Sacramento Scramble

SACRAMENTO -- The state Capitol is a fairly surreal place today. Outside, its Renaissance-revival exterior remains scarred by the explosive impact of a 40-ton rig driven by a maddened truck driver. Inside, the venerable building plays host to a frantic scramble to keep the juice on. Schemes to fix the electric-power debacle come and go almost daily, as do gubernatorial assurances. Information is fleeting and incomplete.

But it’s not nearly as surreal as the simple experience of reading the California Energy Plan signed in 1998 by then-Governor Pete Wilson. In it, he boasts of his legacy of electric-power deregulation, forecasting lower prices and a declining rate of growth in electricity demand. Foolish though this last projection may seem today, California‘s electric-power demand did grow by a mere 2 percent per year for the two decades preceding the 1996 deregulation. That was in stark contrast to the state’s average 7 percent annual growth rate in electricity demand during the 1950s, ‘60s and early ’70s, before the energy-conservation approach championed by then-Governor Jerry Brown took hold in the late ‘70s. Energy conservation helped make California the fourth lowest per capita user of energy of the 50 states. But since the 1996 deregulation, electric-power usage has accelerated. What could Wilson possibly have been thinking?

Before deregulation, California utilities owned 46,000 megawatts of electrical-generation capacity, more than half again as much as needed to meet winter peak demand and avoid blackouts. Though it’s often reported that the private utilities were required by the deregulation legislation to sell their power plants, the bill in fact didn‘t require that. As Center for Energy Efficiency and Renewable Technologies executive director V. John White notes, it was the Wilson Public Utilities Commission that strongly encouraged utilities to sell off half their plants and that de-emphasized conservation. After deregulation, California’s private utilities rushed to do just that, selling to the very out-of-state firms now ramming it to ratepayers.

California‘s private utilities then used much of the proceeds to buy and build power plants in other parts of the country. Pacific Gas & Electric (PG&E), for example, whose threats of bankruptcy are near-constant, quickly became one of the biggest electric-power generators in the Northeast. Incredibly, PG&E, was planning to sell its precious California hydroelectric facilities as recently as this month.

Sacramento mostly fiddled when the deregulation deal went down. Though a few players, such as then-state Senator Tom Hayden, were critical, most everyone -- politicians, citizen groups and media alike -- went along with the multi-million-dollar lobbying blitz waged by the private utilities, power companies, and big power users. The big sleep extended outside the Capitol as well. Consumer advocate Harvey Rosenfield, who led an unsuccessful anti-deregulation initiative and threatens an omnibus power initiative in 2002, is one of the few who looks prescient in retrospect.

Governor Gray Davis made several pronouncements recently, dutifully reported in the daily press, indicating that he had a deal in the works for the state to purchase power at very affordable rates. Today, there is no such deal. Instead, the state -- operating on an ad hoc basis through the mechanism of the Department of Water Resources, which has experience in the hydroelectric business -- has gone into the incredibly exorbitant spot market with $400 million. That money is buying power that is then distributed to the near-bankrupt big private utilities for their customers’ use. The state will probably never see that money again. It will run out in a matter of days.

There is widespread skepticism about Davis‘ oft-announced but still vague plan to get long-term power contracts at 5.5 cents per kilowatt hour. ”It’s a mystical figure,“ says Assembly Speaker Pro Tem Fred Keeley, a Santa Cruz Democrat who is quarterbacking the power issue in the lower house on behalf of Speaker Bob Hertzberg, his San Fernando Valley colleague. And don‘t look to the new administration in Washington for any help in locking in low prices: With deregulation fan George W. Bush in the White House, there is even less prospect of federal price caps than there was under Bill Clinton’s surprisingly pro-free market Federal Energy Regulatory Commission.

This week, the state is conducting an auction to see at what price it can buy power. It may well be that the only credible leverage to get Davis‘ preferred price is the threat of the state exercising its right of eminent domain. That is also a resort touted by the governor and other Democrats as a way of keeping the lights on if power companies refuse to sell. In that scenario, the California Public Utilities Commission -- which finally has a majority of Davis appointees, following the governor’s belated appointment of San Francisco Public Defender Jeff Brown, cousin to Jerry and Kathleen -- would determine a fair market value. But the seizure of assets under eminent domain can take time. When Sacramento declared eminent domain back in the 1920s to set up its public power authority, the Sacramento Municipal Utility District (SMUD), it took some 20 years to get the assets from PG&E. ”Perhaps things could move more quickly under the governor‘s declared state of emergency,“ suggests former SMUD president Ed Smeloff, now head of a New York energy project and co-author of Reinventing Electric Utilities. Perhaps.