; they were confederations of banks, European nobility, and an army of bureaucratic minions, lawyers, traders, and middle men. In the Western Hemisphere, this grand game of economic tyranny is at least as old as the Dutch West India Company's manipulation of coffee prices by controlling access to the plants. It was the predation of the resulting “swarm of officers” that were a principal grievance for the Revolutionary War.

Understanding that sorry history, the founders of the United States tried to design a government with a key feature intended to frustrate mercantilist intent: the national government wouldn't have the power to control access to resources because it lacked the power to control the use of private property. Such power is too much temptation for the wealthy to purchase corrupt influence by which to suppress everybody else.

The reality turned out rather different. The only concession in the Constitution’s design to the larger, but less populated Southern States was equal representation in the Senate. However, the House of Representatives, with apportionment based upon population, held the power to tax. The Northeastern States were more numerous, being geographically small. They were also populous. So not only did the Northeast region hold the plurality in the Senate, they controlled who had to pay for the operating cost of government.

Initially, the government derived the bulk of its revenue from land sales and protective tariffs. With the addition of each new State, the government had to cede the land as a matter of “equal footing.” Thus land sales became less of an option. The resulting emphasis upon tariffs became ever more onerous and unevenly distributed, with southern States consequently providing some 70% of the operating costs of the government. Here's how:

Congress applied a tariff to manufactured goods from abroad. The Northern States derived protection for their manufactured goods sold to the South which augmented their profits that were reinvested in increased manufacturing capacity. The demand for workers increased the Northern population, and with it regional taxing power in Congress. High prices for American manufactured goods precluded a strong export market. The South on the other hand provided the bulk of foreign exchange by means of cotton sales built on slave labor. They also paid more for manufactured goods, whether in tariff taxes to the government or excess profits to protected Northern suppliers. Thus, it was a mercantilist policy with the Northern States treating the Southern slave States as if they were colonies. Ironic, isn’t it?

The founders’ warnings against this new corporate mercantilism went unheeded,

"I hope we shall take warning from the example (of England –ed) and crush in it's birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws our country." - Thomas Jefferson, taken from a letter to George Logan, Nov. 12th, 1816.

In a mercantilist system, there is no total increase in total monetary wealth without a material basis, usually in precious metals. Accordingly, with the discovery of the great mineral wealth in the West in 1849, the government began the effective giveaway of Western lands, much of it to Eastern moneyed interests (particularly investors in railroads and timber) in order to consolidate the American grip on the central continent. It was the power to sell rights of way in return for cash (both fiscal and political) that also produced the first American industrial aristocracy: the railroad barons, along with a series of giant corporations that relied heavily upon raw material: oil, coal, steel, and timber. It was this collection of interests that consolidated Federal power to regulate corporations, which has since become an internationalist system.

Abraham Lincoln was no stranger to mercantilist government. “Honest Abe" first made his name as a Whig lawyer rigging eminent domain deals for barge companies and railroads in Illinois. Before the Civil War, ALL laws governing corporate behavior were under the exclusive jurisdiction of the several States; the Constitution only applied to the Federal government. What resulted was a balkanized system of competing rules that frustrated interstate commerce much the same way various national rules annoy global corporatism today. On the other hand, the system restrained heavy-handed regulatory behavior on the part of State governments by means of natural law competition between States. The aftermath of the Civil War relieved both those constraints.

Just as in the War for Independence, and the War of 1812 after it, the Civil War left the national government owing vast sums of money to its lenders. What lenders want is a way to leverage their other investments. That involved a consolidation of regulatory power away from the representatives of the people within their States and into the national government. The key was a very sneaky tweak of the Civil Rights Act of 1866 into what became the 14th Amendment citizenship clause.

All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

So, what's wrong with that? In law, human beings are “natural persons.” There are other kinds of persons in law, namely “fictitious persons”; i.e., “corporations.” Corporations are biologically immortal and enjoy limited liability. They are taxed as persons, but not as much as "natural persons." Most importantly, this kind of collectivism can assemble sufficient resources to wield legal power of which few individuals are capable.

Knowing what was at stake, initially the Supreme Court took the first opportunity to deny that the “equal protection” clause was intended to include “fictitious” persons under the 14th Amendment (the 1873 Slaughterhouse Cases). That ruling was overturned 13 years later in Santa Clara v. Southern Pacific Railroad (1886) effectively extending Constitutional, and therefore, Federal control over State law as regarded corporations. This was the case that opened the investment floodgates upon which the modern American industrial aristocracy was built. For insight on this history, see the article on this site Kelo and the 14th Amendment: Exploring a Constitutional Koan, describing the key Supreme Court cases that led to the consolidation of corporate power.

Going Underground: Forming a Team

By the end of the 19th Century, “limited government” had been transformed into a system capable of abetting the concentration of wealth by placing corporations on an equal legal footing with citizens. While at first that may seem only fair as a matter of free association, corporations are immortal, have no family obligations, protect the investor from liability, and pay no inheritance taxes on accumulated capital. A single corporate investor can control a far larger pool of capital than he or she owns directly. Thus “equal protection” denoted an unequal financial footing for large investors, particularly insofar as wielding political and legal power are concerned. Still, the Federal government lacked the power to reduce competition. All that changed at the beginning of the 20th Century.

The “robber barons” of the late 19th Century were exactly that; they possessed the financial power to provide themselves sufficient legal protection to be effectively immune from accountability. The outcry over the damage done to independent business and individuals and the fabulous wealth these investors flouted was the perfect cover to emplace the two instruments that have since empowered government to keep them on top: Federal regulation and the progressive income tax.

The very idea of “Federal government regulations” is an outrage to the original intent of the Constitution (that the people and the courts have accepted it is even worse). The most obvious reason in principle is that to weild regulations entails POWERS beyond the Constitution's "enumerated powers" listed in Article I, Section 8 There are two reasons this consolidation of power is so destructive: First, it effectively eliminated the natural law competition between States specifying regulations that might restrain the behavior of corporations chartered to operate within the respective States. Second (and more important), the Constitution invested ALL legislative power in Congress. “Rules and regulations,” while having the force of law, are not passed by the elected representatives of the people. Instead, it is the executive branch that drafts, enacts, enforces, and adjudicates regulations, which effectively eliminates the checks and balances that were the very purpose of the separation of powers, never mind representative government. Thus, investing the bulk of “administrative law” in the Feds makes corrupting administrative government a matter of one-stop shopping.

How did they get away with it?

To get past those pesky enumerated and separated powers, the players have invoked a deliberate loophole in the original Constitution, meant to enact a body of clearly unconstitutional laws to which our nation as a whole is expected to abide: international law and in particular treaties, most of which are now held at the United Nations. These treaties entail obligations requiring powers that exceed constitutional limits, in other words, the government that agreed to the terms of these treaties did not have the specifically enumerated powers to do so (to learn more about the origins of this massive gambit, please see Patrick Henry Ratified: The Treaty Power, It's Perils and Portents). Treaty law (and not the Constitution) has since been used as authorization for any number of environmental laws, each of which thence has spawned a host of regulations.

The income tax was originally held as unconstitutional because it required a taxpayer to provide information as to what was taxable, effectively institutionalizing self-incrimination. It was Nelson Aldrich, father in law of John D. Rockefeller, who championed the 16^th Amendment in Congress. It was declared ratified (under circumstances still debated today) by Secretary of State Philander Knox (no, I’m not making this up), former attorney for John D. Rockefeller, Andrew Carnegie, J.P. Morgan, and the Vanderbilts. While it might seem puzzling that these corporate titans would volunteer to fund the government, the reality is that the income tax actually favors the extremely rich at the expense of people on the threshold of joining them as competitors. The rich can hide their income as corporate expenses and repackage their more subtle investments in selective regulations (and thus political manipulation) as tax-exempt “charity.”

So it isn't exactly by coincidence or out of guilt that it is the colossal foundations belonging to the same class of industrialists that are making the bulk of the "charitable" donations to packs of ravening lawyers posing as environmental groups. The Environmental Grantmakers Association? That's Rockefeller. The Pew Charitable Trusts? That's Sunoco. W. Alton Jones? That's Citgo Oil. The World Wildlife Fund? British Petroleum and Shell. These are more than investors in energy; their assets include timber, mining, banking, food production… These people aren't fools, so why would they invest their giving in various communist front groups? Socialism consolidates unlimited power in government with zero accounatbility, powers to be wielded principally by the government's creditors (guess who). Democratic socialism merely requires the additional lever of control over mass media corporations. They use the same simple and ancient recipe as did their mercantilist forbears by which to manufacture a predictable return: Kill the competition with regulations, invest elsewhere in broken economies with cheap assets, create shortages to drive up prices, and cash in on the mess buying residual assets at fire-sale prices.

The Rules of the Game

It's a simple process that has accelerated over the last five decades:

1. Foist the necessary treaty law via (primarily American) activist groups. These are "Non-Governmental Organizations" (NGOs) working with environmental agencies (wholly or largely funded by the US government).
2. Get the implementing legislation through Congress.
3. Use lawsuits by those same NGOs in federal courts to alter the meaning of the law.
4. Overwhelm the agencies with government university graduates brainwashed by professors who subsist of government and foundation grants.
5. Establish the regulatory power on the local level to control the decision-making with the cheapest politicians money can buy.

There is minimal concern about natural law competition from other “nations” because the resulting vertically-integrated racketeering system extends over the entire planet. Investors in multinational operations are perfectly happy taking a hit on US operations because their investments abroad get the business while the taxpayer picks up the tab and supplies their children to provide the necessary military protection abroad. They either convert domestic resource land to real estate or mothball it under tax exempt conservancies, Federal monuments, and such, all under the guiding assumption that if we leave Nature alone 'it will take care of itself' (historically, a new idea which has never been true). It's been done in industry after industry: timber, energy, mining, beef, fish, agriculture, real estate development, soon water… ALL taking advantage of economies of scale in environmental compliance and sometimes selective features advantageous to their investments. Tax-exempt foundations buy the necessary supporting research "data", fund a few ideological groups trained by the same professorate that lives off their grant money, and not a word need be breathed to the companies in which they are invested. Instead, their pet executives wail on cue about the regulations and scream how stupid and counterproductive they are. It makes great theater. There is virtually no way of getting caught.

The Star Player on the NRDC Team

If all this seems a touch far-fetched, let’s take a look at a real-world example to show how all this has worked in practice. We’ll focus upon the Natural Resources Defense Council (NRDC), particularly as regards the California Power Crisis of 2001 but touching upon a number of their political and legal escapades.

The California Power Crisis was sold as massive debacle of power shortages and outrageous prices that supposedly began with electrical market “deregulation” in 1996. The real story took decades to develop.

Before “deregulation”, the major suppliers of electrical power were considered to be “natural monopolies,” either publicly owned or heavily-regulated corporations selling electricity to a captive market. In California, operating margins and return on equity were subject to approval by the California Public Utilities Commission (PUC). Originally, the power source had been hydroelectricity from dams predominantly in the Sierra Nevada Mountains. Power was so cheap that few cared how the utilities were managed. As people flocked to California “for the weather,” cheap real estate, (at that time) free public universities, virtually free power and plentiful water started to reach their natural limits. California responded by going nuclear. Enter John Bryson, and the NRDC.

Mr. Bryson has an interesting history. This bright and promising young lad went to Stanford Law School (along with a somewhat enigmatic fellow by the name of Grey Davis) and went on to get his JD at Yale. Not long after graduation, he founded the Natural Resources Defense Council in 1969. Their first great achievement was to take advantage of the bad press of the Three Mile Island nuclear reactor to shut down a similar 980MW Babcock and Wilcox unit at Rancho Seco near Sacramento. It was not much later in 1979 that Governor Jerry Brown took notice of young Bryson and appointed him to head the California Public Utilities Commission (PUC), where he advocated for “renewable energy” production while Gray Davis became Governor Brown’s Chief of Staff (more on him later). Bryson was also appointed to the State Water Resources Control Board, which determines (among other things) how much spring runoff will be available to generate electricity. The less water making electricity, the more demand placed upon other sources in a fixed supply system.

After leaving the PUC, Bryson becomes a partner at Morrison and Foerster, a huge law firm that just so happens to do pro bono cases for the NRDC. After Bryson’s departure, the NRDC went on to “force” local air quality regulators to upgrade existing power plants to natural gas fired equipment, with the utilities effectively expending all their capital for new plants with little marginal increase in productive capacity.

After but two years at Morrison and Foerster (after leaving the PUC), young John joined Southern California Edison, where in but another six years he was elected Chairman and CEO. Now, for twenty points, what is a greenie lawyer who made his name suing power companies doing suddenly running a power company? Is he converting it to more “sustainable” energy? Uh, no, Mr. Bryson continues his antipathy for nuclear power by helping rig Jim Brulte’s deregulation bill, AB 1890 to provide Edison a $2.5 billion wad of cash with which to eventually decommission Edison’s San Onofre Nuclear Power Plant. Meanwhile, Edison “invests” in Mission Energy Inc, building coal-burning power plants in Indonesia “in partnership” with the Asian Development Bank, in part, courtesy of Bill Clinton's US Commerce Department Secretary, Ron Brown and the American taxpayer. In short, “renewable energy” was never Bryson’s objective; his plan for SCE was to make more money on less electricity.

Play Ball!

All through the 1980s and into the 90s Californians complained about the high cost of electrical power. Businesses were leaving the State, or even the country. “Competition” became the political buzzword as the cure-all for high prices. Assembly “moderate” Republican Jim Brulte and Democrat fixer Steve Peace cooked up a “deregulation” bill that passed UNANIMOUSLY (a bad sign right there). It was signed with great fanfare by “moderate” Republican governor Pete Wilson. Under this regime, electricity would be supplied by any number of producers selling the power over existing transmission lines, whether from within the State or without. Prices were to be set by “market forces.” Meanwhile nothing would be said or done about the odious environmental regulations and red tape standing in the way of building new generating capacity, transmission lines, or natural gas pipelines, all of which were maxed out. It was legislation that virtually guaranteed power shortages and high prices.

Electrical power producers spent tens of millions in campaign contributions in support of the bill; Southern California Edison alone pitched in $31 million. While it might seem strange that the people were ready to buy into this plan, there had been a partial precedent by which to make a plausible pitch. The classic example was when President Reagan deregulated oil prices nationally in the early 1980s. The massive profits enjoyed by those with access to existing sources of supply triggered ALL the producers to invest in developing new supply capacity. Besides deregulating prices, Reagan also did what he could to deregulate supply: He eased access to Federal lands for resource extraction and streamlined the environmental review process to speed the increase in production. Once that new production stream came online, prices crashed to below pre-deregulation levels and the operating cash flow propping up the Soviet Union vanished (as Reagan had planned, which is how he won the Cold War without firing a shot (not bad for a “war monger”)). While consumers loved low fuel prices and the economy took off on a sustained boom, late entrants realizing falling prices after chasing an evident bonanza had invested heavily too late with little in return. Sometimes they went broke and were bought for a song.

Electrical power producers in California weren’t thrilled with the prospect of emulating that oil market experience, but there was a way to mitigate the risk. Let’s say that short-term price shocks resulting from a shortage in generating capacity after immediate price deregulation would engender a return on investment return, say, 60% on capital in the first year. It wouldn’t exactly be a catastrophe to the supplier if the return is 20% for five years instead by graduating the price deregulation mechanism and in the mean time they would have the cash flow to finance increasing production. So, did Democrat Governor Gray Davis and the California PUC do that?

Nope. In 1998, Gray Davis ran for governor on the slogan, “Experience money can’t buy,” perhaps because (according to California Common Cause) he had already been bought to the tune of $350,000 in contributions from his old college chum, John Bryson, as CEO of Southern California Edison!

It was Davis who implemented the deregulated “market.” When the resulting power shortages hit, he delivered: he appointed the contract managers who hired the traders. They allowed the prices to spike, locked in long-term contracts at historic highs, and when the people screamed in pain, FINANCED the contracts with bonds (which effectively multiplies the total cost). Why? Were they stupid? Hardly, they had help; they blamed “Enron,” while the municipal Los Angeles Department of Water and Power had been the chief manipulator selling their surplus power for as much as they could get.

Instant Replay, Umpire or Empire?

So, to recap: In markets with relatively fixed demand and a history of supply shortages, what usually happens in an atmosphere of price deregulation is that prices spike when controls are released. The high rate of return attracts investment into increased capacity. As long as there is access to the necessary resources, the price crashes and stays there because capital investment represents fixed capacity. Thus, the hangover after the party isn't so desirable to the producers because the return on fixed capital is lousy after the initial flurry, which is why they call it “sunk cost.”

What suppliers really don’t want after price deregulation is a rapid conclusion to the feeding frenzy. The principal thing restraining early applications for permits to increase capacity after price deregulation is environmental regulation. Anybody who doubts that such constraints remained in place in California after electricity deregulation should look at what happened to CalPine.

Enviro-racketeering is a way of shaking out small competition because of economies of scale in both bureaucracy and legal influence buying. Over the two years subsequent to the power crisis, the State still owed big to the producers. The companies that were having the hardest time getting get paid were the little guys, the small private power producers of hydro, wind, etc. who sell their output to the larger distributors. Now, in California's regulated market, many of these are "green power" sources, by Public Utilities Commission (PUC) regulations get paid at higher than normal producers' rates. While that subsidy may sound bizarre when all one thinks of is electricity, there is an economic rationale for it driven by real estate interests and air quality regulations. Real Estate is the big kahuna in California politics. If a critical air basin fails to meet EPA standards, development is curtailed by the Feds. Development interests are the principal investor sponsors of the Democrats in this State. So, if those green producers go bust, we either have to import the power, do without, or build cleaner plants burning more natural gas. Unfortunately, the pipeline capacity to feed all those new plants did not exist, and there was also an impending natural gas shortage nationally.

Post Game Highlights

So in California, a nifty strategy would be to kill the competition by getting into trouble and then stall in court on paying suppliers. Bigger companies like Edison International (the parent company for Southern California Edison (SCE)) have the advantage of being supported by overseas operations. The little guys go out of business and sell off their assets for a song. The big ones can reorganize and, unless I misunderstand, who gets paid, how much, and when, that all depends upon the bankruptcy judge followed by a lengthy appellate process. Then deregulate only prices during a supply shortage and cash in. The cost of environmental regulations and local NIMBY groups such as TURN and RFKJr.'s buds at Earthjustus will attack anyone with the temerity to build a new plant as Mr. Bryson's associates in the NRDC did decades ago when they helped shut down Rancho Seco. Lock in the long-term contracts at high prices and refinance those contracts with bonds from Wall Street banks...

That is how has been going (post note: Bryson went on to become Secretary of Commerce under Presidenty Barack Obama... and again, the Senate confirmation was unanimous).  There is no other explanation for NRDC founder John Bryson's tenure at Edison, other than perhaps playing the carbon credit market pursuant to that Kyoto treaty we never ratified (although Governor Schwarzenegger and the legislature have since enacted AB 32 to the same end). Still, for those who doubt the tenor of this story, I have a question: Are you really going to believe that people were financing payments on power costing over $1/KWh and nobody was making money? People in Texas were paying $0.08/KWh the same year.

The Game Statistics

So, who are these guys at the NRDC? Well, it’s an interesting list.

Quod erat demonstratum.

Most, if not all of these people making contributions to the NRDC are energy investors. As individuals, they would not possess the financial wherewithal to so completely manipulate a market, finance selectively sufficient misleading or outright fraudulent data, and coordinate the timing of political action, nationwide. Together however, they have the political clout to combine federal money with their own tax-exempt "charitable" donations to fund lawsuits that manipulate access to resources, control processing of energy feed-stocks, and set attainment targets and process specifications in a manner preferential to their investments. ALL of the resulting capital gains in their trusts are tax-exempt. In any other universe, that’s interstate racketeering, fraud, conspiracy, and tax evasion, all of which are federal felonies.

You may be surprised to find the Hewlett and Packard fortunes listed as energy investors, but they gave over $130 million to Stanford to research extraction of methane hydrates from the ocean bottom and are directly tied in with Exxon/Mobil in that effort to the tune of $300 million more. “Keeping it in the family” they've put Lynn Orr, husband of Susan Packard, in charge of the global energy project. The idea is that they can use the energy revenues and the carbon credits for removing a principal source of atmospheric methane, a powerful greenhouse gas. Unfortunately, the cost of marine operations is so high they need “carbon credits” to subsidize it or this will be a big loser of an investment. Curiously, if they disturb those nodules foolishly, they may end up releasing a great deal of methane to the surface which would release the gases into the atmosphere. What happens if they screw up? Can they be sued?

NRDC can’t be sued. Clinton EO 12986 indemnified them from such lawsuits as members in good standing at the IUCN [2021 note: page 51 of this list], the United Nations' equivalent of the EPA. Nobody sued the NRDC for the national cleanup costs of MTBE even though it contaminated drinking water wells. Well it gets worse. Guess who is now making big moves in forcing State control of private and small municipal water supplies now that the groundwater has been poisoned for ten years? Yup, the NRDC.

Using a charitable foundation, to force people by law to use your product, use regulatory power to keep competitors out of the market or force them into selling or go bankrupt, and to protect you from liability for your product in order to reap a guaranteed profit is tax-exempt racketeering, and on a grand scale.

Now, how much of all of this do you think most executives at SUNOCO or Citgo really understand? I’d bet they haven’t a clue until they get to the board level. Bryson on the other hand…

Instant Replay

This NRDC electrical power scam in California was NOT an isolated incident; they’re a national organization having conducted operations in every State dealing with numerous regulatory issues from gasoline, to water resources, and even farming methods. In this case, our precedent for the California Power Crisis is the disastrous addition of methyl tertiary butyl ether (MTBE) to gasoline, supposedly to add oxygen to the burn to complete combustion in which the NRDC had the most pivotal role of any environmental organization.

The addition of oxygenates to gasoline had been considered for a very long time. The EPA ban on lead additives had caused significant problems for engines designed for high octane formulations. The addition of alcohols as oxygenates slowed combustion sufficiently to allow reformulated gasoline to be usable in these engines and reduced the production of carbon monoxide. Improvements in engine design had since eliminated that problem, rendering reformulated gasoline completely unnecessary but the producers kept making it until they were forced to stop. Further, EPA mandated lower production of nitrous oxides and volatile organic compounds that produced brown smog and ozone, respectively. Those problems could be mitigated with the addition of approximately 2.7% oxygen by weight to the gasoline.

The Archer Daniels Midland Company, an agricultural chemicals company, proposed adding grain alcohol to gasoline for the purpose, which would have required a formulation of approximately 7.4% by volume of ethanol. Not to be outdone, the oil companies proposed the addition of MTBE as an ethanol equivalent. A top ARCO executive admitted under oath, “The EPA did not initiate reformulated gasoline....” He clarified that “the oil industry... brought this [MTBE] forward as an alternative to what the EPA had initially proposed” (page 8 of the linked file).

In the 1980s, methyl tertiary butyl ether (MTBE) had long been a byproduct of gasoline production requiring expensive disposal. The oil refiners had been handling the stuff for years. That means measurement of the byproducts of combustion, the materials with which it is incompatible, safe handling procedures, and containment requirements were fully developed and tested in production. I can tell you personally, as a former project engineer in a chemical facility, that documentation of all these attributes is required for construction of any processing plant or process, for obtaining an air quality permit, or for use in a fuel. Every corporation handling such large quantities of hazardous materials has a high-level officer in charge of environmental affairs, usually a vice president. Every permitting authority has a staff of technical experts to evaluate permit applications for potential containment flaws. Even the San Francisco Bay Area Air Quality Management District has PhD level chemical engineers for this review work; the California Air Resources Board (CARB) and the Federal EPA have entire divisions dedicated to analytical review.

I am telling you all that because I want you to fully grasp the institutional awareness that MUST have existed before the catastrophic failure of adding MTBE to gasoline as an oxygenate: It diffuses right through plastic underground fuel tanks at service stations and migrates through soil to contaminate underground water supplies. 

Did the oil companies know? You bet they did.

Apparently the oil companies had experience of MTBE leaking from underground tanks as early as 1981, in Rockaway, NJ. A Shell hydrogeologist testified in the South Lake Tahoe case that he first dealt with an MTBE spill in 1980 in Rockaway, N.J., where seven MTBE plumes were leaking from underground storage tanks (discussion). Now you know why the oil companies demanded to be indemnified against any damages for the addition of oxygenates when the Clean Air Act Amendments of 1990 were passed in a Democrat Congress. George Herbert Walker Bush signed the Clean Air Act Amendments of 1990, claiming to be “the environmental President.”

Environmental racketeering is a two-party system. Mark's First Law of Politics: Nothing big and bad goes on for very long unless both sides are dirty.

Subsequent to Clean Air Act Amendments of 1990, it was David Doniger of the NRDC who was the ONLY representative of an environmental organization at the EPA meetings that approved MTBE as a gasoline additive. 

Unfortunately, there were immediate adverse consequences to adding MTBE to gasoline. Partial combustion of the additive produces formic acid, a known lung irritant. In every instance of adding MTBE to gasoline, asthma cases have skyrocketed. Formulations with MTBE are also far more volatile than the original gasoline, which caused sufficient evaporation to completely offset the reduction in volatile organic compounds in exhaust gases.  Finally, MTBE was incompatible with the fuel systems in many older vehicles, which caused subsequent fuel leaks, engine fires, and deaths. Again, changes in engine design had already rendered reformulated gasoline completely unnecessary in newer cars and trucks. This entire effort was chasing a non-problem while causing a series of environmental mishaps.

Pursuant to the Amendments, EPA required oxygenated gasoline ONLY for the Los Angeles air basin and the Central Valley but authorized voluntary use of reformulated gasoline elsewhere. Accordingly, CARB mandated a formulation of 15% MTBE for the entire State. They were supported by every major environmental group. I am told that it was NRDC lawyer Mary Nichols who presided at the CARB hearings in LA, where CARB mandated reformulated gasoline with 15% MTBE for the entire State. The CARB formulation made ARCO so happy they put Governor Pete Wilson's wife on their board of directors.

Maybe it had something to do with the fact that the addition of oxygenates reduced gas mileage by up to 8%, creating an almost instant shortage in refining capacity for California’s “boutique formulation.” Market shortages can be immensely profitable.

The biggest part of this debacle was the parallel demand by environmental groups (including the NRDC) that the State require gasoline retailers to remove ALL steel underground storage tanks because they were supposedly a threat to leak and replace them with new fiberglass tanks. The justification was that of the 12,000 steel tanks at service stations sampled in California, 48 leaked. Assuming that the average cost of replacing an underground fuel tank is approximately $100,000 (it was often three times that) and that there are approximately 200,000 such tanks in California, the estimated capital cost was about $20 billion dollars, not to mention the amount of money made burning contaminated dirt.

Ladies and gentlemen, that is enough money to send every child in California to college for four years, for free. Instead, you are expected to save for years and go into debt to fund this kind of disaster. Unfortunately, $20 billion is only the tip of the iceberg. The addition of MTBE to gasoline cost everyone in California an extra 30 cents per gallon for ten years. Believe me, a lot of that was profit due to the closed market in refinery capacity. Now, guess how hard it is to build more refinery SUPPLY capacity and why? Now guess who would stand squarely in the way of adding more?

Over 10,000 independent sellers of gasoline went out of business because of the cost of new tanks, thus leaving the major oil companies with a vertically integrated oligopoly. But at least we were safe, right?

Nope. The MTBE leaked right through those tanks, contaminating groundwater statewide. Every one will have to be dug out and replaced, again. Meanwhile, the NRDC has the unmitigated gall to blame the oil companies for the MTBE mess while they use the courts to place ever tighter restrictions on riparian water quality (rivers and lakes). The resulting attainment specification for dissolved nitrate, necessary for aquatic life, are so tight, not even rainwater can pass.

Just keep saving for those college expenses, or you’re a bad parent.

The Recap

So, in reality, there is reason to do everything possible to reform the regulatory environment. Under no circumstances should anyone get away with calling removal of price constraints without removing supply constraints "deregulation," much less a “market.” In fact, we should restructure the demand side of the market BEFORE price deregulation. The difference means more to customers and the State than just power.

Let's say I run a welding business. Electrical power is my life-blood. If the business dies, so do the jobs and so does the tax revenue to the State. I might be able to survive a 20% increase for five years, where a 60% change for one year would kill me. If I know that the prices will hold 20% higher for five years, I might be able buy new equipment that reduces that consumption. If they jump 60%, I won't be able to afford that equipment because I will be broke (no one would loan me money to buy it on that reduced cash flow). So to transition to deregulation on a schedule is good for both suppliers and customers, not to mention the taxpayers they employ. One would think the State cared about having more taxpayers.

So, did anybody do anything about the NRDC? Did anybody hold them accountable?

No, instead we put them in charge. Upon the recall of Governor Gray Davis, the people of California rejected the small-government conservative (Tom McClintock) and elected "moderate Republican" Arnold Schwarzenegger, in part, on the strength of his fraudulent environmental plan. That plan was written by Bonnie Reiss and Robert F. Kennedy Jr., both lawyers for the Natural Resources Defense Council.

Yup, we threw out the "incompetent" Gray Davis and hired Arnold, a grandstanding poseur working for the same people.

So, unlike many environmentalists, I advocate easing regulatory restrictions on electrical supply. I advocate eliminating new source review on upgrades. I advocate extension of existing permits for plants that were to be built until Gray Davis' henchmen took control. I want those permits to be transferable if necessary. I advocate negotiation of intermediate term contracts for terms of two to five years, and reining in CARB as necessary to back off on stiffer air quality controls if they are not mandated by the federal EPA. I would also like to investigate the role MTBE has played in asthma rates to see if eliminating that alone might reduce the need for more stringent attainment standards.

Why? So the State can afford to deal with real environmental problems.

I also suggest aggressively installing the infrastructure so that customers of a future power market can modify their consumption patterns to advantage during peak hours: time of day metering and time of day controls on major electrical appliances (such as electric water heaters and air conditioners). That will reduce the need for peak supply capacity that requires new plant construction. Both those actions buy the time needed to construct both supply and delivery infrastructure, but you know who will stand firmly in the way unless we charge these thugs at the NRDC with racketeering, fraud, manipulation, and tax evasion, and send them to jail. That means hiring an Attorney General who isn't a shill for the same crowd. That means getting rid of Jerry Brown.

Conclusion

This problem with electrical energy is but one of many markets infested with the NRDC, which is involved in everything from water to "air quality." Hopefully, the scope and depth of this story has convinced you that the problem is systemic. The NRDC is but one of many such hired guns for the foundations playing the great mercantilist game. So to start, just remember: "We" asked for this.

We asked for this when we invested in government the power to regulate instead of holding our judges and representatives accountable. We asked for this when we demanded collective and coercive powers over private property. We created the demand when we did not realize that failure to pay our brethren for the environmental services we were demanding is what led them to race to the bottom. We did this to ourselves when we did not seek means to verify the truth, instead of allowing the media to herd us around like frightened lemmings. We did this to ourselves when we bought into the idea of compulsory government education. We did this to ourselves when we instituted an income tax that violated once almost-sacred standards of individual privacy. We did this to ourselves when we instituted regulatory power. We did this to ourselves when we instituted the legislative power to define tax-exemption in a system of laws supposedly delivering "equal protection." We did this to ourselves when we forced insurers to charge the same price for coverage without regard to customer behavior.

In short, this problem started when we began hiring bureaucrats and police to force others to do our collective will, instead of forcing our representatives to abide by the principles to which we supposedly ascribe: limited government, unalienable rights, private property, and free enterprise, all operating under a system of simple laws adjudicated by courts with fully empowered and competent juries. It is only when we stop meddling with families and take the reins of our government while simultaneously respecting its limits that this mess will truly begin to change. It starts in the individual heart, hearing the limits we were given on Mount Sinai, and learning to see them in the faces of our brothers and sisters. It is only then that we can stop wasting the vast bulk of our work in trying to control each other. It starts in the heart, which hears from the mind. So if this message has meant anything to you, I ask that you teach it.

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