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Los Angeles Times

As electricity rate hikes loom for millions of California consumers, Gov. Gray Davis and the state’s three major utility companies are waging an intense war to insulate themselves from a consumer backlash.

Casting themselves as victims in a deregulation experiment gone sour, utility officials have pleaded their case on TV, in newspapers and in secret talks with decision-makers, threatening financial doom if they don’t get rate increases.

At the same time, Davis is engaged in damage control as he faces the biggest crisis of his administration, confronting the prospect of presiding over rate hikes for customers and bankruptcy of some of the state’s largest employers.

At each opportunity, Davis points out that he inherited the situation and that he has no control over the key players–companies that own the bulk of the power plants that supply California and have been charging dramatically high wholesale prices to Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric Co.

Nor does he control the once obscure Federal Energy Regulatory Commission, the single agency that could impose caps on charges levied by power producers, Davis notes.

He is stepping up his rhetorical attacks on those producers, calling them “greedy” Tuesday, and declaring that their actions could spark a public outcry that would end the state’s electricity deregulation. He also has called them “pirates” and “marauders.”

“I inherited this problem,” Davis said Tuesday. “It is my obligation to manage the process with the minimum amount of discomfort for all involved.”

Not lost on Democrat Davis and his political advisors is the fact that many of the companies profiting from the crisis are based in Texas and have been major financial backers of Republican President-elect George W. Bush. Davis or his allies probably will be waiting for any misstep by Bush that could be seen as helping Texas companies at California’s expense.

” Bush cannot allow his friends in the energy business to gouge California. That is not a very good first date with California,” said Davis’ political strategist, Garry South. “If you have massive economic dislocations in California . . . that is not just a local problem.”

Even as Davis steps up his rhetoric, Southern California Edison, the state’s largest utility, is becoming more aggressive. It has been running full-page newspaper ads and flooded radio and television airwaves with calls for re-regulation and warnings of impending financial doom.

It also has stepped up its efforts on the political front. In a Tuesday affidavit filed with the Federal Energy Regulatory Commission, the company’s chief financial officer, W. James Scilacci, said it will “face default on its January obligations” and will have “no realistic alternative but to seek the protection of the Bankruptcy Court” if regulators do not cap the wholesale rates utilities pay for power on the open market and allow them to raise rates to recoup costs.

In doing so, the company, a major player in the drafting of the law that led to the current power crunch, has painted itself as an unwilling participant in deregulation–a position that has outraged consumer groups.

“Every single member in this drama has tried to reinvent themselves and is now presenting themselves as the savior,” said Nettie Hoge of the Utility Reform Network, which took part in the 1996 debate over deregulating the state’s electricity market. “It’s extremely ironic.”

Hoge too has changed her tune: She was neutral on the deregulation law four years ago but is now one of its biggest critics. “I have done my penance,” she said. “But I am astounded at the way that some people seem to be completely Teflon.”

The utilities, the power generators and Davis face the virtual certainty that one or more energy-related initiatives will be on the ballot in 2002. Davis already has likened the atmosphere to the days leading up to the 1978 property-tax-slashing Proposition 13. A likely source of such an initiative is Santa Monica consumer activist Harvey Rosenfield, who has been inflamed by Edison‘s ads.

Edison is like a bank robber that is trying to crawl out with the hostages, hoping they will not get caught,” said Rosenfield, of the Foundation for Taxpayer and Consumer Rights, which called for the ouster of John Bryson, Edison International’s chief executive, over the ads.

Rosenfield contends that Edison‘s media blitz exacerbated the energy crisis, spooking electricity suppliers into refusing to sell to California utilities. Edison officials call that “silly.”

Gary Ackerman of the Western Power Trading Forum, a group representing the suppliers who sell electricity to the utilities, said the Edison ads in no way affected the suppliers’ decision to stop selling in California.

That determination was made from looking at the skyrocketing debt being run up by the utilities and their increasingly tight line of credit. But Ackerman said the ad campaign “exacerbated the situation” among the public and in the political arena. That may have been what the ads were designed to do, he said.

But they may have overplayed the sympathy card.

“They are savvy people who know what they are doing. I never underestimate their ability to influence an outcome,” Ackerman said of Edison. “But sometimes they outsmart themselves. They push a little too far. They play that ‘we’re the victim’ role way too often.”

Edison did, in fact, oppose the initial push by the Public Utilities Commission to deregulate the state’s electricity market. But it wholeheartedly embraced, and did much to shape, the legislation that ultimately resulted in deregulation four years ago.

The print ads state that Edison officials did “cooperate with policymakers in shaping the new competitive framework,” but downplay the leading role the company took in crafting the landmark deregulation law.

“That was, I believe, the responsible thing for us to do,” Tom Higgins, a senior vice president at Southern California Edison, said of the utility’s hands-on approach to deregulation. “For us not to participate in an issue of this magnitude would have been wrong.”

With the ad campaign, “I think we are coming forward and saying, ‘This did not go right, and we have some constructive proposals on how to get California through’ ” the crisis, Higgins said. “We have not attempted to hide that we worked cooperatively with lawmakers on this. I feel that the ad is accurate.”

Pacific Gas & Electric Co., California’s second-largest utility, is also running radio ads spurred by the electricity crisis. But PG&E has taken a more low-key approach. Its ads make no reference to deregulation and instead focus on the rising demand for power and the high price of natural gas, which has contributed to the electricity crisis. The firm informs ratepayers that they will receive letters in coming weeks that will further explain the energy situation, and offer tips on how to conserve energy.

“The ads are to inform customers about the higher natural gas prices throughout the country and what it means for their bills,” said PG&E spokesman Ron Low. “They are meant to inform customers how they can be a part of the solution.”

Consumer Watchdog
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