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Light Troubles

The weather gods have smiled on Gray Davis and California of late, granting a spate of unusually mild summer weather and an absence of blackouts. But with polls showing continuing public dissatisfaction with the state‘s handling of the ongoing electricity crisis, the political heat is still on to find a lasting solution. At issue are dueling plans for a bailout of Southern California Edison, discussions of how to rebound from the collapsed federal talks on price gouging by the power generators, and uncertainty over the state’s troubled long-term power contracts. Add to this the unknown political fates of Davis and Edison advisers Chris Lehane and Mark Fabiani.

First to the Edison bailout, which might be headed for a ”Sacramento Special,“ a nickname for an 11th-hour backroom deal that gets rammed through the Legislature and signed by the governor with little public scrutiny and less understanding.

After spending weeks wrangling over the state budget and months mostly ignoring Davis‘ bailout deal with Edison -- with a monthlong recess set to begin this Friday -- alternative plans are quickly coming up without sustained or well-considered scrutiny. The Davis plan, authored by termed-out Senator Richard Polanco (D--Los Angeles), is dead in its current form. So the governor, who is remarkably close to Edison, has gotten behind a bailout bill by Assembly Speaker Bob Hertzberg (D--Sherman Oaks) and Assemblyman Fred Keeley (D--Boulder Creek).

Many observers expect nothing final to happen this week. Consumer advocate Harvey Rosenfield worries, though, saying, ”I think they’re going to pass something at the last minute. The special interests almost always win at the last minute. The Hertzberg bill is nothing but a dressed-up bailout.“

Davis‘ press secretary, Steve Maviglio, says he is ”optimistic“ about the Hertzberg bill, noting that Davis’ lawyers have been working with the speaker since early July. But he wouldn‘t quite predict passage this week, because there are complicating factors. For one, many in the Assembly dislike the HertzbergDavis approach; they want either a simpler bailout or none at all. And Senate Democrats, led by Senate President Pro Tem John Burton (D--San Francisco), are getting together behind a plan by Senator Byron Sher (D--Palo Alto) that would have large businesses pay off most of Edison’s debt and force generators to reduce by 30 percent the amount they are owed by the utility. That would leave about $1.2 billion in debt, for which Edison itself would be responsible. This plan would also give the state the option to purchase Edison‘s transmission lines for just over book value -- half the price in the Davis bailout. One Edison lobbyist said the company’s leadership ”hates“ the plan, though they of course like the Hertzberg bill now backed by Davis.

The Hertzberg bill is better than the original Davis deal with Edison. The state would purchase the utility‘s transmission lines for 13 percent less than the $2.76 billion Davis negotiated. It would allow many big energy users -- mostly business and industry -- to eventually bypass the utilities in purchasing their own power directly from generators. But to win that right, they would be required to pay off a portion of Edison’s debt to its creditors. And consumer advocates fear that business would simply pass the cost on to its customers.

The Hertzberg bill would have made a fine starting point for negotiation between the state and Edison. Unfortunately, Davis sent forth a former Edison president, Michael Peevey, to negotiate with his former company. That obvious conflict of interest, coupled with Davis‘ panic over the bankruptcy of Pacific Gas & Electric, led to one of the classic sweetheart deals in California history.

Had the Federal Energy Regulatory a Commission’s recently concluded settlement talks in Washington -- between state officials and power generators over rampant price gouging -- not collapsed, an Edison deal would have been much easier to do. If an FERC settlement came up with $4.5 billion, Edison would get about $1 billion. Add in a $1.5 billion gain on sale of the transmission lines, the figure in the Senate plan, and only $1 billion in the company‘s claimed debt remains. With Edison already agreeing as part of the benighted Davis deal to give back $400 million of the money its holding company took from the utility for unneeded tax payments, things become very doable. But FERC isn’t likely to order anywhere near that amount in refunds.

A mere $1 billion is the figure most frequently cited by the FERC negotiator. And even if FERC mandates that amount, the generators might well tie up the order in court and prevent Edison from paying its bills.

A settlement for serious money would make an Edison bailout much likelier and would make the state‘s increasingly criticized $43 billion in long-term power contracts easier to renegotiate. But that’s probably not going to happen.

 

What happens next, assuming Rosenfield‘s immediate doomsday scenario doesn’t come to pass? Says one player in the process, ”I‘d be surprised if there’s an acceptable MOU [memorandum of understanding] anytime soon, which increases the likelihood of bankruptcy for Edison. I understand that the Senate bill and the Assembly bill will each pass its own house but not the other, so that it‘s harder to point fingers.“

Which could lead to an immediate conference committee between the two houses, raising the backroom specter of how the original deregulation deal went down -- or to ”serious consultation,“ as one legislator puts it, between legislative leaders and the governor, over the recess. And hopefully a lot more public scrutiny.

Would this be enough to fend off an Edison bankruptcy for now? Perhaps. By all accounts, Edison still wants to run a utility, while many believe that PG&E wants out of the utility business. And Edison chairman and longtime Davis friend John Bryson’s ego is heavily invested in this process. So they may continue for a while, hoping for either a very favorable FERC decision or ultimate passage of the Hertzberg bill.

There is, however, one joker in the deck, in the form of a late-breaking bill by Assembly Energy Committee chair Rod Wright (D--Los Angeles), which he describes as ”a straight-out bailout.“ This bill would simply pass on the cost of a bailout to consumers with no state purchase of assets. As consumer advocate Lenny Goldberg points out, ”Wright says he can get Republican votes and block the Hertzberg bill. But it would never fly in the Senate.“ If the Senate bill is the only one on the table, Edison might choose bankruptcy.

The uncertain fate of two high-profile consultants to Davis and Edison highlights the public problem for the utility. After months of indecision, Gray Davis finally acceded to the obvious and pounded away at the White House‘s extraordinarily close ties to the power generators. Two top Clinton-Gore operatives -- former Al Gore press secretary Chris Lehane and Clinton damage-control counsel Mark Fabiani -- played a major role in enacting the new strategy. But the two brought an enormous amount of controversy with them, both because of their $30,000 monthly contract with the state and because of their concurrent work for Edison. So, in a press release issued hours after the close of business one Friday night a few weeks ago -- a press release that was, ostensibly, about the promotion of his press secretary to the role of ”interim communications director“ -- Davis cut the string.

Just a few days earlier, Lehane had brushed aside private and public reports that the two had stopped working for Edison and told me in an interview that there was no conflict of interest there. ”The governor and Edison,“ he said, ”have the same energy policy. There’s no conflict in working for both.“

Let‘s change the quote just a bit. ”The president and Enron have the same energy policy. There’s no conflict in working for both.“ That‘s a quote that would provoke outrage in Washington. If it didn’t provoke outrage in California, it was because the Golden State has become a banana republic.

Under any amount of attention, the relationship couldn‘t stand. So Davis let Fabiani go, retaining Lehane but cutting his pay by a third, and requiring him to stop working for Edison. A seemingly fair result, though some public-interest advocates insist that state conflict-of-interest law prohibits his employment in any event, since his work for Edison occurred within the last year.

Enter Controller Kathleen Connell, who has bedeviled the Davis team with waspish comments and embarrassing revelations of state power contracts. She issues the state’s paychecks, and she refuses to pay Lehane and Fabiani for their work.

The media have reported that the Connell-Davis feud -- and that‘s what it is -- stems from his opposition to her candidacy in the Los Angeles mayoral primary. But its roots sink far deeper than that. It actually began shortly after Kathleen Brown lost her premature 1994 race for governor. While some looked to Senator Dianne Feinstein to come back from Washington and take a shot at the governorship, Davis and Connell immediately started elbowing each other for advantage. While many big-time Democrats who favored Feinstein considered this rivalry an amusing sideshow, it was no less real -- and nasty -- for that. Even after Connell declined to run and Davis was elected, the bitterness continued, often to no good purpose. Indeed, the Davis team probably brought some of this on itself when Davis’ chief political adviser, Garry South, stooped to criticizing Connell‘s hairdo during her mayoral campaign.

 

So what is to be the fate of Mr. South’s new colleagues? The Governor‘s Office says it doesn’t know, and the question of their receiving payment from the state remains unresolved.


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