Davis walks energy tightrope;

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Governor can now distance himself from Edison deal

The San Francisco Chronicle

Gray Davis said this week’s from-out-of-nowhere deal to save Southern California Edison wasn’t his idea, but it is one more example of how he has maneuvered through energy crisis politics.

Throughout the crisis, Davis has attempted to act forcefully and craft delicate deals, but it is his appointed Public Utilities Commission that has stepped in to make several difficult decisions.

Davis can now distance himself from the PUC-brokered Edison plan, which most voters and consumer activists strongly oppose. Earlier this year, when rate increases seemed inevitable, Davis steadfastly held to his position that increases were not necessary. The PUC stepped in with a plan to raise rates to pay for skyrocketing energy prices.

The PUC‘s plan to prevent the state’s second-largest utility from being pushed into bankruptcy was hatched behind closed doors and revealed Tuesday as part of a settlement to a lawsuit between Edison and regulators.

Edison will pay off its $3 billion in debt through a portion of the rates collected from all customers. Shareholders will receive no dividends until at least 2004, but rate increases imposed earlier this year will remain in place effect until 2003.

Davis made a legislative solution to Edison‘s troubled finances a top priority, but he couldn’t persuade lawmakers to go along. While the PUC appears to have helped Davis by solving the Edison problem, regulators angered the governor by refusing to go along with a plan to pay for long-term state power contracts that critics say are too costly.

With the PUC refusing to rubber-stamp Davis’ energy contracts, he could be faced with a $10 billion hole in the state budget.

“Davis may think he has pulled a rabbit out of his hat, but it may be a porcupine,” said Peter Navarro, a business professor at the University of California at Irvine who has been following the energy crisis.

The Edison deal probably means no more protracted legislative hearings, no more consumer activists dressed up like pigs outside the governor’s office and no more public name calling between the governor and the Senate leader.

But that strategy may not play well with voters.

A recent Field Poll showed that that just 27 percent of Californians gave the Democratic governor high marks for his attempts to overcome the energy crisis.

“He’s going to have to make a case for his record,” said Sherry Bebitch Jeffe, a political science professor at the University of Southern California. “It is going to have to resonate with voters.”

This is not the first time that events have overtaken Davis. Last spring, he was trying desperately to stabilize the energy market when Pacific Gas & Electric Co. filed for bankruptcy.

And while he pushed for new power plants to open early — giving large financial benefits to companies that did — Davis owes much of his success to a blackout-free summer to relatively mild temperatures.

“He’s the luckiest politician on the planet given this summer’s weather,” Navarro said. “Of course, he’s also very unlucky that he got stuck with this.”

Because the Edison deal is a settlement to a lawsuit, consumer groups probably will not be able to mount an initiative to try to overturn it as they would had it been a legislative action.

An energy-related initiative that appears on the November ballot would probably hurt Davis’ re-election chances. But Davis may face other challenges.

Harvey Rosenfield, the head of the Foundation for Taxpayer and Consumer Rights and a well-known consumer activist, has said he may consider and independent run for governor.

Davis himself has tried to convince voters that he deserves at least some credit for the blackout-free summer.

“God gave us good weather, and the people of the state did a wonderful job conserving,” he said on CNN. “We still have to build more plants and conserve, but I think the worst part of the problem is behind us.”

But Davis faces a growing economic crisis that may worsen dramatically if bonds to pay for the state’s energy purchases cannot be sold. The PUC refused to go along with a Davis plan to repay bonds for electricity purchases.

State Treasurer Phil Angelides has warned of a nearly $10 billion budget shortage unless the bonds to pay for the power purchases are sold.

Davis officials insist that they do not want to renegotiate the long-term contracts, some which lock the state into power purchases for the next 20 years.

The PUC has mounted a challenge with federal regulators regarding some of the contracts, in which it contends generators held an unfair market advantage when the deals were made.

If federal regulators agree with the PUC, they could order that the contracts be renegotiated, which ultimately could benefit Davis.

Consumer Watchdog
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