The Daily News of Los Angeles

To Gov. Gray Davis, commander in chief of California’s energy war, the enemy lies bunkered in out-of-state power companies that ripped off $8.9 billion in overcharges.

Davis’ strategy has played well politically, reviving his sagging popularity, but he has yet to produce hard evidence that out-of-state generators are the true culprits in California’s energy meltdown.

Failed political leadership since last summer – not alleged rip-offs for megawatts – has blown the state’s budget surplus, pushed the private utilities toward bankruptcy, burdened consumers with long-term high rates, spurred blackouts and hobbled the economy for years to come, many energy analysts across the state say.

“The leadership, as far as I’m concerned, sat on their hands and kept their fingers warm – they did nothing,” said James Sweeney, a Stanford University economist who is writing a book about the state power crisis.

“This is a saga of how we turned a (deregulation) opportunity into a severe problem, and a severe problem into a crisis, and a crisis into a cancer on the state – and this was all due to Gov. Davis’ leadership in Sacramento,” he said.

The Davis administration, predictably, tells an entirely different story: of power generators who have bilked the state and deliberately idled power plants at peak demand periods and of a White House so tied to the oil and gas industry it has done nothing to help California, not even pressure the Federal Energy Regulatory Commission to cap runaway wholesale energy prices.

Officials insist their conservation program – widely criticized as coming months too late – support for fast-tracking power plant construction and locking up long-term power contracts are succeeding.

“The trouble with economists,” said Davis energy spokesman Steve Meviglio, “(is) they look at numbers, not the real world.”

A political crisis?

But as the state grid operator this month rebutted workers’ charges of intentional plant idling and as a federal regulatory judge last week rejected Davis’ claim to billions in alleged overcharges by power suppliers, many say the state has a crisis of a far different order.

“The energy problem in California is not so much an energy problem as a political problem,” said Alfred Balitzer, a professor of government at Claremont McKenna College with an interest in the energy fix.

“As a political scientist and as a citizen, I am angry that no one’s doing anything about this: This is a classic case of fiddling while Rome burns.”

The history of California’s energy crisis, say politicians, energy suppliers and consumer advocates, is complex – and subject to revision from every corner.

Buying into broad policies favoring deregulation, former Gov. Pete Wilson, under pressure from large industrial power users paying 50 percent more for energy than peers in other states, launched what was coined as energy deregulation in California with full bipartisan support.

Deregulation kicked in on April Fools’ Day 1998 and worked – for a while.

Bills were slashed 10 percent for ratepayers of Southern California Edison and other investor-owned utilities. The utilities, forced to sell off their natural gas plants, in turn profited from cheap wholesale power sold at higher fixed rates to their customers.

Once the utilities had recouped millions in bad nuclear power investments and other “stranded costs,” they were supposed to slash bills even further as competitive forces lowered prices.

But in June 2000, energy rates rose precipitously. Customers of San Diego Gas and Electric Co., which had just paid off its bad investments, suddenly faced rate hikes of 140 percent.

Other private utilities were paying more for power than the Public Utilities Commission allowed them to collect from customers. Barred from long-term contracts with suppliers, they wound up deep in debt.

“I think it’s pretty obvious we should have raised rates earlier – and more important, implemented real-time (electricity) pricing as quickly as possible, as well as long-term contracts,” said Severin Borenstein, director of the UC Energy Institute at the University of California at Berkeley.

“I think the PUC could have done the most to alleviate the problem, in the state, and the Federal Energy Regulatory Commission, in Washington. … (Both agencies) didn’t have the skill to handle that.”

Benefit of hindsight

Just before wholesale prices rose up to 700 percent last summer, the California Energy Commission warned Davis to protect a faltering energy supply.

“In hindsight, clearly that’s when the governor and the legislature should have acted on this issue,” said Steven Erie, a political scientist specializing in energy at UC San Diego. “They should have started the pursuit of long-term contracts and helped us avoid this mess.

“They wouldn’t bite the political bullet. There was a general failure all around of the elected leadership. … They refused to make the hard choices, hoping the problem would go away and the feds would intervene.”

Over the next months, Republican legislators claim to have requested numerous special sessions.

“We said, this patient – the state’s energy network – is bleeding to death,” recalled James Fisfis, spokesman for the California Republican Caucus. “‘We need to stop the bleeding and stabilize this patient while we figure out what to do. We were ignored. Ignoring this special session request was the single most disastrous mistake made by the governor.”

Today, many hold both Democrats and Republicans accountable.

“We didn’t ask for these increases in January, we asked for them in September,” said Brian Bennett, vice president of external affairs for Edison International, the parent company of Southern California Edison, at an energy conference in Los Angeles last week.

“What we have is a multibillion-dollar problem that could have been averted by the state governor.”

Bennett, a longtime Republican activist, said Republicans bashed Davis but did “not come up with any solutions of their own.”

Consumer activists say Davis focused on bailing out Pacific Gas and Electric, and SCE instead of re-regulating utilities.

“All we’re saying is, go back to a system we had for 100 years that was reliable and reasonably affordable,” said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “There’s no reason that every Californian should not enjoy the (same) protection and benefits as the (Los Angeles) Department of Water and Power.”

Davis doubted

Many have begun to doubt Davis’ statements about gougers and the financial prudence of the long-term contracts negotiated by his administration.

Patrick Dorinson, who recently left the California Independent System Operator for a position with Mirant, a generating company, disputed the $8.9 billion overcharge claim.

“We’re not at the point where real experts are going to testify about real numbers.”

Davis repeatedly has threatened to sue FERC, which has found the state is only due 10 cents on the dollar of its overcharge claims, and his aides insist early rate hikes were politically impossible.

“Why didn’t we pass along the (higher wholesale) rates?” Maviglio asked. “If we had passed along the rates last summer, we would have had San Diego all over the state, we would have had a 140 percent increase, everywhere, immediately. … It would have sparked an initiative to repeal deregulation there and then.”

Nonsense, critics said. Better to raise utility rates then subsidize citizens who couldn’t pay for them. And better to let the utilities go bankrupt than drain resources from the state.

Not only are long-term contracts signed this spring between the state and energy generators “turkeys” for locking taxpayers into high power rates for up to 20 years, they remove pressure on utilities to seek lower rates in the marketplace.

“I think the governor has been damn good at manipulating perceptions,” Sweeney added.

“He made it look like (the energy crisis) was Bush’s fault, when really the problem lies in California. It’s our fault.”