Gray Unplugged 

The power crisis may do in the governor

Wednesday, May 16 2001
Photo by Larry Hirshowitz

With a private poll showing his lead over Republican frontrunner Bill Jones slipping to 7 points, embattled Governor Gray Davis is struggling to find support for his handling of the power crisis. He has been set back by strong opposition to his proposed bailout of Southern California Edison (SCE) and by grumbling about his still-hands-off policy toward the out-of-state power generators that his own administration reviles as price-gougers and that he has labeled the “biggest snakes on the planet.” And, after the state Energy Commission acknowledged that the governor’s plan for creation of new power generation this summer will fall short by two-thirds, the outlines of a plan to achieve higher-than-previously-announced conservation goals has emerged. Its centerpiece? In place of rolling blackouts, planned blackouts.

Meanwhile, with the revenue gravy train of the dot-com economy coming to a sudden halt and Republican legislators forcing delay of a $13.4 billion power-bonds sale until August, the state is looking at its first major budget cuts in a decade.

With all this and slumping polls, it may be tempting to begin writing Davis’ political obituary. Not so fast. At this point eight years ago, Pete Wilson, embroiled in a budget standoff, trailed not one but two Democratic challengers, Kathleen Brown and John Garamendi. Wilson changed the subject to illegal immigration and won a smashing re-election. Davis’ political problem is that, absent dramatic intervention or a remarkably favorable turn of events, his policy crises will continue to be greater than those endured by his predecessor.

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While much is clouded, what is clear is that summer blackouts, the rickety Edison deal and the governor’s continuing aversion to state action against gouging by generators will take their toll.

Since the latest rate hikes are increasingly regarded as an insufficient prod to conserve, and new policies to reward saving are off to a late start, planned blackouts are emerging as an increasingly likely strategy for the summer. These would be designed to cut power consumption by as much as one-sixth during peak demand. Senate Energy Committee Chairwoman Debra Bowen (D–Marina del Rey) and Assembly Speaker Bob Hertzberg (D-Sherman Oaks) like the idea. In the continuing absence of action by federal regulators or the governor, they see it as a way to control costs and allow businesses to plan for power outages.

Grim as this may seem, it looks like the only potential success among the proposed new policies. Davis’ Edison bailout is dead on arrival in its original form. After weeks of searching, Davis ended up with lame-duck Senator Richard Polanco (D–Los Angeles), who recently dropped out of an L.A. City Council race, as designated author of the proposal. (Associates describe Polanco’s introduction of the bill as a courtesy to Davis.)

Amid this disarray, Edison is engaging in private talks with critics of the bailout, even as the company has launched a $3 million advertising campaign to try to drum up support. Featured in the ads is consumer journalist David Horowitz, complete with his familiar “Fight Back! with David Horowitz” logo as backdrop. Horowitz, who emerged as a TV battler for consumers on L.A. stations in the 1970s, received, according to Harvey Rosenfield’s Foundation for Taxpayer & Consumer Rights, $136,000 from the utility industry to lend his credibility to TV ads against a 1998 anti-deregulation initiative.

While the Davis bailout is dead, other takeover ideas are floating around. Some in the Capitol, aided by a New York investment-banking firm, talk of a state buyout of the entire utility, whose stock price is depressed. Others, including Senate President John Burton (D–San Francisco), seem unfazed by the prospect of an SCE bankruptcy. A group in the more conservative state Assembly wants to revive the bailout deal, eliminating some of its sweetheart provisions, turning the purchase of transmission lines into an option to buy, and reducing the price.

A consensus is emerging among virtually everyone in Sacramento, including Davis, to lower the amount of the buyout — meaning power generators would receive less than they are owed. This, however, may not be acceptable to either SCE or the generators, which leads to the question of what the Southern cartel of out-of-state power generators has been charging and how much more they intend to charge.

After spending last year trying unsuccessfully to get Bill Clinton’s Federal Energy Regulatory Commission (FERC) to impose price caps on wholesale electric power, Davis asked Bush’s FERC to stop the Big Gouge. Predictably, it refused, which puts the ball back in the governor’s court — where, in reality, it always has been.

So far, as a cartel representative notes, Davis has done little to discourage the behavior of the power generators. He has opened up the state’s general fund to them by taking over power-buying for the utilities in January. What was to have been a stop-gap $400 million state expenditure has turned into $7 billion and counting. Rhetoric notwithstanding, Davis has accepted their claims about what they are owed by accepting the utilities’ level of debt, and attempting to move the state and the consumers into position to pay it. And he has spent the better part of a year looking to Washington — to a commission that was clearly skewed toward the cartel’s interests long before allies Bush and Cheney hit town — to end the price-gouging.

Although federal regulators and the Bush-Cheney administration have made their opposition to price caps plain — leading state Treasurer Phil Angelides, many Democrats and even the preternaturally cautious Los Angeles Times to support either an outright takeover of a power plant or imposed state operation of one as a shot across the bow of the Southern cartel — Davis continues to look to Washington for the solution.

Indeed, though Davis says he’s not ruling it out, top advisers oppose state action. They claim that action by the governor could lead not only to a shutdown of existing plants, but somehow halt construction of 14 new ones. One energy expert, however, points out that the generators who are gouging the state are not the same companies who are building those 14 new plants.

Given the year-long failure of Davis’ recourse to Washington, what plan do the governor’s advisers have to stop the Big Gouge? None. They seem paralyzed by what might happen rather than motivated by what is happening.

Angelides says his financial advisers tell him that plants can be operated by the state at less than half the price generators have been charging and still provide a healthy return to the companies. But Davis advisers may be more focused on the symbolism of such a move in the midst of a re-election campaign in which they hope to raise $50 million from the business community. In addition, they complain that they would be left holding the bag if, after the governor finally exercised the emergency powers he brandished in his January State of the State address, the move backfired.

In fact, they complain that Davis has been left holding the bag on Burton’s proposed state takeover of utility transmission lines, which Davis resisted but finally acceded to when his idea of bailing out the utilities (by buying utility stock options) turned out to be unconstitutional.

In this, they ignore two points. One, of course, is that PG&E declared bankruptcy, taking a big chunk of the grid off the table, at least for now. (According to an investment-banking source, they did not believe that Davis could sell the deal and protect their interests.) Two, and perhaps more important, is that the grid buyout has become entangled with the extremely favorable deal his team negotiated with Edison.

With such a tangled web on what has become the most important issue in the state, Davis should probably be content that he’s still 7 points ahead. But who outside Sacramento knows who Bill Jones is? Come election time, maybe it will be good enough not to have been the incumbent who got us into this mess.

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