Davis Sharpens Attack on Bush Energy Plan
Power: He also hires high-profile consultants in effort to boost his political standing.By DAN MORAIN, MARK Z. BARABAK, Times Staff Writers
(Italics & Underlines are mine, Bob)SACRAMENTO-Gov. Gray Davis is going on the attack as the Democratic Party's point man against President Bush's energy plan, even as he seeks to bolster his drooping standing in California by hiring consultants who honed their crisis-management skills during the scandal-ridden Clinton administration. (Consider this: this article fails to mention that he didn't pay for these Clinton-Criminals. He let the taxpayers of California pay for his dirty work.)
Davis was expected to again criticize Bush's energy plan today as he makes the official Democratic response to Bush's weekly radio address.
In the last week, Davis has variously blasted the president's energy plan and Texas energy companies on an ABC talk show, on CNN, and in an opinion piece for the Washington Post. In an interview with Associated Press, Davis vowed to "hold everyone accountable: myself (right, just like all the criminals in the Clinton administration did and then paid absolutely no price for their crimes), the energy producers and the president of the United States."
"We are literally in a war with energy companies who are price gouging us," Davis said Friday. (With an attitude like that and also other California madmen in the legislature are actually suing some of the energy companies do you think they will ever, under any circumstances build another power plant in this insane state?)"Many of those companies are in Texas. Mr. President, you didn't create this problem, but you are the only one who can solve it."
At the same time, Davis all but acknowledged his own political problems when he announced that he has retained two political aides, Mark Fabiani and Chris Lehane. The two, who also do work for Southern California Edison, will be paid by taxpayers at a combined rate of $30,000 per month--more than the $13,750 earned by the governor himself. (You don't suppose that SoCalEd who is being driven into bankruptcy by the deals the legislature made with them in the past is thrilled to have their lawyers bought out by Gov. Gray Dufus?)
Lehane, known for his tart-tongued commentary, was Vice President Al Gore's main campaign spokesman, and had a knack for getting under Bush's skin during the 2000 campaign.
Fabiani, a Harvard law school graduate, became a highly partisan and acerbic White House defender when President Clinton was mired in investigations ranging from the Whitewater land deal to the Monica Lewinsky affair. Fabiani developed his reputation for being able to handle crises while defending Mayor Tom Bradley against various investigations near the end of the late mayor's tenure.
In political circles, the nickname of their firm is Masters of Disaster.
Davis' decision to retain Lehane and Fabiani comes as the governor's once-sterling poll numbers have fallen sharply and he faces persistent criticism over his handling of the energy crisis.
Their arrival also corresponds to Davis' increasingly aggressive stand on the energy crisis. In recent days, Davis for the first time has attacked an individual generator, Reliant Energy of Houston, for charging a record $1,900 per megawatt for electricity on two days last week. He also dared President Bush and Vice President Dick Cheney to "stand up" to their "friends" in the energy business by capping wholesale electricity prices charged in California.
Davis' more assertive stance comes as Democrats nationwide step up their attacks on the president, using the energy plan to launch a broader assault on Bush's leadership and policies.
"One of the glaring flaws in the Bush energy plan is that it offers no short-term relief for consumers," said Dan Pfeiffer, a spokesman for the Democratic Governors Assn., which Davis chairs. "And there is no better example of that than the fact he does nothing to control runaway prices in California." (Let's see, California completely snubbed GW Bush in the last election, he believes that the free-market will solve the problem created by the Democrats in California, so why should he care?)
In addition to portraying Bush as ignoring the plight of California--the nation's largest electoral prize--Democrats see Bush's energy response as a way of confirming their broader assertion that he is captive to oil interests.
"This is a way for us to show how they are really an administration and a party that is bought and paid for by special interests,"(Yeah, right. You know that Gov. Dufus has $30 million in his campaign war chest and the biggest donors were....ta da!...the same big oil companies he's calling dirty dogs now!) said Jenny Backus, a spokeswoman for the Democratic National Committee.
To press the case, the party has created a snide Web site--http://www.grandoldpetroleum--and will soon start running TV ads attacking GOP lawmakers over the energy issue, including in California.
Paul Maslin, the governor's pollster, said Davis had given the president a grace period after he took office in January to see how Bush would address the energy problem. But the governor grew increasingly frustrated when it became clear "we weren't going to get any help from Washington."
For his part, Bush made glancing reference to California in a speech Friday at a hydroelectric plant in Pennsylvania, part of his tour to sell the administration's energy blueprint. The president praised Californians for doing "a fantastic job in conservation."
"And yet they're lacking energy. They're having blackouts," Bush said. "We all must be deeply concerned about our fellow citizens in the great state of California. But the problems in California show that you cannot conserve your way to energy independence."
While Bush did not mention the governor, the president's deputies have rushed to criticize him.
Virginia Gov. James Gilmore, head of the Republican National Committee, suggested Davis was hypocritical to attack Bush when "the president is the one who came forward with the first energy plan we've seen in years."
"He's going to have to answer the question of what he's done as governor," Gilmore said. "While he's in the process of attacking, one might suspect he may be diverting attention away from his own record."
On Thursday, Environmental Protection Agency administrator Christine Todd Whitman was overheard criticizing Davis to Iowa Republican Party official Darrell Kearney.
"He's had plenty of time to do something, and he hasn't done anything," she said as she left a meeting room in Nevada, Iowa, where Bush had just finished speaking.
Some more independent observers see political liabilities in the Bush plan, namely the focus on long-term solutions at a time voters are growing increasingly upset about high gas prices and soaring utility bills.
"While [the administration] talks about how we approach things in the next five years, there's not a lot of empathy or understanding for what's affecting people now," said Stuart Rothenberg, a nonpartisan political analyst in Washington.
"Maybe it's unfair to talk about Bush and Cheney's oil backgrounds and Texas backgrounds," Rothenberg said. "But it's an obvious thing for critics to do."
Rothenberg predicted a backlash that could cost Republicans control of Congress next year, "if the energy issue continues to grow and Americans really become concerned. . . . It puts the burden on the White House and Republicans to change that."
Davis' new aides, while considered expert in solving the kind of political crisis threatening Davis, pose the potential of controversy on their own.
As consultants, Lehane and Fabiani, unlike government officials, are not required to file conflict of interest statements detailing their holdings and sources of income.
However, in an interview on Friday, Lehane acknowledged that he and Fabiani have worked for about two months as consultants for Southern California Edison. He insisted there is no conflict.
Davis is struggling to win legislative approval of a deal he struck with Edison to rescue the utility from bankruptcy. Several lawmakers oppose the deal, contending that it is too rich for Edison.
"Both sides [Edison and Davis] are in agreement on what needs to be done here," Lehane said. "As the governor said . . . we are literally in a war with these out-of-state generators."
Although Lehane and Fabiani will be working on broader communications issues for Davis, Harry Snyder of Consumers Union, a critic of the Davis-Edison deal, blasted Davis' decision to hire consultants who also work for the utility.
"Davis has done everything politically wrong," Snyder said. "He hasn't done anything that is consistent with the democratic process. It is the worst abuse of power that I have seen in 25 years of lobbying."
Others suggested that Davis was helping himself by bringing the duo aboard.
"Mark is the premier crisis manager in the country in terms of communication strategy," Democratic political consultant Bill Carrick said. "He has tremendous experience. . . . He takes the incoming. You get hit with something in the morning. He knows how to turn it around by the afternoon."
Lehane said the governor's decision to hire them does not suggest Davis will become more pugnacious, although he added that Davis is "not someone afraid to pick a fight when someone, like the out-of-state generators, represent policies that are bad for the people of California."
"Gov. Davis has been very successful in politics for quite some time in this state," Lehane said. "He has a keen understanding of how this state works and how politics in this state works. I don't think his style is going to change or be any different than he has been throughout his career."Report: State grid operator behind plant's output swings
July 3, 2001
LOS ANGELES (AP) -- The operator of the state's power grid has acknowledged that it was responsible for swings in production at a power plant that Gov. Gray Davis held as an example of price gouging by out-of-state energy companies.
The Los Angeles Times and Charlotte Observer reported Sunday that the California Independent System Operator told its oversight board that records showed Duke Energy was following orders to help balance the grid and not driving up prices.
Three former workers at Duke Energy's San Diego-area plant told state investigators June 22 that production units were shut down in what they called a scheme to drive up electricity prices.
Duke responded last week by taking out full-page newspaper ads defending itself against the accusations by the former workers.
Duke officials said in the ads -- which appeared in newspapers in California, Texas, South Carolina and North Carolina -- that plant production was increased and decreased at the order of Cal-ISO, the agency that controls the state's power grid and monitors supply and demand.
The California version of Duke's advertisement specifically denied the workers' allegations, and claimed they "did not know -- and were not in an operational capacity to know -- that the ISO directs output. ..."
Governor Davis had praised the three workers as heroes and Lt. Gov. Cruz Bustamante said they had delivered the "smoking gun" needed to prove price gouging.
Cal-ISO has not yet publicly acknowledged its role in the ramping up and down of electricity production, but gave its analysis late Friday to selected lawmakers. The move came after Charlotte, N.C.-based Duke gave the agency's confidential orders to the Times and the Charlotte Observer newspaper.
The agency's analysis found that Duke's South Bay units had accurate logs showing that the units followed Cal-ISO's dispatch orders.
"It's regrettable that some people have inferred things that just weren't the case," said Duke spokesman Tom Williams.
The agency's findings may not clear Duke entirely of charges that it manipulated power supplies during three days in January when prices skyrocketed, said Gregg Fishman, an ISO spokesman.
"Those facts are all correct, but they may not add up to a complete picture of what happened during those three days," Fishman told the Charlotte Observer on Saturday.
State officials cautioned that further investigation is still needed to determine if Duke used other tactics to manipulate the power market.
"ISO's comments on the ramping still do not resolve the full question," said state Sen. Joe Dunn, D-Santa Ana.
Duke has been challenged for its production tactics and pricing at the state and national level. The Federal Energy Regulatory Commission last month found the company had overcharged California by millions earlier this year when it was charging $3,880 a megawatt-hour for electricity. The commission found that Duke was entitled to only $273 per megawatt-hour.
In one month, the average home in North and South Carolina uses one megawatt hour at a cost of $73.
Duke is one of several out-of-state generators that entered the California market after the state deregulated its power industry in 1998. With three plants it owns and the leased South Bay plant, Duke accounts for about 5 percent of the state's generating capacity.
On Thursday, the state Senate committee investigating Duke and others held two generators in contempt for failing to provide records of their operations in California. Duke was not held in contempt because it agreed to turn over documents by the July 10 deadline, said Ronda Paschal, a spokeswoman for Dunn, a leader of the committee.
Copyright © The Sacramento Bee
California Reselling Power at a Loss
California has power to spare right now, but it's still costing the state a lot of money.
Thursday July 19 02:36 PM EDT
By KPIX - The PIXPage StaffThe cool weather has reduced electricity demand, and electricity can't be stored. So California is selling its excess power at a loss.
Electricity that the state bought for an average of $138 dollars a megawatt is now being resold for about $25 dollars a megawatt, according to the Governor's office. However, energy traders say even that doesn’t add up, and some of the power as going for as little as a $1 per megawatt.Copyright © 2001 KPIX. All rights reserved.
California’s dim bulbs
Jewish World Review July 20, 2001 / 29 Tamuz, 5761
P. J. O'Rourkehttp://www.jewishworldreview.com -- CALIFORNIA is in the midst of an enormous stupidity crisis. Californians have been sitting in the dark because . . . they didn’t turn the lights on.
They say they’re short of electricity. Yes, they are. Between 1988 and 1998, California’s electricity consumption increased by 15 percent.
Meanwhile California’s capacity to generate electricity shrank by five percent, even as the state hesitated to build new power lines to tap into neighboring states’ power supplies.
Californians didn’t want dams across their rivers, derricks on their ocean, power lines across their borders, or fossil fuel smoke in their sky. These might interfere with all the smart things Californians do, such as hang-glide. California was going to rely on “negawatts” – dramatic power conservation. (But California regulators put price controls on electricity that lowered prices, and even Californians weren’t dumb enough to skip a bargain.) And California was going to rely on alternative power generation.
With all the puffery from Silicon Valley dot.com start-ups, wind farms wouldn’t be a problem. And doesn’t Gwyneth Paltrow’s star shine bright enough to operate a solar panel? But it turns out that alternative power generation is an alternative, mostly, to generating power.
Californians are people who insist on growing their own vegetables, but they won’t dig up the pretty lawn, won’t plant anything for fear of getting dirty, and they use fragrant bath salts from The Body Shop instead of smelly compost. Let them make their crudités with crab grass. President Bush was wrong to grant an extension of executive orders requiring out-of-state utilities to supply power to California. And everyone is wrong to listen to Californians whine about electricity deregulation.
There never was any deregulation. The California Public Utilities Commission merely changed its regulations, which apparently weren’t stupid enough to meet Golden State standards. Under California’s 1996 re-regulation plan, electric companies sold their generating plants and became distributors. They were required to buy their power on the wholesale spot market and forbidden to enter into any long-term power supply contracts. Retail electricity prices were lowered by 10 percent and frozen at the new rate until March 2002.
This is like requiring A&P to sell you porterhouse at $2 a pound, no matter what the price of beef on the hoof. Imagine how many steaks there would be, and how many supermarkets. Go to one of those boarded-up grocery stores, purchase a phantom T-bone, screw it into a ceiling fixture, and try to light your house. You’re in California.
La-la Land, however, is a state of mind as well as a state of the Union. The world is full of mental Californians who, despite a century of socialist catastrophes, are willing to blame the free market for things like the California energy crisis. “What brought [California] to its knees is . . . blind faith in the market to provide for people’s basic needs,” says a piece in the January 30 Toronto Star by a member of the Star’s editorial board.
“Regulation may be politically unfashionable, but it works,” says an article on the front page of the Washington Post’s January 28 “Outlook” section. Even the anti-dirigisme Newsweek columnist Robert J. Samuelson says, “California’s experience casts doubts on the sanity of power deregulation.”
Actually, the critics of economic liberty are right: the free market did cause California’s energy crisis. Hooray. Capitalism is doing its job. The critics are right without knowing what they’re talking about. The free market isn’t a means “to provide for people’s basic needs.” It doesn’t come in or out of political fashion or lose its mind. The free market is a precise measurement of voluntary price settings. To speak of it otherwise is to say, “My presidential platform is eight fluid ounces,” or, “This length of string has gone crazy.”
Californians devised a system of electricity sales that ignored every dimension of the free market. (Interesting that the “Information Economy” is centered in a place that’s immune to information.) The free market is a yardstick, and Californians got smacked with it. Mideast oil jitters, cold weather, natural gas price spikes, and the plain unpredictable freedom of the free market caused wholesale electricity costs to rise and California utilities to go $12 billion into the red.
California’s governor Gray Davis responded with the full force of bikini beach brain. In a January 8 speech to the state legislature, Davis proposed creating a state agency to buy generating plants and build new ones. He threatened to expropriate power generators and transmission grids. He called for laws to allow criminal prosecution of wholesale suppliers who withheld electricity from California markets. And he said the state’s universities and community colleges would build co-generating plants and become energy independent. (With gas produced by the cafeteria food?) Gray Davis sounded like Joseph Stalin with the IQ of Keanu Reeves. “Everyone should understand that there are other, more drastic measures that I am prepared to take if I have to,” Davis declaimed.
“Take” is the key word. Grabby Californians tried to regulate themselves into some cheap electricity. Hoggish California power companies went along because the state-imposed retail price ceiling was also a retail price floor. According to the Los Angeles Times, during the first 28 months of the scheme, Pacific Gas and Electric and California Edison made $20 billion from the legally required mark-up between wholesale and retail electric prices.
Californians want to snatch that money back. “Consumer advocates around California . . . said it did not matter that the utilities were returning investments to their shareholders,” reported the January 31 Washington Post. “They took the money and ran,” said state senator John Burton. As opposed to Californians, who took the electricity and roller-bladed? Now the juice and the jack are both gone, and the California legislature has had to pass a bill authorizing $10 billion to try to clean up the mess.
But the Californians could still pull a scam. The bill mandates long-term power contracts at rates that are way above what future prices should be. The hope, one guesses, is that Congress, or the President, or somebody will let the state skip out on those contracts once the costs are lower.
It would be wrong to call Californians stupid. They’re sleazy,
too. 
P. J. O’Rourke is the H. L. Mencken Research Fellow at the Cato Institute. He is the author of several best-selling books, including Parliament of Whores, Give War a Chance, Age and Guile, and Eat the Rich. Comment by clicking here.
© 2001, This op-ed is excerpted from an article that was first published in Regulation, the Cato Review of Business and Government, Spring 2001.
Buy high, sell low
Saturday, July 21, 2001
By Tom Ambrose© 2001 WorldNetDaily.com
Isn't government grand? In an age where federal and state governments run monumental deficits, legislators vote themselves bloated salaries, and citizens struggle to pay their bills while suffering from outrageous taxes, along comes California's Gov. Gray Davis – a socialist Democrat – to raise the bar of governmental incompetence to a breathtaking new height.
What has Davis done? In his panic to cover his rear end after grossly mismanaging California's energy problem, this political idiot savant held secret negotiations with utility companies and successfully locked in power purchase agreements at an average of $138 per megawatt.
What is the problem, you might wonder?
Well, California now has an excess of electricity. Electricity that cannot be stored for a hot day. Electricity that is now being sold for $1 per megawatt.
That's right, California is buying power at $138 per megawatt and practically giving it away at $1 per megawatt. All thanks to the astute governor of California, Gray Davis, who panicked when he realized his political career was headed over a cliff and negotiated from a position of weakness and desperation.
And lest you think I'm being too unkind to this man who WorldNetDaily columnist Hugh Hewitt justifiably refers to as the "ungovernor," according to Consumer Watchdog:
Governor Davis is prepared to take billions of dollars from ratepayers and hand it to the utility companies that created this energy crisis," said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). "The governor might as well wrap this deal in holiday paper and put it under the state's unlit Christmas tree, because it is a huge gift to the utilities.
Governor Davis wants ratepayers to pick up a $4 billion tab, which FTCR believes to be unwarranted and illegal …
Real swift move, Davis.
Once again, the taxpayers must suffer because of the malfeasance of this nincompoop pol.
Moreover, Davis has been warned about these problems for a couple of years and only recently began to act when he finally realized that the fan wasn't going to be turning when the manure started hitting it.
Asleep at the switch? Perhaps. More likely – and more sinister – however is the explanation Richard Roberts detailed for WorldNetDaily back in March of this year in "Seizing power."
It is past time to dump turkeys like Davis, folks. Make sure you show up to the ballot box this year and send an unmistakable message to these socialists to leave America alone! Whether they call themselves Democrats or Republicans, our nation cannot afford any more of their incompetence and mismanagement. And, frankly, aren't you sick of them wasting your hard-earned money to fund their arrogant agenda of control over our lives?
Tom Ambrose is the assistant commentary editor of WorldNetDaily.
Power to the People
Volume 12, Issue 11. June 18, 2001.
Fundamentals are being decided here. The power crisis that has blindsided California has also turned the state into ground zero in an unanticipated war between radical capitalism and a democratically controlled economy.
One of the great debacles of recent times--a classic saga of greed, ideology, stupidity, and media neglect--the crisis has already spawned the biggest utility bankruptcy ever in the United States, sparked the largest state-bond issue in the nation's financial history, triggered the first planned blackouts in the Los Angeles area since World War II, evaporated a huge state-budget surplus, and wrecked the presidential hopes of the most-populated state's Democratic governor, Gray Davis. With the crunch of summertime coming and utility customers still dependent on a wholesale power market dominated by rapacious out-of-state firms, the ordeal is anything but over.
Nationally, George W. Bush and Dick Cheney are using the crisis to promote their supply-side energy policy of massive fossil-fuel and nuclear development, downplaying the role of conservation and renewable energy, and guaranteeing unchecked consumer prices for their former colleagues in the energy industry. Yet here in California, progressive politics have been unleashed as well. With the preternaturally cautious Davis mostly along for the ride, California is now engaged in unprecedented state intervention in the energy marketplace, buying power for the strapped utilities, trying to buy the utilities' power grid, and setting up a state public power authority. An omnibus energy initiative spearheaded by a former Naderite looms for the 2002 ballot. Polls show extraordinary levels of public distrust of private companies.
The governor's effort to bail out Southern California Edison, the only big private utility in the state that hasn't declared bankruptcy, is foundering--as is his governorship. His repeated announcements of solutions that weren't have taken a toll. With his plummeting job-performance ratings, the only saving grace for Davis is the weakness of the Republican Party in California--and the $30 million in campaign funds he's spent much of the past two years raising.
In many ways, this is a new-economy struggle involving high finance, globalism, differing modes of technology, and new-style money politics. In even more fundamental ways, however, this is also an old struggle, as California Treasurer Philip Angelides points out. "In times past," he says, "public interests have had to step up to counter private greed, as California Progressives did in the early part of the last century and Franklin Roosevelt did with the New York Power Authority." Angelides, a wealthy developer and former state Democratic chairman, has joined forces with California State Senate President John Burton--brother of legendary Congressman Phil Burton--to create a state public power authority. This agency, which both houses of the California legislature have now authorized, will finance energy-efficiency improvements and renewable-energy technologies as well as build new conventional plants that will provide enough generating capacity to help tame an out-of-control market.
But that's for the future. In the meantime, Burton and Angelides' plan to help recapitalize the utilities and gain more control over power companies by purchasing utility transmission lines has stalled out owing to the bankruptcy of Pacific Gas and Electric (PG&E) and the very generous deal that Davis negotiated with Southern California Edison--so generous that it is in deep trouble in the legislature. (It would not require the Edison holding company to give back the billions of dollars it received in transfers from the utility as part of deregulation.)
Likewise, their proposals to get tough with southern power companies such as Enron and Reliant Energy that dominate the wholesale market--either by seizing their in-state plants (which they bought from PG&E and Edison) outright or taking over their operations--have run into one big stumbling block: Governor Davis. The governor simply will not act. Throughout the crisis, Davis has talked tough about the power companies, but his fundamental solution has been to hope for price caps from the Federal Energy Regulatory Commission. Angelides says his financial experts assure him that the state could operate the plants for half the current spot-market cost while ensuring a 20 percent return to the companies. But the governor would have to use his emergency powers to make it happen. To date, they remain unused.
Meanwhile, the state's foray into buying power on the wholesale spot market for the creditless utilities, an undertaking Davis justified as merely a brief commitment, has turned into a multibillion-dollar drain of the state's general fund that threatens core programs. The legislature has initiated a bond issue to reimburse the state for its outlays, but Republicans have just enough votes to delay its issuance until August. Conservation efforts, which some outside advisers urged Davis to focus on in 1999, are off to a late start and may also come up short. Alternative-power generators--the companies that use cogeneration, wind, solar, geothermal, and biomass technologies to provide electricity--went months without being paid by the utilities and may not provide the electricity the state needs.
In short, despite enormous levels of frantic activity, California is still in deep trouble. Davis's mismanagement, the Bush agenda, Bill Clinton's laissez-faire energy policies, and former Governor Pete Wilson's deregulation scheme have combined to hand the whip to the southern power cartel. And thanks to unusually high levels of maintenance outages and a major accident at the San Onofre nuclear plant, rolling blackouts have already been taking place. With the peak air-conditioning season yet to come, California is looking at a long, hot summer.
A Low-Voltage Governor
"So much of this was outside our office," says a rather plaintive Steve Maviglio, Davis's press secretary. "President Clinton had always delivered on every single item the governor had ever asked [for]." Until he asked for federal price caps on electric power, that is--something Davis spent most of last year doing as the storm gathered.
By all accounts, the governor is not a big-picture guy. According to a number of his past and present associates, Davis is most engaged by subjects "right in front of him"--placed there, usually, by polling. It's a good way to address, if only symbolically, the most immediate needs of a detached, contented electorate; and it's a method that served Davis nicely on the gubernatorial campaign trail. But it is anything but a good way to anticipate future needs.
Moreover, as former California Governor Jerry Brown's onetime chief of staff, Davis had a chance to see firsthand how energy could become a hot-button issue. In that position, he had to fend off the corporate backlash to Brown's conservationism, his antinuclear stance, and his preference for renewables. Now, as governor himself, Davis doesn't want to rock that same boat. His appointments to energy-related commissions mostly have been political cronies, and he held over Wilson's Energy Commission chairman.
Davis's appeal to Washington turned out to be a major mistake. Under Clinton, the Federal Energy Regulatory Commission, dominated by market-oriented policy-makers, effectively declined to cap the skyrocketing wholesale prices. Meanwhile, the opportunity to lock in affordable prices through long-term contracts between utilities and the power generators was being lost. The California Public Utilities Commission (CPUC) did vote last summer to allow the big utilities to enter into long-term power contracts. Such contracts would have saved billions of dollars. But the utilities chose to delay. (They complain now that they could not receive assurances from the CPUC that they would not be second-guessed on the terms of the contracts if they looked too generous in retrospect.) In any event, Davis did not press the utilities to enter into those contracts.
Davis-think went through several permutations (including a State of the State address in January that included not a word of criticism of the big utilities that had lobbied for the deregulation) before finally embracing an approach based on a high degree of government intervention. It was against his grain, say his advisers; he probably never would have gone for that level of public control at the beginning of this year.
But events were in the saddle. Davis was forced into the emergency-power-buying business by the utilities' lack of creditworthiness with power generators. Within the political establishment, Burton and Angelides brought significant pressure to bear for direct government intervention. Outside the establishment, consumer advocate Harvey Rosenfield, a former Ralph Nader disciple and veteran promoter of ballot initiatives, frightened politicians with credible talk of an omnibus energy initiative in the 2002 election.
At least as important to Davis's shift to more progressive policies were the results of extensive polling and focus-group research. Surveys conducted for newspapers indicated that most Californians blamed the big utilities and believed that power companies manipulated the situation to drive up prices and create a crisis.
Private research indicated still more: "We found that even some people who don't like government have had enough," says Davis adviser Paul Maslin. "They want a sense of control. They think government can give them that, and the market's given them chaos." Especially telling was a focus group with middle-aged, middle-class white men, who often disdain government programs and wax enthusiastic about individualism and private enterprise. Not this time. In the face of the market clout of the big energy companies, they wanted strong government intervention to reassert a sense of control.
But Davis has yet to pull the trigger. His emergency powers to take over or operate plants remain uninvoked. And his fateful opening up of the state's general fund to the spot market was akin to letting the vampires into the blood bank.
The Architects of Disaster
Davis didn't create the problem, of course. The deregulation of California's power industry was conceived at least partly in London. And its inspiration came, in no small measure, from Margaret Thatcher.
While former Governor Wilson made plain his philosophical support for deregulation in the early 1990s and pushed it through after he won re-election and his party took over the assembly in 1994, he needed a quarterback. Wilson found his man in the unlikely person of Daniel W.L. Fessler. This contract-law professor at the University of California at Davis had no particular background in energy issues, but he did boast a conservative ideology and the friendship of first lady Gail Wilson. It was enough to make him Wilson's choice as president of the California Public Utilities Commission.
After first trying to lead a revival of nuclear power in California, Fessler embraced electric-power deregulation. An Anglophile who enjoyed affecting a mock British accent, Fessler looked to Thatcher's electric-power deregulation of Britain for strategies, bringing back many ideas from a trip he and other regulators took there with top utility executives in 1994.
Fessler and company returned to California with a sense of purpose. Electric-power deregulation was hurtling along on the fast track. Trouble was, there was no clamor locally for deregulation. Unlike Britain, which had had a wheezy public power system (in sharp contrast to the many successful municipal utilities in the United States), California had a system that worked. Power cost more here, on average, than elsewhere in the United States, but far less was used per capita than elsewhere, too, because of energy-efficiency improvements begun during Jerry Brown's governorship.
If prices were high, the obvious solution was to come up with more generating capacity--and that's just what the state's municipally owned power companies did. "I had no trouble getting power plants built," says Ed Smeloff, former president of the Sacramento Municipal Utility District. But the big private utilities weren't moving on new capacity.
The only real constituency for deregulation in the early 1990s had been old-economy industries, like steel and cement, which were eager to lower production costs. But California also had a perceived "competitiveness crisis." There was then much rhetoric about the Golden State losing substantial portions of critical new-economy industries like entertainment and high technology to low-cost, nonunion states such as Nevada. This notion proved to be just a lot of talk. When it comes to energy, these industries are more concerned with reliability than with marginal price issues. But Fessler's view of a reconfigured utility industry would strike a resounding chord with utility leaders like Southern California Edison CEO John Bryson, and the power company executives ultimately emerged as the crucial backers of deregulation. Deregulation, that is, that suited their purposes.
Fessler opposed government efforts to promote conservation and saw renewable energy as illusory. To him the price signal was all that was needed to spur greater energy efficiency. Claiming that great benefits would accrue through the elimination of utility reserve margins, Fessler emphasized short-term savings at the expense of both reliability and control over supply. Fatefully, he strongly favored leaving regulation of the power grid to the federal government--which has barely regulated it at all, thus placing California in its present thicket. Through a variety of means, Fessler moved the CPUC away from the regulation of power generators.
Despite the market ideology, this was not a true free market. Instead, Fessler and the utilities worked together to craft a market with considerable entry barriers to firms other than the utilities themselves and other big power generators. The utilities were given a multibillion-dollar bailout for their investment in nuclear power. And in the best-of-all-possible deregulated worlds that Fessler and the utilities foresaw, the breakup of their vertical in-state monopoly would free them to roam the country, indeed the planet, buying and building power plants where they could seek the highest return, free from California's regulatory reach while still able to count on the vast California market for crucial cash flow. This is precisely what they have done.
The biggest blunder was to place the consumer in the easily manipulated wholesale spot market--the same mistake Britain made. In the Thatcherized United Kingdom, electric prices have been 70 percent higher than in the United States over the past decade, service has decayed, and blackouts have become more frequent. The very model of the California experience: "Deregulation and the Fessler-led PUC's insistence that California utilities sell off their power plants," notes Smeloff, "left the southern [energy-generating] cartel with the swing capacity."
With Wilson re-elected in a landslide, the state assembly in Republican hands, the utilities' big guns roaming the capitol as part of a multimillion-dollar lobbying blitz, and the media ignoring it all, California's electric-power industry was deregulated in 1996. Evidence of price manipulation emerged as early as the summer of 1998, according to a California senate investigative committee, but the Power Exchange, the now-defunct power marketplace, suppressed the reports. The manipulation was masked the following year by unusually heavy reliance on hydropower from Northern California and the Pacific Northwest. But that dried up last year.
Before deregulation, California utilities owned 46,000 megawatts of electrical-generation capacity, more than half again as much as needed to meet winter peak demand and avoid blackouts, and just enough for peak summer air-conditioning demand. It's often reported that the deregulation legislation required the private utilities to sell power plants. Not so. As energy expert V. John White notes, it was the Wilson CPUC that de-emphasized conservation and strongly encouraged utilities to sell off half their plants. After deregulation, California's private utilities rushed to do just that--to the very out-of-state firms now ramming it to the tarnished Golden State.
With the proceeds from the sale of their plants, the utilities immediately bought and built power plants in other parts of the country. PG&E, for example, quickly became one of the biggest electric-power generators in the Northeast. Incredibly, PG&E was planning to sell its precious California hydroelectric facilities as recently as January. For its part, Southern California Edison turned into a high-flying operation investing in fossil-fuel plants around the world. It, too, was considering selling off more plants in California earlier this year.
Now, PG&E is in bankruptcy, and Edison may yet follow. Yet their parent corporations are protecting billions in profits and assets that originated in California. Much of the utilities' debt is essentially to themselves. The utilities claim $14 billion in liabilities. But taking the parent company's balance sheets as a whole, consumer advocates and many state officials put the figure at much less.
State regulators say that the utilities have overcharged California consumers to the tune of $6 billion--and prices on the electricity-futures market are going up. The power companies' profits are so high now that Reliant Energy of Houston--on whose board former secretary of state and Bush recount consigliere James Baker III serves--recently flew in the face of a bear market for initial public offerings by raising its share price.
From Deregulation to Public Power
In the near term, California remains terribly vulnerable. But the resurgence of support for public power--something never anticipated by the radical-capitalist exponents of power deregulation--holds out hope for the future. "This is a historically time-tested idea which will work for California's future," State Treasurer Phil Angelides asserts. "We need public power in this state so we can control our own destiny."
Burton, the colorful San Francisco liberal who in the term-limits era is, along with Davis, easily the most experienced figure in the capitol, agrees. "We're going to be in a crunch for a long time," he says. "We have a steep hill to climb for the next five years, so we have to put this power authority in place now."
Modeled after FDR's New York State Power Authority, their plan would use the state's sale of revenue bonds to finance new power plants, renewable energy, and a conservation loan program. When squeezes come, the new authority is intended to stabilize the market. The bonds will be repaid through the sale of power. "Instead of selling back to Californians at cost plus an arm and a leg," says Angelides, "we'll sell it at just enough to pay off our bonds. If we controlled 10 or 15 percent of capacity, we wouldn't be victims of the market right now."
None of this provides an immediate solution to the price of power that the state is buying on the spot market today, however. Meanwhile, a populist reckoning waits in the wings in the form of the omnibus energy initiative likely to be sponsored by Harvey Rosenfield. While its substance is as yet unclear, its potential is large. California's energy backlash has just begun.
Copyright © 2001 by The American Prospect, Inc. Preferred Citation: William Bradley, "Power to the People," The American Prospect vol. 12 no. 11, June 18, 2001.
