When the Los Angeles Times called for the ouster of Governor Gray Davis’ press secretary — for buying a few hundred shares in power generator Calpine — it focused on a small story at the expense of a bigger one. Yes, Steve Maviglio bought the stock right around the time that the California Energy Commission approved Calpine’s application for a controversial power plant in the San Jose area. But Maviglio required no inside knowledge to anticipate that event. Governor Davis had signaled his support for the Calpine plant long before, and much of the opposition had already thrown in the towel.
The bigger story is the one that explains why Maviglio’s investment was even better than it appeared, and why state taxpayers should be concerned about it.
Calpine and another California–based firm, Sempra, corporate parent of San Diego Gas & Electric, scored very sweet contracts from the state when they locked up long-term contracts meant to secure a steady, affordable supply of power to the state. “We’re examining the contracts,” says Rich Ferguson of the Sierra Club, “and the Calpine and Sempra deals seem to be especially rich.”
The state’s commitment to Calpine is extraordinary, in the view of experts interviewed by the Weekly. The firm will receive billions more than it should, said energy expert and consumer advocate Doug Heller of the Foundation for Taxpayer & Consumer Rights. “One Calpine contract buys 20 years’ worth of power at 7.9 cents per kilowatt hour, several times the cost of production at a new plant,” notes Heller, who’s reviewed newly disclosed contracts. “Calpine is assured of success for a generation.”
Sempra also got very sweet deals, say a number of energy experts and consumer advocates still scrutinizing the fine print. Strikingly, says Heller, “They received a commitment from the state that the state itself would pay Sempra’s share of any future windfall-profits tax that the Legislature might enact.”
State officials have said repeatedly that they did the best they could. Indeed, they were not in an advantageous position. The state needed the power, and negotiators had little leverage, despite the tough game that Davis talked in public and especially given Davis’ obvious unwillingness to seize power plants.
All told, the state’s Department of Water Resources negotiated nearly $44 billion in long-term power deals through a process shrouded in secrecy. It was only last month that the agency was ordered by Judge Linda Quinn to release unedited records, which are still being pored over by independent experts.
This massive, secret commitment has, as the Sierra Club’s Ferguson puts it, “limited everyone’s ability to maneuver,” seemingly locking California into a major yearslong commitment to fossil fuels at prices likely to be higher than the rest of the market, perpetrating a kind of green blackout.
Only 120 of the 10,000 megawatts secured by the long-term deals, a paltry 1.2 percent, comes from renewable energy sources — wind, geothermal, and biomass. State officials explain this by claiming they could not depend on renewable energy sources that don’t yet exist. But that is spin. The truth is, 70 percent of the power the state is buying will come from power plants that have yet to be built. And those plants will all be run on natural gas. Experts say these new fossil-fuel plants will be guaranteed profitability by their state contracts. And since the state has purchased more electric power than it may need, the market for new renewable energy sources, at least over the next few years, appears to be blocked.
Thus the Democrat-controlled government of the world’s fifth largest economy is in the distinctly odd position of fostering a new generation of fossil-fuel dependency at a time when the Republican administration in Washington is under fire from most of the rest of the world for refusing to do anything about the greenhouse effect.
Public pressure finally forced Davis press secretary Maviglio to sell his stock, but he clearly knew a good investment when he saw one. Federal regulators are now examining whether the Davis energy deals pass legal muster. The Securities and Exchange Commission is conducting a preliminary probe of energy-related stock trading by members of the Davis administration.
Questions of insider trading aside, the relationship between the Davis team and Calpine is distressingly cozy. Calpine employs Darius Anderson, a top Davis fund-raiser who ran the governor’s inauguration, as its Capitol lobbyist. And Press Secretary Maviglio touted Calpine as a “white hat” power company, even as he invested privately in its stock and the Davis administration granted it lucrative deals.
Some are calling for a renegotiation of the long-term energy contracts. Consumer advocates assert that the original contracts could be voided, on the grounds that they were negotiated and approved by people with direct financial ties to the outcome. But more research would be needed to establish those connections, as well as to establish solid legal basis for action. And the Davis administration is still withholding information about potential conflicts of interest among some of its key players.
As the Foundation for Taxpayer and Consumer Rights’ Heller notes ruefully, “It’s hard to imagine any of this having taken place had there been public scrutiny in the first place.”