Hardtalk BBC World Wednesday 13th June 2001
with Tim Sebastian: - interviewing "energy czar" Richard Sklar
Quick pointers to the juicy bits
Cleaning up after the bloodbath.
This mess we got ourselves into.
a whole series of stupid things
1900 new power stations? - ridiculous
Market manipulation obvious; Feds sitting on their hands
Dirty fight ahead: The People vs. a certain economic ideology.
war zone experience: good training for the fight ahead.
Pressure, pressure, pressure, pressure, PRESSURE!!
Re-nationalising good for this key industry
(a London street scene)
Sebastian: Power cuts in mega-rich California and the governor calls in a trouble-shooter - a man President Clinton once sent to Bosnia to help get the economy moving. What are the strong-arm tactics he's not averse to using?
(back in the studio)
Sebastian: Richard Sklar a very warm welcome.
Sklar: Good to be with you.
Sebastian: We hear there are 17,000 new and very bright millionaires created in California every year, why did none of them see the energy crisis coming?
Sklar: I think they were too busy spending their newly earned stock options - by the way that 17,000 - whatever it is - has dropped dramatically - a lot of them thought they had money and it disappeared when their stocks plummeted, so maybe they're not all out there any more.
Sebastian: Why has the Governor turned to you?
Sklar: It's what I do - I tend to fix public things, or try and fix public things, and er when he went to see President Clinton back in January about this problem before Clinton left, Clinton that said I was coming out of the Balkans, and so they said "come and give us a hand."
Sebastian: I want to get to the Balkans later on but um you have said you were like Mr Wolff in "Pulp Fiction"
Sklar: No, I didn't say that.....
Sebastian: Somebody said that about you.
Sklar: The Washington Post said that and I loved it and my children hated it.
Sebastian: You come in after the killing and you clean up the mess and you go off with the blonde.
Sklar: ...and she's going to Rome with me to open her art show, yes.
Sebastian: And she happens to be your wife.
Sklar: That's also true.
Sebastian: When it doesn't.......I think you said you can slip away under the cover of darkness......when it doesn't work?
Sklar: I'd like to do that - I'd like to get out from under, but I think as I 've grown older, I'm perfectly willing to take the misses along with the hits....and I hope more often than not we do well rather than do badly.
Sebastian: You say that you know how to find megawatts....people say that you know how to find megawatts, which is what California needs at the moment......
Sklar: Well "finding them" is the wrong word - I think two things are going to get ourselves out of this mess that we got ourselves into: One, the people have done a magnificent job of conservation. Even before the price rises hit this month and even before the rewards had come from government for cutting back on consumption, people had reduced their consumption by ten and eleven percent this spring.
Sebastian: They are still using double the amount of energy that they are in Britain for instance.
Sklar: They are definitely using double the amount of .........
Sebastian: You are a country of wasters!
Sklar: Well just a minute - let's talk about California - everywhere it's relative. California is the second most conserving state in the country. We use less.....
Sebastian: It doesn't say much does it?
Sklar: ...no, well, it's....
Sebastian: .. for America, it doesn't say much.
Sklar: No, well we certainly like our electric toothbrushes and we certainly like our computers and we are definitely inordinate users of energy and that is why things like Kyoto Treaty and Greenhouse were wrong. [sic] But California has done an excellent job of conservation over the years and in a wasteful country is the second least wasteful [state].
Sebastian: It's done a wonderful job of conservation and then came the blackouts.......Why?
Sklar: Because the government, the legislature, the lobbyists did a very stupid thing. What they did they was essentially walk out of the house, leave the door open, shoot the bull mastiff, they then turned off the burglar alarm, put the jewels on the dining room table and went to the movies.
Sebastian: OK, let's put that in concrete terms.
Sklar: OK. They enacted legislation - deregulation - they followed the Thatcher model - the Regan model - and they deregulated.......
Sebastian: Which in principle was a good idea.
Sklar: Well there are some pieces of it which in principle are a good idea. It's OK to deregulate airline travel where it is an option: you go, or you don't go. It is not OK to deregulate the delivery of kidneys when they are needed for a transplant. Society has an obligation on things that matter and electricity is central. Electricity and water are probably central to society. You don't deregulate it stupidly. They put a fixed price at the retail level, they turned the wholesale price loose, they prohibited the utilities from entering into long-term contracts - a whole series of stupid things, and then the Federal Energy Regulatory Commission - the policemen in this analogy of mine - decided to stay home because the streets were too dangerous. And along came a natural disaster - we ran out of snow and rain because we had the driest year in 75 years in the north-west. So our hydro power dried up. We then got to a teeter-totter - where supply and demand are about in balance, and along came some very greedy new merchants who had bought these electric plants, and they cut supply back so it dropped below demand, and the patient, the lifeboat rider was desperate for water, prices went through the roof, blackouts occurred - a man-made problem.
Sebastian: Prices went through the roof, but power companies could not pass those through to the consumer.
Sklar: The distributor could not; the generator took the price through the roof. The person who had purchased those power stations that were sold by the utilities under this silly law took the wholesale prices through the roof. These generators are investors, they're trading companies they're entrepreneurs, and in many cases what they did was legal, greedy but legal. And it is bankrupting businesses, and it is going to drive consumers through the roof when they see the bills this month.
Sebastian: So they had it coming to them - it had to come some time?
Sklar: Well, it had ........
Sebastian: The power companies had ensured that for five years they couldn't pass on the increasing cost to the consumers. They had written that in - they had wanted that as a rule hadn't they?
Sklar: Right, but ........
Sebastian: .... because they thought the price was going to go down.
Sklar: That's right, you're exactly right. The power companies wrote in what we now see as a ceiling and they saw as a floor on retail prices 'cos they saw a wholesale drop in cost added to [??] profits coming their way.
Sebastian: So they were beaten by their own greed?
Sklar: Oh! - hoisted on their own petard!
Sebastian: And now?
Sklar: And now they're in bankruptcy, or near bankruptcy, and they're crying for public aid, and asking taxpayers and ratepayers to bail them out.
Sebastian: What's going to happen? What can you do about this now?
Sklar: Bits and pieces.
Sebastian: .....apart from building power stations.
Sklar: We can build power stations, we can undertake conservation. I am in a war with the generators.
Sebastian: How do you do both?
Sklar: Well, er, new generation is going to come on - there's a market for it. By 2003 this will be the ......
Sebastian: New generation of .....?
Sklar: ...electric power, sure. Entrepreneurs are building them today. By 2003 we will have a surfeit of supply. By 2005 we may have a glut of supply, because generators see an opportunity to sell, and so .....
Sebastian: How does this help conservation - it doesn't - it throws it out the window, doesn't it?
Sklar: Oh no, I think that....conservation is going to be part of our life I think into the future because the rates are going to be locked into the high level for a number of years out into the future. Our electric rates are going up by forty, fifty, seventy per cent over what they were. And because we have some past debt to pay off, those rates are going to hold well out into the future, well beyond this two or three year crisis.
Sebastian: You have big oil now and big coal licking their lips. They put masses, millions into George Bush's election campaign and got him elected. Now they're seeing the paybacks. Bush administration has already told them between 1300 and 1900 new power stations - some of those are going to be coal-fired, some of those are going to go straight into the atmosphere, and that's the end of conservation, isn't it?
Sklar: I don't think it's the end of conservation.
Sebastian: .....and you're going to help them do it!
Sklar: ...uh, first of all we're not building any coal-fired stations in California, we're building natural gas fired stations which are actually cleaner than our old stations. Amongst the better companies coming along, we're finding power plants being built that will be operative in 2003 and 2005, many replacing the existing stations. They will be environmentally more sensitive and they will be more efficient. Coal will be used in parts of the country, it's not part of our solution.
Sebastian: But this is going to add enormously to pollution isn't it? It's something George Bush doesn't seem to care much about.
Sklar: He doesn't seem to care much about it and I think, er, maybe Mr Cheney who argued against conservation and viewed us as a bunch of tree-huggers five weeks ago is changing his tune - because George Bush was out in California espousing conservation last week: he reads his polls, he reads them very carefully.
Sebastian: ...and these polls say that Americans do not want to suffer when it comes to energy. They don't want to pay higher prices and they don't want blackouts. So he gets up and he says "More power stations, and you're going to have to suffer as far as the environment is concerned. "
Sklar: Well the people you're describing are not that much different from those in Birmingham or Manchester. Noone wants to pay higher prices. Noone wants to turn off the lights. Noone wants to turn off the telly.
Sebastian: It's all relative, but we're a little more used to it.
Sklar: Well, I don't know that you're more used to it. We're not dealing here in England with a country that's living in deprivation. I think probably the hours of television watching are as high here. You're probably .....I think you'll find that ......
Sebastian: Last year petrol stations were closed..for a while.
Sklar: uh-huh.
Sebastian: So they felt it, consumers felt it.
Sklar: Well, we felt it in '83 when the arab oil embargo took place. The consumers in California are going to feel it this summer, 'cos there's going to be times when there's no power, and they're going to feel it on price. Now I think the government's wrong when they say we're going to need 1300 to 1900 new power stations: we do not! The imbalance is nowhere near that. Nor do we need to drill in the Arctic wildlife preserve. And those of us are opposing that and I think Mr Jeffords move over to the Democrats last week will end that bit of fantasy. We don't need to drill for oil in Alaska, we need to conserve, we need to use hydro. At my house in San Francisco I'm putting photovoltaic panels on the roof....
Sebastian: ....which are very expensive....
Sklar: They are expensive, I can afford it, I'm lucky, but we also get some subsidy on it. But next year I will essentially be a net deliverer of power to the electric grid. When I change some light bulbs in the house and I put this up I will not draw on those power stations any longer in my San Francisco house.
Sebastian: Who are you fighting? Who are you going to have to fight to get your strategy .....?
Sklar: The generation work is going, it's going along. You don't build a 450 megawatt plant overnight. Conservation: the people are acting well and I'm urging the Governor to put prohibitions on air-conditioning: run it up to 78 degrees [Farenheit] in the San Francisco and Los Angeles office buildings this summer. The fight that's taking place with the generators and gas producers: they're kissing cousins, they are manipulating the market, they are gaming the market. Even the Republican Chair of the House Commerce Committee - an energy committee I testified before two weeks ago - said yesterday that the gas companies are playing games, and the Federal Govcernment is staying home. We're going to try and get the Federal [Energy] Regulatory Commission to do what the law requires them to do, and that is to ensure that just and reasonable prices for monopoly product are delivered. We hope that will happen, because the profits of these power companies have gone through the roof. Wall Street and their shareholders are laughing at 300 and 400 per cent increases in profit in six months.
Sebastian: You're coming up against very powerful vested interests, thenm aren't you?
Sklar: Yes.
Sebastian: Some very, very powerful companies.....who are going to seek to bring you down.
Sklar: Well, if they're gonna bring me down, they're going to seek to maintain these excessive profits, they're gonna fight for it, and I'm going to fight for the other side.
Sebastian: Do you have any idea how dirty this fight may become?
Sklar: Well, I've spent most of my life in dirty fights in one place or another. I had come out of a place where they had been shooting each other two or three years ago. At least in California there doesn't appear to be any shooting taking place around this. But there is no question about political power and the relation of these people to the administration, the Federal Administration. But there is also a deeply held ideology at the Administration that talks about free markets overall, and I think that ideology has run smack up against the needs of the people. There's an obligation to look after the needs of the country. We're talking about the economy. If our producers....
Sebastian: That's what George Bush says: "We're talking about the economy. We're going to have a power crisis right across the country if it is not addressed with new power stations", and that includes........those that don't care much about the environment.
Sklar: There will have to be new power stations. You know in California none of the new power stations that are going in are compromising our environmental rules. The people in California are fierce on that issue. We are not compromising the environment. The only possibility is if we get really desperate, we might let for a short while maybe 250 hours this year some Diesel engines run for emergencies, so that the producer of tomato sauce will not end up with gunk in his pipes, and not able to clean it and have to go in and scrub tens of thousands of feet of stainless steel out. But otherwise the newer plants coming along will meet all of our environmental rules: we're compromising none. The President says "we'll relax them so you can build more", and we say "we don't need that, we just need the extortionate prices held in check for two years."
Sebastian: So you're going to try and stop this energy crisis playing into Bush's hands, and therefore giving him carte blanche, as he [sic] would see it, to go and wreck the environment.
Sklar: I don't view George Bush as the issue. The issue is the need for a reasonable amount of energy at reasonable prices. If he happens to come down on the other side of it, so be it.
Sebastian: He is the issue if he sets the Federal policy and the Federal standards and wrecks the environment for the rest of the planet.
Sklar: I hope we will persuade him that that is not the right thing to do.
Sebastian: Given his stand on Kyoto, you're not having much luck are you?
Sklar: Not at this point, not at this point, but we are fighing the battle and we will continue, and I do believe that with the change in the Senate there is the possibility that the Congress will demand that this agency of his [FERC?] perform according to their mandate and the law.
Sebastian: So you're going to play politics as well as economics?
Sklar: This is all politics. Politics is part of it. When your dealing with anything with government your're playing politics - not in the sense of political contributions, but political interests, sure. There is a clear difference between our Governor's position and the President's position and in this case our Governor is right.
Sebastian: None of this of course compares to what you had to deal with in Bosnia when President Clinton sent you there in '96 to pick up the infrastructure - make it work - try and get rebuilding in the country a little faster? What was it like when you got there?
Sklar: It was grim. It was grim.
Sebastian: Were you shocked by what you saw?
Sklar: I was, you know, we'd lived in America. I lived through World War II. It was my war: "the good and just war" but I was a child in a country that wasn't touched by it. And when I came in on that first plane the first day into Sarajevo and saw it I was shocked. It was grim - there were people slaughtered and shot at, and civilians women and children were raped and murdered and it was a very different kind of world. Srebrinitza is not something that one gears oneself up to understand and explain.
Sebastian: You saw the physical scars, what about mental scars?
Sklar: Oh, awful...awful. I mean the, the ........
Sebastian: ..... the people you met, the people you talked to.
Sklar: The people that Barbara and I worked with and lived with had lived through four years of hell. Their young people were deserting. When you asked them how they saw themselves in five years you think they [might] say "doctor, lawyer, indian chief" [but] they said "Sydney, Chicago, and Hamburg" - they were exiting. When we talked about hardship, I had this from one of our California congresswomen who worried about the heat in Palm Springs this summer when the air conditioning went off - Barbara had women who worked with her who carried water seventeen flights of stairs four times a day, and almost everyone had lost a member of the family. So it was very very different.
Sebastian: How did you persuade people that you weren't just coming in as an American industrialist to pave the way for big companies coming in - pick up the reconstruction projects, make their money and walk out again?
Sklar: It was clear the American companies were not rushing in to do reconstruction, and the sort of reconstruction that was needed was largely self-help. What we found was - in some ways very disappointing - an unwillingness on the part of those people to pitch in. I remember one day we went out and there was a British military battallion....a small platoon working, fixing some water pipes - sergeant leading his men to fix a leaking water pipe. And there were a group of young Bosnians in leather jackets standing around smoking and laughing about it. And the sergeant finally turned to his guys and said - I hate to use the word - he said "screw it", and walked away. There was a lack of willingness to help which was very disappointing.
Sebastian: Did you find that at all levels?
Sklar: I found it at, er, all levels and I found the leadership - Wes Clark in his book, Wes is a guy I admire, he suffered some times with his fights with the Pentagon, but I think he was right more often than he was wrong - Wes said correctly that it's the leaders of these countries that exploited the people that led to the killing that put them in this position, and sadly in Bosnia, as opposed to the rest of that region that I've been working in, it still continues. The leadership is still looking at self-interest and using the ethnic differences if there are such a thing to keep the people from becoming a part of Europe.
Sebastian: But the self-interest is in a country which has nothing - no infrastructure works - you don't have peace, you have an absence of war, which is what President Clinton said originally he wanted to avoid. There's not much for them to protect, there aren't many vested interests, apart from criminal ones?
Sklar: Well there's no question that the ......
Sebastian: And you have come face to face with them?
Sklar: Oh yes, I challenged the then Prime Minister on the cigarette smuggling issue when he refused to spend the money to put a French-delivered air traffic control system in at the airport that I wanted to get open. He said he had no money and I took a pack of cigarettes and showed the un-stamped packet and I said I'm going to the Holiday Inn at the press conference, and I'll tell them if you stop the smuggling for one week you can pay for it. So smuggling went off.
Sebastian: So what did he say?
Sklar: He said "You're not going to do that." And I said "I am going to do that." And I hung up the phone. And they called back, and [we] said "What's he doing", and they said "He's putting on a tie on and he's going over to the press conference": they rushed across to say they would get the work done, and they did.
Sebastian: So literally you blackmailed the government.
Sklar: I was in the blackmail business. And it remains to this day - World Bank, US, EU - Chris Patten who was my twin in this the last several years and I continually had to apply pressure to get people to do things that appeared to be in their self-interest.
Sebastian: "Apply pressure", you mean, this is naked blackmail!
Sklar: Oh yeah.
Sebastian: "I'll go public with what I've found out unless you do what I ask you."
Sklar: It's blackmail when the bad guy does it; it's appropriate pressure when we good guys did it.
Sebastian: Dirty fight!
Sklar: You bet!
Sebastian: So how did the Mafia take to you coming in? Because they had moved in under cover of all the advancing armies, hadn't they?
Sklar: I was not in direct confrontation with them. I had this insulating group of alleged leaders who I would fight through. I was not in direct warfare, although the young Danish officer sent in to work as the customs officer had to get himself an armed Mercedes and an armed guard when he turned on cigarette smugglers, arrested them and then had the judges turn them loose again in five minutes and give them back their cigarettes. Corruption is endemic in that region.
Sebastian: It's endemic - what do you do?
Sklar: I think that the, the ......
Sebastian: Everybody's bought and sold from top to bottom.
Sklar: You know I said to a Croatian friend, Croatian businessman - actually who worked for Tujman, not one of my favourite people, but worked for him - I said "How long is this going to last?", and he put his finger on my chest and said "You're Jewish aren't you?" - and I said "Yeah" - and he said "You know who Moses was, then?" and I said "Yeah, but even if I wasn't Jewish I might have known who Moses was." He said "You remember [God] made him wander round in the wilderness for forty years before he took him to the Promised Land?" and I said "yes" and he said "Do you know why?" and I said "No" and he said "So all those leaders would die off - two generations of leaders would die off - and maybe that's what we need in the Balkans."
Sebastian: Forty multiplied by.......?
Sklar: [Just] forty. President Clinton said to me "How long and what's the end result of what you're trying to do? You're going to go out there and you're gonna live in Rome and you're going to back to this crazy place?" I said "When these people are part of the European Union forty years from now the problem will be solved", and actually they all say they want to get there. But there seems to be an unwillingness on the part of many of them to work towards it - not all. The new Croatian government wants to do what's right but they're climbing out of an enormous hole that Mr Tujman has dug for them.
Sebastian: Tell me about the land mines issue because that perhaps illustrates more than anything the impossibility of getting them to help themselves.
Sklar: Land mines! (laughs) The word to us as soon as Barbara and I went in was "Don't ever walk on the grass...don't walk on anything except concrete that's paved." Just crazy. We tried to get... and the British Army - General John Moorbeck - and by the way your soldiers and ours were one of the great pleasures for me - I'd been in the Army thirty five, forty years ago and the change is different but that's another story - but anyway we tried to get [the Bosnians] to take the mines out and they said they wouldn't do it. They wanted the international community to pay and send people in and pay their people to dig them out.
Sebastian: Literally, mines that had been planted by Bosnians to kill Bosnians?
Sklar: You bet!
Sebastian: You were supposed to pay them to dig them back out again?
Sklar: Correct. And General Crouch and I and General Mike Walker, your general, put a rule on 'em: "You fellas in your army camps cannot do exercises, you can't do anything except sit there and smoke cigarettes and we'll let no food come in to you, and we won't pay you unless you devote 20% of the time of your military who are still there to de-mining.
Sebastian: So again this pressure?
Sklar: Pressure, pressure, pressure. Pressure. Pressure to reorganise their electric power system - they would fight over who the coal belonged to - Serb, Croat or Muslim and I said that the dinosaurs and the elephants that died to create that probably didn't have those religious tags on them. Everything was a fight, everything was money. The leaders lined their pockets, sent money off to their cousins. An ugly place. But we still have to do it, we have no choice, when I say we - the United States and Europe - cannot have this part of Europe on fire. The Macedonian thing that's going on now is frighening us all. Kosovo will be...... disasters happening fifty years after the end of World War II is not acceptable for us. We cannot have it.
Sebastian: I think you said once in relation to the electricity problems - power problems in California - you'd had forty years of delivering, delivering results. Did you walk away from Bosnia feeling "I didn't deliver this time." ?
Sklar: Well, in terms of some simple things. The first day that Barbara arrived she called me and she said "You didn't tell me about the water." And she said "I'm standing here full of soap, and there is no water." ...'cos water was on two hours a day. Well we had the water on that winter. I had power on that winter. I opened the airport and won a big bet on it. So in those senses we got it back in place. In terms of reforming Bosnia's economy? - No - but we had some real victories: the Swedish trading company called Glencoi that Mark Rich had founded, though he's not now in it.....
Sebastian: Mark Rich the fugitive?
Sklar: Mark Rich the fugitive.
Sebastian: ..in Switzerland?
Sklar: ..in Switzerland.
Sebastian: ..pardoned by Clinton.
Sklar: Sadly. I don't understand that but I, I, I don't know what that was all about. Anyway the company that he had founded and been run out of had taken over the aluminum works of the country of Montenegro, by making a loan under such terms that they essentially put a stranglehold on it. So we captured that back: that is now back in the hands of the people of Montenegro. Why does it matter? - It's fifty per cent of the gross domestic product of that company - country. So there were victories. There were victories there.
Sebastian: Do you feel beaten.... a little bit, bruised?
Sklar: No, you know I, the, the .....
Sebastian: You learned lessons?
Sklar: Every day. I learn them every day. Every day.
Sebastian: And lessons that you are going to put from Bosnia into prectice in California now?
Sklar: I think that, I hope, I hope what you do after you spend lots of years of private and public work in this sort of stuff is that you don't make some of the same mistakes you made before. I tend to be maybe more idealistic than I ought to be - I still believe that elected officials will do what is in the best interests of the public because it is really in their interest, and I get disappointed by them occasionally.
Sebastian: It's been a pleasure having you on the program.
Sklar: Thank you.
Sebastian: Good luck in California.
Sklar: Thank you very much indeed.
Sebastian: Thank you.
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