‘Everyone needs to be part of the solution,’ he says, but he pledges it won’t lead to an unfair burden for energy consumers.

The Orange County Register

SACRAMENTO — Electricity rate increases, once too taboo to mention, suddenly may not be looking so bad to politicians, particularly Gov. Gray Davis.

As the threat of statewide blackouts has grown stronger in the last week the signs have started to pile up:

* The Davis administration is now in talks with the state’s two biggest utilities to negotiate how they might be able to alleviate some of their debt by asking their customers to pay more – although no compromise has been reached – state Senate Leader John Burton said Tuesday.

* The California Public Utilities Commission has decided to discuss rate hikes Thursday.

* Davis on nationwide television Monday said the situation is so dire for Southern California Edison that he fears the company “might not make it through the end of the week.”

Edison and Pacific Gas and Electric Co. have been left with a $7.2 billion debt because the rates they can charge consumers have been capped even as the price they pay for electricity has risen.

While politicians have been loath to suggest that consumers pay for state’s flawed electricity market, Davis sounded on Tuesday like he might be bending.

Utilities “will only recover part of the cost and everyone needs to be part of the solution,” Davis said during a briefing with Capitol reporters, and urged that “sharing” of the cost needed to happen. But, he added, “I am not going to do anything that unfairly burdens the consumer.”

The decision won’t be that easy, insiders said.

“Raising people’s rates won’t play out so good, but if you don’t do anything and (the utilities) go bankrupt, that won’t play out so good either,” said Burton, a Democrat from San Francisco.

Davis, however, refused to talk about specific discussions he is having with electricity providers and those who regulate them. His staff is being equally circumspect. Two news organizations, the San Francisco Chronicle and Dow Jones – publisher of The Wall Street Journal – have in recent days published articles based on unnamed sources saying that the state has suggested 10 percent rate hikes, which would pay for about half the utilities’ debt.

At Tuesday’s press conference, Davis said in response to direct questions about the issue, “You’re not going to reach the context for final agreement if every suggestion, proposal and counterproposal is played across the morning newspapers, because then people will not be willing to explore ideas and be creative.”

Political ‘dynamite’

Davis has few legal options because most of the authority to control utility prices is in the hands of the federal government.

But politically, he may well be held accountable anyway. Strategists say the crisis threatens to derail a promising political future despite his overwhelming election victory and high ratings in polls.

“This is dynamite,” said Darry Sragow, a consultant for energy producers who worked for Davis’ 1998 campaign. “I don’t see a huge upside for Davis. If he keeps the lights on, he’s only doing what he is supposed to be doing. I do see a big downside. The day Californians come home to no light and no heat, everyone in office is going to have a problem.”

Davis’ name has been thrown out as a possible candidate for the Democratic presidential nomination in 2004. And another deadline looms even closer: re-election in 2002.

The governor’s chief critics have complained that the governor has been slow to use what powers are available to him and say that Davis’ only option is to make a bold decision – not an easy choice for a governor who himself admits that he is careful consensus builder.

What he’s done

Here’s what Davis has done so far:

* Mandated that state offices cut back on heating, cooling and lighting.

* Announced Tuesday that $7.1 million in federal aid he requested will go to low-income families to help pay for high heating prices.

* Recommended to President Clinton that a Republican from San Diego – the hardest-hit area – get a seat on the Federal Energy Regulatory Commission.

* Ordered a special session of the Legislature next month to deal with the energy issue.

* Criticized FERC, demanding it place a cap on the amount that power generators can charge utilities for electricity.

* Has called for legislation to reconstitute two boards that control the buying and transmission of power throughout the state. The boards are made up primarily of industry insiders with built-in conflicts of interest.

But none of these actions directly affects prices and they are not enough, Democratic leaders said.

“The state is going to have a very serious discussion about how to take back control over our power supply,” said Sen. Debra Bowen, D-Marina del Rey.

Aggressive enough?

Consumer groups say the governor should have been more aggressive in taking back state control all along.

And Republicans have been calling on Davis since August to hold a special session, but it wasn’t until Friday that he called for one. A spokesman said the governor wanted to wait until federal regulators had tipped their hand.

But Assembly Republican Leader Bill Campbell of Orange said, “I think we’ve wasted 120 days of opportunity to address the issue.”

Douglas Heller of the Foundation for Taxpayer and Consumer Protection said Davis should have laid out a plan by now. Heller’s group has proposed a 2002 ballot initiative to re-regulate the power industry and have the state assume partial ownership of generation plants.

“He certainly has the power to go a lot further than he has,” Heller said.

Said University of California, Irvine, economist Peter Navarro, who also advocates a state-owned electricity system: “It’s going to come to a point where he’s going to have no choice but to take a step. He doesn’t have much choice. (Otherwise) he’s not going to be re-elected.”

But Michael Kahn, the Davis-appointed chairman of the Electricity Oversight Board, said the governor’s legendary caution would serve him well now.

“The smartest action is the mistakes that we don’t make,” Kahn said. “We have to be prudent, cautious and thoughtful because we don’t want to compound the problems.”

Californians should feel lucky, Kahn said, that “we have an experienced and thoughtful governor who has been around a long time who is willing to absorb criticism for being thoughtful, rather than rushing into something that does not work.”

For his part, Davis indicated this week that he is ready to get tougher.

“I worked very hard to be polite,” Davis said. “I worked very hard to forge consensus, but that didn’t work. I’m shifting into another gear here because it’s my job to be a steward of California’s economy.”