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Gray’s Magic

A growing number of experts doubt that the numbers in Governor Gray Davis‘ plan add up. Unless he’s using magical Harry Potter money, or out-of-state power generators charge a lot less, his plan seems to fall well short of covering the state‘s needs. Now a high-ranking source says that the governor intends higher cuts in consumption than the 7 to 10 percent he has talked about publicly to make his plan work.

Until Monday, administration officials wouldn’t divulge much about the state‘s future plans or its current power buying, citing the need for secrecy in negotiating deals with wily power companies. ”Deals“ seem few and far between in the out-of-control California electric-power marketplace, and the secrecy seems to many to be a misbegotten attempt at spin control and the avoidance of embarrassment. If conservation is to be the latest silver bullet in the Davis arsenal, the alarm should be sounded up and down the state.

But Monday’s lengthy unveiling doesn‘t do that. It’s based on several remarkably optimistic assumptions about this summer: namely, that spot-market prices for electric power will go down, even though futures prices are way up, and that alternative-power generators currently offline because the utilities haven‘t paid them will go back in service without getting more money. In truth, it’s going to be a struggle to keep even more from going offline.

The secrecy and surrealism is giving Republicans the excuse to hold up a deal for short-term private financing to return nearly $6 billion already spent from the state‘s general fund and may hold up the record-setting $12.4 billion revenue-bond sale to pay for past and future power purchases by the state. Without these funds, core state programs are at risk. (More legislative authority is required, since the bond sale is hamstrung by the utilities’ objection to passing through money from consumer rate payments. They want to keep most of the money. Without an assured revenue stream, revenue bonds can‘t be sold.)

For an example of why skepticism may, as a rule, be the best response, consider the long-term power contracts that were one of Davis’ solutions to the power crisis, but have proved not to be, since they cover barely a third of the state‘s power shortfall in the short term. It turns out that these ballyhooed deals are going to cost at least $2 billion more than previously claimed, and probably a lot more.

Indeed, sources at the Department of Water Resources, the state agency thrust into the power-buying business when generators refused to sell to the reeling private utilities, acknowledge that half the announced deals are still being negotiated as the wholesale market moves even higher. ”This is the worst time to get into forward contracts,“ says Senator Steve Peace, D--San Diego, a deregulation architect who has turned sharply critical of what’s been done.

There‘s little relief in sight on the sky-high cost of electric power unless the governor does something. After months of rather incongruously hoping for the Federal Energy Regulatory Commission (FERC) to take action against exorbitant wholesale prices -- which didn’t happen under Bill Clinton, so why would it under George W. Bush? -- Davis was deeply disappointed by the FERC‘s faux solution of last week. It would apparently ”cap“ spot-market prices, but at roughly double what we’re paying now. And only when there‘s a shortage of power, which would encourage the flow of power to California at even higher prices to avoid triggering the ”cap.“ The scheme would also interfere with the state’s proposed takeover and control of the power grid by making it part of a regional system. The Southern power-company cartel has no objection, perhaps because it would add a consumer ”surcharge“ to start paying back what the California utilities owe them.

Which, as has been noted before, puts the ball back in our court. Pomona Senator Nell Soto has a windfall-profits tax on power generators. Lieutenant Governor Cruz Bustamante wants to make price gouging a felony in California.

Treasurer Phil Angelides has a plan that he has put together with his financial advisers for the state to operate private power plants at much lower prices while still providing generators with a 20 percent return. That would require the use of the governor‘s emergency powers. ”It’s time to go on offense,“ says Angelides.

Meanwhile, evidence is emerging from the proceedings of a Senate investigative committee headed by Orange County Democrat Joe Dunn of price manipulation on the spot market as far back as the summer of 1998. Reports were evidently written by official advisers to the state‘s Power Exchange about this, but they were reportedly suppressed by the leadership of the now-defunct electric-power marketplace.

Peace charges that California Power Exchange management pressured their market monitors then to withhold reports, saying that generators ”would withdraw their participation if the reports were published.“ Stanford economist Frank Wolak, head of the market-monitoring committee for the Independent System Operator, which manages the power grid, agrees, testifying that he was aware of the suppressed reports.

The state’s utilities continued their overreliance on the spot market in 1999, and the pattern continued. But it was masked that year by an abundance of hydroelectric power in Northern California and the Pacific Northwest.

California was becoming more vulnerable to climate change and market manipulation. Both came on with a vengeance in 2000 and 2001. This year Seattle has gotten less rainfall than Los Angeles.

But the absence of water doesn‘t mean we’re not headed for an even bigger bath than we‘ve had to date.