Davis Finds Hope in Calif. Power Crunch

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The Washington Post

Sinking in the polls, under attack by a new Republican advertising campaign and still struggling to avert a summer of blackouts, California Gov. Gray Davis (D) nevertheless seems heartened about the latest developments in the power crisis that has engulfed his state and threatened his political career.

On his first trip to Washington in months, Davis will detail California’s plight Wednesday in testimony to a Senate committee newly led by sympathetic Democrats — one important reason for his optimism.

But he has others: Conservation is taking hold in the state, and prices for power on the daily spot market are dropping. California has managed to avoid rolling blackouts so far this month, in part because it has been spared a heat wave.

Federal regulators, under pressure even from Republican lawmakers, decided Monday to impose more controls on prices that energy suppliers can charge California. Two new power plants are scheduled to begin producing electricity in weeks. California also has recently secured more than a dozen deals for power over the next decade, a move Davis contends will stabilize the volatile wholesale market for energy.

In short, Davis and his aides say their concerted political strategy and efforts to ease the crisis are beginning to pay off.

“The bottom line is that we’re stabilizing prices and assuring the power will be there without additional rate increases,” said Steve Maviglio, a spokesman for the governor. But he added: “We’re not ready to say the war is over. It’s still going to be a tight summer.”

Whether any or all of those steps will keep the lights on in California this summer, or help solve an array of other financial problems the crisis has caused, is hardly clear.

In fact, California’s power shortfall could produce 113 hours of rotating outages this summer, according to a U.S. Department of Energy study scheduled to be released Wednesday.

Since California’s two largest utilities fell into financial ruin this year, forcing the state to spend nearly $ 5 billion to buy power directly and saddling residents with huge new rate increases, the support that Davis once had from a majority of voters has vanished. Recent polls suggest that he could have trouble winning a second term.

Consumer advocates here are besieging him, saying that the $ 43 billion in long-term power deals that Davis has signed could lock residents into paying artificially high utility rates for years. Some contend that all he has gained from Washington is political cover.

“The Bush administration has created this toothless price cap mechanism that will be used as political protection but certainly not consumer protection,” said Doug Heller, a director of the Foundation for Taxpayer and Consumer Rights.

Davis has stuck mostly to the same political script. He is demanding more federal help for California — on Monday he called the Federal Energy Regulatory Commission’s decision merely “a step in the right direction” — and he is denouncing out-of-state energy suppliers and their Republican allies.

Today, Republicans launched a $ 1.5 million advertising offensive that blames Davis for the state’s energy crunch. The spots, running on English and Spanish-language media, describe the crisis as “Grayouts from Gray Davis.”

Scott Reed, the GOP strategist who runs the American Taxpayers Alliance, which funded the ad campaign, said his group wants to counter the governor’s spin. “The blame game has to end,” said Reed.

But Davis’s aides say the ads are a sign that Republicans sense California’s energy predicament could deepen GOP political troubles in the state. Privately, some Republican lawmakers pushing for more federal assistance say they are worried that in midterm congressional elections next fall the GOP could lose House seats in California that it needs to hold a majority.

Today’s hearing will bring both Davis and his adversaries on the Federal Energy Regulatory Commission before the Senate’s Governmental Affairs Committee, chaired by Sen. Joseph I. Lieberman (D-Conn.).

Instead of a committee debate on California’s electricity prices, the focus of the session may be shifting toward the billions of dollars of alleged overcharges by energy suppliers.

Under growing pressure from both parties in Congress, FERC’s commissioners responded Monday with far more extensive price controls than they had been willing to consider previously. They extended April price controls that had applied only to times of power emergencies to all hours of the day, through September 2002. And they expanded the controls to cover 10 other western states.

California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, said FERC’s action was a positive step and agreed to delay efforts to direct the commission to clamp down on California’s energy prices. “We’re willing to give them a chance to see if it works,” Boxer told reporters.

Now, Davis will press his demands that FERC recover some $ 8 billion in alleged overcharges by wholesale power suppliers since the crisis began — a far larger amount than the $ 124.5 million in refunds that FERC has so far assessed.

Whether there is even a chance of a peace process is unclear. Just last week, California Attorney General Bill Lockyer announced plans to convene a criminal grand jury to investigate whether power generators illegally conspired to drive up electricity and natural gas prices.

The governor could face other new problems. Several of California’s major independent power generators said the price controls and state lawsuits against the generators made it more difficult to justify expanding operations in California, a warning echoed today by Energy Secretary Spencer Abraham.

But heading into the summer, California’s power prices are much lower than they were a month or two ago, with daily or “spot” power prices averaging $ 78 per megawatt hour in June, compared to $ 372 in April.

Both Davis and the FERC commissioners are taking credit. S. David Freeman, Davis’s energy adviser, said that the long-term power contracts the state has signed, the new power plants and favorable weather have tamed prices.

FERC Chairman Curt Hebert Jr. said Monday that the limited price restraints that the commission imposed on wholesale electricity sales in April have been a key reason for the price decline.

Sanchez reported from Los Angeles and Behr from Washington. Staff writers Mike Allen and Juliet Eilperin contributed to this report from Washington.

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