Shorting Out

Enron, incidentally, is headed by George W. Bush intimate Ken Lay, an old Texas buddy of the new president who helped lobby through California‘s deregulation scheme. Lay and Enron have provided over half a million dollars to Bush, along with his campaign plane. Lay is regarded as the most influential member of the Bush Energy Advisory Team. He took notable pleasure in turning Davis down when the governor phoned him asking for support of California’s takeover of the power grid. Which was hardly a surprise, since the generators association had already signaled its opposition to the plan, which will give the state more influence over its energy future. Reliant, yet another Texas firm, boasts as an influential board member one James Baker, U.S. secretary of state in the administration of George Bush the Elder and, more recently, the Bush family field marshal in blocking the Florida recount.

Why isn‘t Davis making the Bush connection a big issue? One Davis adviser says they simply need to work with the new administration, which most experts say holds the ability to block a state takeover of the power grid. One potentially good sign is that President Bush will replace his initial choice as head of the Federal Energy Regulatory Commission, who was very hostile to the grid takeover.

And why aren’t Edison and PG&E making more of an issue of the Big Gouge? (After all, the Southern cartel is refusing to sell to them.) Because they are part of the high-flying power generators‘ club now. With the once conservatively managed Edison now transformed into Edison International and Mission Energy, the Edison crew has invested in fossil-fuel plants in Mexico and throughout Asia. And PG&E has done much the same, emerging as a huge force in the power markets of the Northeastern U.S.

Indeed, PG&E is now the fourth-largest electricity marketer in the nation, just behind Duke and ahead of Reliant. Enron is number one.

What of the state’s proposed takeover of private-utility transmission lines?

”I‘m not feeling better yet,“ says one Davis associate of the overall utility negotiations. Some around the governor think the tentative deal to buy Edison’s transmission lines he announced last month was too soft and favorable toward the corporate giant, though the governor‘s negotiators toughened up some as events progressed.

With regard to the glacial PG&E negotiations, a Davis adviser describes the utility’s position as ”a ridiculous wish list.“ After first refusing to consider a sale, PG&E reportedly wants a whopping $10 billion for its transmission lines.

With troubled negotiations, attention turns to the governor‘s negotiators, in particular to former Edison president Michael Peevey. Why is Peevey even there? He is, after all, a former top Edison executive who some observers say would like nothing better than to ride back to the top slot there in a blaze of glory, and who, as head of the utility-backed Council for Economic and Environmental Balance, sponsored the notorious junket of regulators and regulatees to England that inspired Pete Wilson’s Public Utilities Commission to move ahead with Thatcherite deregulation.

”Peevey is a Democrat, people like him,“ explains former state Senator Tom Hayden. ”Like [Edison CEO] John Bryson, he‘s a friend of Gray’s. He‘s personable and seems reasonable because he doesn’t want to build nuclear plants, so he‘s accepted as a good-guy business executive and never held accountable for the past.“

Finally, there is the shortfall in supply. One good sign for Davis is that California’s electric-power consumption dipped 8 percent last month, a heartening development, if still short of the governor‘s goal of a 10 percent reduction, which he announced last month on Meet the Press.

We shouldn’t be having the problems we‘re having this winter. In 1996, when deregulation was passed, California’s private and public utilities owned 46,000 megawatts of generating capacity, half again as much as needed to meet peak demand in the winter. But the private utilities chose to sell off much of their generating capacity, investing much of the proceeds in projects outside the state. The out-of-state firms that bought their former California plants have manipulated the market, keeping plants offline for unusual amounts of maintenance and driving up prices.

But we definitely have a problem in summer, with air conditioning driving the state‘s peak demand up 50 percent higher than it is now. The Davis plan to deal with this includes the 10 percent reduction in demand from conservation and a crash program to bring 5,000 megawatts of new generating capacity online through small ”peaker“ plants. The state is off to a very late start in securing the peaker plants. And while last month’s reduction in power consumption was good, it‘s not clear how long-lasting it will be. Davis is looking into ”real time“ pricing, advocated by University of California economist Severin Borenstein and former Davis boss Jerry Brown, which would encourage a shift in consumption to cheaper, off-peak power. But he’s starting very late on this, as well.

Meanwhile, the Legislature is scuffling. While erstwhile deregulation champion Senator Steve Peace (D--San Diego) warns that ”the Lone Star flag will fly over the Capitol dome“ unless the governor seizes Texas-owned power plants, which he shows no sign of doing, an agreement to pay renewable-power producers is not yet in place. And, aided by one Democratic absence and a couple of quibbles, Senate Republicans succeeded for now in narrowly blocking a $1 billion energy-conservation program requiring a two-thirds emergency vote.

Needless to say, we‘re not out of the woods yet.