MOORLACH UPDATE — PSPS Opening Remarks — November 30, 2019

Public Safety Power Shutoffs

I serve on the Senate Select Committee on the Governor’s 2019 Report: Wildfires and Climate Change – California’s Energy Future, where I worked diligently on issues regarding utility caused wildfires and where my fellow Senators and I established protocols for reserve funds to address investor owned utility reimbursements for future wildfire victims.

I serve on the Senate Insurance Committee, where I worked on issues concerning Wildland Urban Interface (WUI) coverage.

In addition, I also serve as Vice Chair of the Senate Energy, Utilities and Communications Committee.  We met this month to address the new normal of Public Safety Power Shutoffs. My opening remarks are provided below with some minor clarifying edits (see MOORLACH UPDATE — PSPS and Cities 241 to 288 — November 19, 2019):


Mr. Chairman, I’ve been here before. But, in 2001 we called them brown-outs.  Orange County paid lower rates, but had to incur temporary outages when demand exceeded supply. 

They were a result of state deregulation of the energy market, prohibiting natural gas acquisition in the futures market, watching utilities be manipulated in the spot market, and observing Gov. Davis, who turned a problem into a mess. 

Sacramento made massive energy loans. SCE was downgraded. PG&E filed for Ch. 11 bankruptcy. And within a few months, Gov. Davis found himself being the 2nd sitting Governor in U.S. history to be recalled. 

In the middle of the commotion, I found myself Chairing the creditors committee and could have forced SCE into Ch. 11, too. 

Nearly two decades later, I’m seeing similarities. 

Sacramento makes demands, this time the pursuit of renewable energy generation and subsidizing the electric car industry, and the additional load demands that recharging extracts. 

With new mandates, the IOUs defer maintenance and do not focus on hardening assets or improving transmission lines. 

But, scorching desert winds have been with us for millennia. With inverse condemnation, many focused on hardening high voltage lines. 

SDG&E became very proactive (communicated with me throughout) during the last Santa Ana condition a couple of weeks ago. 

Anaheim, a public utility, spent the last 20 years undergrounding lines in wildfire zones, covering more than 90% to date. 

Yes, it is expensive. 

Yes, it takes time. 

But, it is cheaper than lost lives and property. 

Mr. Chair, in 2016 I tried to get the CPUC and Cal Fire to complete fire maps in populated wildfire zones in order to prioritize areas in need of hardening or undergrounding. Governor Brown vetoed SB 1463, a bill that received zero opposition in both Chambers. 

The CPUC and CALFire were 8 years behind schedule when Santa Rosa, Sonoma and Napa lost 42 lives the next year (2017). 

I did another bill in 2018 to use Cap and Trade tax revenues to harden electric lines. It was killed by the Senate’s Environmental Quality Committee on a bipartisan vote. Only to be resurrected in a similar form in SB 901 (Dodd) later last year. 

This year I authored a bill to use Rule 20A funding for undergrounding. It died in this new purgatory called Senate Appropriations (SB 584). 

I also tried to quantify greenhouse gases generated by wildfires. It died unceremoniously in Assembly Appropriations. (SB 535) 

I see Sacramento floundering in reaction to its actions and lack thereof. 

Nothing seemed well thought out, holistic or integrated when it comes to addressing climate change, electricity and wildfires. And I am grateful to see industry represented early in the agenda. 

They have difficult questions to answer but Sacramento has not made their core mission any easier and may have been the root cause for their public safety power shutoff (PSPS) strategy. 

With that Mr. Chair, I hope we do serious reflection on the entire topic of providing electricity to Californians in the decades to come. And, I hope we find ways to provide it more cheaply.

Our residents pay high taxes- income, sales and property. 

They pay high utility bills. 

They pay high homeowners insurance premiums (If they can get Home Owners Insurance). 

And now they’re paying massive sums to refill their freezers with lost provisions. 

California has backed itself into an awkward corner due to a lack of foresight and planning. 

We’re learning expensive lessons. Sacramento needs to make serious modifications internally as it improves its oversight on these critical energy providers. 

Let’s be strategic.  Let’s avoid chasing the concern of the day.  Let’s provide intelligent leadership that empowers (no pun intended) the providers and the overseers.  Let’s be big picture and provide a balanced approach to electricity and climate change. 

Thank you Mr. Chair and Colleagues. 

25th Anniversary Look Back

One of the first reporters to call me about the potential implosion of the Orange County Investment Pool was Andrew Bary of Barron’s. Twenty-five years later, he’s still with Barron’s.  That’s pretty cool!

It was on November 30, 1994, and I can still hear his opening line:  “I’m 3,000 miles away and we’re hearing that your county’s local government investment pool is about to implode!”

He was early.  Barron’s is delivered on Saturdays, but his piece was dated Monday the 5th of December.  The title was a classic: “Peter Pan Portfolio: Orange County bet that interest rates would stay low forever.”  The punch line? “You’ve just got to believe.” For a sneak peak, go to MOORLACH UPDATE — LOOK BACKS — December 5, 2009.

I had prepared a potential press release in advance, just in case Robert Citron decided to blame me.  I don’t recall that I ever released it to the press. However, I did FAX the draft to Andrew Bary.

It is with great disappointment that our County’s Treasurer, Robert L. “Bob” Citron, has been taking the greatest risks of perhaps any municipal Treasurer in the nation.  Between his aggressive use of leverage, through the use of reverse repurchase agreements, and his extensive acquisition of derivative products, he has jeopardized our tax dollars to a loss in market value of perhaps more than $3 billion.

To make this financial fiasco even more frustrating, instead of marking his portfolio to market (which I advocated throughout my candidacy), he still operates a legalized “ponzi” scheme.  Even though private investors have taken a beating in this recent bond market, Citron’s investors can withdraw their funds intact. What this means is that remaining investors will pay for those who pulled out at a premium.

Eventually, due to Citron’s extremely aggressive investment strategies, our County can potentially lose as much as $4 billion if it is forced to liquidate.  And because current market rates are out-performing Citron’s returns, withdrawals and forced liquidations will occur naturally. In a competitive market, this is only inevitable.   If this doesn’t wreck enough havoc, the collateral calls from the lenders surely will.

For Citron to blame anyone other than himself is the mark of a weak man.  No one forced Citron to leverage to the extremes that he has. No one forced Citron to acquire “inverse floater” derivatives with over a quarter of his available portfolio.  No one forced our economy to heat up just to put Citron’s interest rate gamble in jeopardy.

There is no grand plan to inflict any harm to the County or to the Pool’s participants by me.  However, since Citron is operating a “ponzi” scheme, even when he has been advised not to, I will, as a private citizen, continue to encourage my own City to withdraw from the Pool with its principal intact.  That is what my conscience dictates that I must do. In this current market, that is my moral obligation.

It is not my fault that the elected leadership of Orange County did not take my warnings, of over six months ago, seriously.  I did my best as “a voice in the wilderness” to wake up this community from the impending disaster that Citron’s strategies could inflict.  Again, when leveraging you can win big, but you can also lose big.

I did my duty to my community to sound the alarm.  I was willing to leave a better paying occupation, from a business which I own to a governmental bureaucratic position, to take on the task of implementing a loss avoidance strategy on behalf of the County.  I stressed a conservative, low-risk approach to investing. I provided a stark contrast to Citron’s policies. Some forty percent of the voters understood and supported my candidacy. Unfortunately, our local liberal press did their best to protect their lone “Democrat.”  Fine. I tried.

The lesson is simple.  If you want to make a killing in the world of investments, you had better be prepared to be killed.  That’s basic investment fundamentals. It was lost on Citron. It was lost on the Board of Supervisors.  It was lost on those responsible for investing in the Pool. To blame anyone else is sheer nonsense, scape-goating, and cowardice.

Our County will suffer for decades because one individual was willing to borrow over $12 billion to invest.  Citron also encouraged numerous municipalities to incur debt as well. It is a fiasco of international proportions.  My only regret is that it took a severe bond market to prove out my worst fears. Trying to distract the citizens of our County by misplacing the blame is only an insult to their intelligence.

We must go onward and forward.  We need leadership. Now is the time for even more drastic measures.  Major changes must be made in the administration of the County’s affairs.  We must do damage control and prevention to avoid this type of activity from occurring again in the future.  I stand ready, willing, and able to be of any assistance to my fellow Orange Countians. We saw the danger coming, we have now encountered it, and we must face it and deal with it in a business-like manner.

The next day, December 1, 1994, Mr. Citron would actually issue his own press release.  It would change the rest of my life.

For the previous LOOK BACK, go to MOORLACH UPDATE — Concordia, Second Harvest and Bottom 50 Cities — November 27,2019.

Annual Christmas Open House at Second Harvest

Please accept my invitation to come to my annual Holiday Open House on December 6th, 4 p.m. to 6 p.m., at Second Harvest Food Bank at the Great Park in Irvine.  We found that this annual event has outgrown the space available in my District Office and you’ll enjoy becoming acquainted with this worthy nonprofit organization.  It’s centrally located at The Great Park, 8014 Marine Way, in Irvine. The invitation is below.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach