The Associated Press
California’s $10 billion gamble to plunge into the energy-buying business was greeted at the Capitol with hugs, back slapping and plaudits from the governor.
When the lip service and glad handing was over, however, the crisis was far from over.
“The current panic is over, but that’s not to say there won’t be others,” said Sen. Debra Bowen, D-Marina del Rey. “There’s a lot of bitterness and a lot of fear that ratepayers will be stuck with the tab for a lot of things they didn’t ask for.”
With dangerously low energy reserves, grim forecasts for a hot summer, drained hydroelectric resources and tight energy imports, the threat of blackouts will continue to loom as the powers that be try to rescue ailing utilities and provide the state with enough energy.
During the weekend, California moved through a Stage 3 energy alert – which means reserves across the electricity grid dipped toward 1.5 percent and rolling blackouts were possible, although none were ordered.
The state has been in a Stage 3 nearly continuously for three weeks.
The ambitious venture approved Thursday to continue buying electricity for consumers of the two largest utilities is just one piece of the energy puzzle being reassembled at the Capitol – five years after lawmakers voted to dismantle it in a deregulation scheme that fizzled.
The 1996 law – and the regulations it spawned – forced utilities to sell their power plants and buy energy on the open market. But rate controls prevented utilities from passing costs along to consumers when wholesale prices skyrocketed.
Southern California Edison and Pacific Gas and Electric Co. claim they lost $12.7 billion, causing them to default on payments to suppliers who shut off the juice, sending the state into the current wave of Stage 3 power alerts and even blackouts.
The state waded into the crisis Jan. 17, committing $40 million to $50 million a day on the expensive spot market to keep power flowing.
Under the law signed by Gov. Gray Davis, the state is committing $10 billion financed by revenue bonds to buy electricity for as long as a decade. Standard & Poor’s, a credit-rating agency, has put the state on credit watch status, alerting investors that its AA rating could drop if electric bills continue to drain the budget surplus.
The bill, which creates the possibility of future rate hikes, did not pass without a fight – mostly from Republicans. Even Democrats who supported the bill did so reluctantly, with its sponsor referring to it as the “bill people love to hate.”
As weary lawmakers retired for the weekend, a potentially more bruising political battle was on the horizon.
A sweeping bill to rescue SoCal Edison and PG&E from the brink of bankruptcy by letting them recoup their losses is in the works. Utility executives met privately with Davis last week to discuss details of the plan that could leave the state with a stake in the utilities – an element the power companies are said to oppose.
Richard Cortright, a utility analyst with Standard & Poor’s, said the next stage is politically tricky because any plan perceived as a bailout will be difficult to negotiate without the state getting something in return, such as hydroelectric plants, transmission lines or stock.
“There’s a lot of strong belief that the utilities brought this upon themselves and they shouldn’t be rescued,” said Cortright. “The alternative is to bankrupt the utility. So the state has a tough decision to make.”
Consumer groups have attacked the plan and have promised to take the issue to the ballot box if necessary.
“If they try to put through a bailout there’s no amount of campaign contributions that’s going to protect them from what the voters are going to do to them in the next election,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.
For Davis, who is often the object of speculation about a presidential run, the political stakes are particularly high.
Despite tough talk in his state of the state address, critics charge that Davis let the lights go out before finally taking decisive action in the crisis.
In political fingerpointing, Davis has shifted the burden of the crisis onto the Legislature, reminding lawmakers he was not the architect of deregulation. Even his fellow Democrats returned their own volley last week, calling on Davis to craft a larger solution and asking him to take full ownership of the legislation he signed.
There is a sense among some lawmakers that the cautious governor is trying to force the Legislature to take bold steps so he will have political cover if the plan fails, said Sherry Bebitch Jeffe, a senior scholar at the University of Southern California.
“I’m not sure today that’s the broader public perception,” Jeffe said. “There is action by the governor, he is doing something.”
Along with the energy-purchase plan, Davis touted what he described as the most aggressive energy conservation plan in the nation. Among other things, the $404 million program arms police with power to crack down – with $1,000 fines – on retailers who keep too many lights burning after closing time.
Davis was dealt a setback when he and other Western governors meeting Friday in Portland, Ore., failed to persuade Energy Secretary Spencer Abraham to cap the region’s wholesale electric rates. Abraham said a limit on rate increases could discourage electricity conservation.
The Bush administration is also letting emergency orders directing electricity and natural gas suppliers to continue selling to California utilities to expire at midnight Tuesday.
The future is further dimmed by forecasts of a hot summer and little snowmelt in the Sierra Nevada to power hydro plants.
Despite two new power plants scheduled to go on line, an overwhelmed transmission system could deepen the crisis. Even with a cool summer supplies will be tight, said Claudia Chandler, spokeswoman for the California Energy Commission.
“It would be a real problem to meet peak (demand) on summer afternoons,” Chandler said.