Undoing Davis

Two of Davis‘ persisting headaches are the state’s record budget deficit of $23.6 billion and the uncertainty over the massive state-bonds sale needed to cover $6 billion still owed the state‘s general fund for emergency power buying last year. People aren’t noticing, but this would be the biggest municipal-bond deal in U.S. history. Two outstanding hurdles remain on the California end: The Public Utilities Commission has to come up with a servicing agreement (means of payment) with the three big utilities, and PG&E‘s lawsuit, which seeks to clarify how much revenue the utility can keep, needs to be settled. PG&E is also the only utility with which the PUC hasn’t concluded the servicing agreement.

And the reworking of the state‘s massive portfolio of long-term power contracts, struck at the height of last year’s market hysteria, may itself need to be reworked. Energy economist William Marcus, who works with consumer and environmental groups, says the savings from the first set of renegotiated contracts are less than advertised. The Davis administration claims savings of 23 percent; Marcus thinks it is about half that. And in the wake of the Enron revelations, consumer advocate Harvey Rosenfield goes even further. ”Davis and FERC,“ he declared, ”should not make any new deals with power companies over long-term energy contracts that were signed while these companies were defrauding the state.“

Federal regulators, said Rosenfield, should also dismiss settlement talks concerning California‘s challenge to the contracts while investigations into market manipulation move forward. Last month, Governor Davis signed ”re-negotiated“ contracts with some power companies and released the firms from liability for market abuse. The governor should be shredding these contracts, not renegotiating them.

A lot of headaches for Gray Davis. Taken together, they constitute his real opposition, not the still hapless Mr. Simon.