Could it be lights out?

Published on

If Davis tenure is short-circuited, many will look to his handling of electrical crisis.

Orange County Register (California)

SACRAMENTO — Gov. Gray Davis confronted California’s electricity crisis in fits and starts, at first hesitant as outraged consumers and utilities clamored for help, then fearful that a misstep could cost him votes as the state spent $50 million a day to keep the lights on.

Foes and some supporters of the governor agree that he didn’t intervene early enough and forcefully enough in the crisis during the first half of 2000.

They say he missed an early chance to buy power at reasonable prices and that he declined to raise rates because he feared the political fallout.

They also said Davis was bluffed by wily energy merchants, who pushed prices through the roof because they knew he wanted to avoid blackouts at all costs.

”There was a game of electric chicken going on,” said San Diego consumer advocate Michael Shames.

Two years later, Davis said this: ”I know many of you feel that I was too slow to act during the energy crisis. I accept that criticism. I played the hand I was dealt as best I could.”

Voters will pass judgment Oct. 7, in part, on his handling of the crisis.

It erupted in spring 2000 in San Diego. The governor’s first major actions occurred in August, when he issued orders to speed up power-plant licensing and boost conservation, while asking the state attorney general to investigate the electricity market.

Energy experts acknowledge now that delays occurred but that what appears clear in hindsight was obscure during this time of great confusion.

”I give him great credit,” said Sen. Joe Dunn, D-Santa Ana, who headed a Senate investigation into alleged market manipulation. ”As we rolled into the spring and summer of 2000, the market was getting more and more dysfunctional.”

Davis demanded that federal energy regulators step in. He approved conservation measures. He set up task forces to resolve the problem. He met with power company executives and threatened sanctions to force action. He lobbied for wholesale caps on prices, which went from $750 per megawatt hour at the beginning of the year to $250 by the fall, and then were reduced further to $100 — although this was still more than double the pre-crisis cost of energy.

“There wasn’t a thing that we could have done that we didn’t do,” said Michael Kahn, picked by Davis to head the state’s power grid at the height of the crisis.

In the end, California’s strapped power grid suffered 39 days of high emergency between Dec. 7, 2000, and summer 2001, as the cost of wholesale power skyrocketed 10-fold and beyond. On seven of those days, the state had rolling blackouts. In 1999, the state’s electric bill was about $7 billion. In 2000 and 2001, it was about $27 billion each year.

By spring 2000, San Diego’s electricity rates were spiraling as SDG&E struggled to pass on the soaring wholesale costs to its customers. The state’s two largest utilities, Southern California Edison and Pacific Gas and Electric Co., racked up huge debts.

They were refused the right to raise rates.

Many agree that Davis’ Jan. 17, 2001, decision — his most important action during the crisis — to order the state to buy energy for the utilities on the spot market ultimately broke the back of the crisis, although at enormous cost to the state.

The state also bought $43 billion worth of future energy on contract, which ultimately stabilized the roiling market. By the middle of 2001, the skyrocketing prices were over.

But what Davis did, and when he did it, is not nearly as significant as what he didn’t do, his sharpest critics contend.

”In the spring of 2000, the merchant generators met with him personally, warning him of rising costs and potential shortages. The reaction we got was just a wave of the hand,” said Gary Ackerman of the Western Power Trading Forum.

At least four power companies offered long-term energy contracts at prices slightly higher than existed before the crisis, but far less than hit the state just weeks later. One company, Duke Energy, wrote directly to Davis on July 31, offering 2,000 megawatt hours over five years at $55 per megawatt. Davis declined. Later, prices hit $1,000 per megawatt.

One consumer critic said Davis’ fundamental problem was failing to act early in three critical areas — seizing power plants, raising rates and signing power contracts — because he feared political backlash.

”He stood on the sidelines as opportunity after opportunity passed. He had his finger up, testing the political winds,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.
Contact John Howard at (916) 449-6687 or [email protected]

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases