Energy Mess II: This one belongs to the governor

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Sacramento Bee

Gov. Gray Davis‘ recent statement that if he’d wanted to raise electricity rates he could have fixed California’s energy mess in 20 minutes may become one of those phrases that haunt politicians to the end of their careers.

Ever since last summer, it’s been clear that if FERC, the Federal Energy Regulatory Commission, didn’t cap wholesale prices, something it steadfastly refused to do even when it was chaired by a Clinton appointee, retail prices would have to go up. The only question was when and how.

Davis is absolutely right when he says that the state’s misbegotten energy restructuring, pushed by Gov. Pete Wilson at the behest of the state’s big industrial energy consumers and enacted in 1996, was none of his doing.

That doesn’t mean the rest of us were just innocents hit by conniving Texas generators and marketers. The Legislature unanimously voted for the restructuring; consumer advocacy groups such as TURN (Toward Utility Rate Normalcy) went neutral on it, and the press hardly paid attention. Who, asked one veteran reporter, wanted to write (or read) about stranded costs, QF contracts and marginal pricing? But it’s now nearly a year since the first danger signs appeared, nine months since retail prices spiked in San Diego and six months since Davis’ own pollster, Paul Maslin, warned that the energy mess could become the political equivalent of the perfect storm. Through action and inaction, Davis now has his fingerprints all over what we may soon describe as Energy Mess II.

Energy Mess II has two major components.

1. Fiddling in the fall. If the state had encouraged the utilities to enter into long-term (three- or four-year) contracts last year before the energy marketers had already sold much of what was available for this coming summer, the utilities could have obtained prices far below what they paid this winter on the spot market, and probably well below what the state has now been forced to pay – in some cases for as long as 10 and even 20 years. And if the Public Utilities Commission, meaning the governor, had instituted real-time metering for large and even moderate energy consumers that reflected actual energy costs, and thus driven down peak-hour demand, the prices would have been even lower.

2. Pseudo-hyperactivity in the winter. Most of what the state has done in the past three months – the move to buy transmission lines, the state’s purchase of power under excessively long contracts and its decision to issue bonds – has been designed to deal with the effects of last fall’s inaction. Among those effects: the threat of utility bankruptcy, the corresponding refusal of marketers to sell to the California market, combined no doubt with a lot of market manipulation, and the resulting wave of Stage 3 energy alerts during a season when power is normally ample in California.

In both cases, the underlying reason is politicians’ fear of doing anything that raises the ire of ratepayers, or indeed doing anything at all that involves serious political risk. The fear would be there in any case, but it’s compounded by the unnatural force of the tempestuous Harvey Rosenfield, who heads the Foundation for Taxpayer and Consumer Rights, and who’s been threatening to run a scorched-earth voter initiative ever since the San Diego rates spiked last summer.

Around the Capitol, it’s called Harvey-proofing, though a better term might be Harvey-phobia, and it’s been driving much of what’s been happening under the dome since Christmas. Rosenfield still hasn’t formulated his measure, but a lot of what he’s been talking about – in essence nationalizing as much of California’s electrical system as possible – has already become state policy. Those who love the initiative process argue that at its best, it can influence policy without anything ever going to the ballot. Harvey-proofing ought to cause even them to think again.

Given the fact that the wholesale market is the province of federal regulators, it’s not clear what a Rosenfield initiative could do to make California energy supplies cheaper and more reliable in the coming few years. Indeed, since he can’t get on the ballot until next year, he can do nothing at all about this summer’s – or next year’s – impending shortages.

But he certainly can scare people – suppliers who will want still higher prices against the risks that the initiative poses, and politicians who see anything called a ratepayer revolt, however ineffective as policy, as a force bringing millions of angry voters to the polls to massacre all incumbents.

Rosenfield sees the initiative as a repeat of Proposition 103, the auto insurance reform measure that he ran, and voters passed, in 1988. The most memorable result of that reform was to make the insurance commissioner’s job an elected office, which in turn brought us Chuck Quackenbush, who may have been the sleaziest state office holder since the days of Artie Samish.

What’s almost certain is that sooner or later, rates will have to rise and consumers and/or taxpayers will take a huge hit. Rates would have risen anyway, but because of Energy Mess II, they will have to rise more, and for a much longer period. Maybe Davis can hide it all long enough with those 10-year contracts and other pea-under-the-shell deals to get out of town before the ax falls. Either way, “I could have solved this in 20 minutes” will make a fitting epitaph.

Consumer Watchdog
Consumer Watchdog
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