More losers than winners in power play

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The San Francisco Chronicle

It’s going to take state and federal investigators a while longer to figure out who was naughty and nice in California’s energy crisis. The facts are still coming to light even as the last blackout fades into memory.

But it’s not too soon for a tallying of who walked away from the power crunch a winner and who’s still smarting from a swift kick in the pants.

Let’s look at the various players:

PG&E: For many Northern Californians, the energy crisis began and ended with Pacific Gas and Electric Co.

The utility may not have been responsible for the worst abuses of the state’s predicament, but it was the one sending out bills to consumers, lobbying for higher electricity rates and, ultimately, fending off creditors in bankruptcy court.

So did PG&E emerge from the mess a winner or a loser? The answer is both.

The utility squandered an enormous amount of goodwill – some might argue it had precious little to begin with – with its single-minded behavior throughout the worst of the state’s power woes.

It suffered a series of PR disasters, nearly all of its own making. These included bonuses for senior executives before and after the bankruptcy filing, millions of dollars being funneled from the bankrupt utility to its parent company, hardball negotiating tactics with state officials and insider trading by PG&E bigwigs.

Yet it now seems clear that PG&E also rode out the energy crunch with shrewdness and more than a little good luck. Its decision to seek bankruptcy protection instead of cutting a bailout deal with Gov. Gray Davis allows the utility to now restructure its corporate operations and, it hopes, reduce regulatory oversight.

It’s too soon to say whether PG&E will emerge from bankruptcy with everything from its Chapter 11 wish list. But the mere fact that the utility can now negotiate a stronger position for itself with creditors and officials speaks to its eye-on-the-ball approach to turning adversity into opportunity.

Still, the utility was its own worst enemy throughout California’s energy troubles. It may take years for PG&E to win back the public’s trust.

ENRON: Loser. Big time.

The Houston energy behemoth, which invented the notion of trading power as a commodity and played an influential role in deregulating California’s electricity market, crashed and burned this month in the biggest bankruptcy in U.S. history.

Californians probably wouldn’t find themselves gloating so freely had Enron and its politically connected chairman, Ken Lay, not behaved so cavalierly during the state’s darkest days, virtually shrugging off a bad situation that the company had helped create.

Enron‘s demise – caused by shady bookkeeping and a failed merger attempt with Dynegy Inc. – sent a clear signal to the rest of the energy industry that corporate arrogance will not be tolerated when it comes to necessities like electricity and natural gas.

And because the company was such a major proponent of deregulation, Enron‘s downfall almost certainly will put the brakes on efforts nationwide to open energy markets to competitive forces.

The question now is how much deregulation is enough to spur construction of new plants and lower power prices, and how much official oversight is required to make sure that a California-style meltdown doesn’t happen again.

Thanks to Enron, it’s a safe bet that most states will err on the side of caution.

OTHER POWER COMPANIES: On the financial front, these guys made out like high rollers in Vegas. But they didn’t win any popularity contests in the process.

Sure, the companies all proclaimed innocence from wrongdoing, but, like the man said, they did protest too much. Dynegy, Duke Energy, Mirant, Calpine – each waddled from California’s energy mess with fat pockets and a lingering stench of misbehavior.

Did they illegally manipulate power prices during the state’s most desperate shortages? The investigations remain inconclusive (so far). But it’s clear that each profited handsomely by jacking up prices as per California’s dreadfully conceived market rules.

Like bad houseguests, the power companies raided California’s fridge and broke the furniture, and then chided the state for having invited them in the first place.

Californians were left wondering: Where did you learn your manners?

GOV. DAVIS: The governor stood tall last January in his State of the State speech and vowed that “never again will we allow out-of-state generators to threaten to turn off our lights with the flip of their switch.”

Out-of-state generators proceeded to turn off our lights with a flip of their switch, and Davis’ threats of retaliation suddenly rang very hollow indeed.

Now, let’s be fair: Davis was not responsible for California’s bungled experiment with deregulation – he inherited the fatally flawed system from others.

But the governor was slow to grasp the enormity of the state’s predicament and for too long found it easier to blame federal authorities for their inaction than to take steps toward stabilizing California’s energy resources.

When he finally did act, it was not, as he’d threatened in January, by seizing power plants but instead by turning the state into the country’s single largest buyer of electricity. This was a boon to California’s cash-strapped utilities, but it suddenly left taxpayers on the hook for billions in overcharges.

The dust has yet to settle on Davis’ handling of the energy crisis. A poll last month found that 54 percent of Californians now approve of the way the governor is handling his job, up 25 percent from July, when the energy crisis was still the story du jour.

On the one hand, he is to be credited with keeping his hand on the tiller as the state navigated treacherous waters. On the other, it’s going to cost a fortune repairing the boat.

The governor lost out by allowing his innate sense of political caution to override his understanding that Californians were thirsty for strong leadership.

But, like PG&E (how’s this for irony?), the governor also ends up a winner by having survived the energy ordeal and moving on to other matters.

And you can’t say that the man doesn’t learn his lessons. After the Sept. 11 attacks, he wasted no time in announcing that he was in charge and taking steps to keep the peace.

CONSUMER ADVOCATES: California’s energy crisis was a star turn for consumer activists normally accustomed standing on the sidelines of current events.

Some activists, like The Utility Reform Network in San Francisco, made a point of doing the heavy lifting in tackling absurdly complex matters and thus became indispensable to legions of journalists eager to sound knowledgeable about arcane policy affairs.

Others, such as Medea Benjamin of Global Exchange and Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights, became adept at grandstanding and serving up sweet little sound bites that seemed to put the whole ugly fiasco into perspective.

The consumer advocates were clearly winners at the end of the crisis, not least because, for the most part, they played a valuable role in defending the public’s interest and maintaining an open debate.

Meanwhile, a handful of academic experts, such as Severin Borenstein at the University of California Energy Institute, enjoyed uncustomary celebrity as explainers of the inexplicable.

At the height of the crisis, Borenstein’s voice mail warned people that because of the large volume of calls he was receiving, he might not be able to get back in a timely fashion.

Nowadays, there’s no such warning on his voice mail. Borenstein’s 15 minutes is up.

THE PUC: The energy crisis was not the best moment for California’s Public Utilities Commission.

Like the governor, the PUC spent an awful lot of time demanding that federal authorities do something instead of taking prompt and effective action.

When the PUC finally did act, imposing the largest electricity rate increase in state history, the measure seemed months too late and millions of dollars too severe.

Infighting and political intrigues on the commission only exacerbated California’s regulatory response to the problem, growing so intense over time that now, it’s said, Gov. Davis is no longer on speaking terms with his own appointee, PUC President Loretta Lynch.

The PUC is still trying to keep itself in the game, though. It announced this month that it will look into the impact of Enron‘s bankruptcy on California’s financial well-being.

What, if anything, the commission intends to do about the problem, however, was not revealed.

THE PUBLIC: Last but not least, the consumer.

Consider yourself a winner for having gotten through this whole nasty episode with your lights still on, your power bills stable, and your business and political institutions generally sound.

And consider yourself a loser for being saddled with an electricity market so dysfunctional, lawmakers still have no clue how to untangle things.

Can the blackouts and runaway power costs happen again? They can, unless steps are taken to address fundamental flaws in the state’s energy system.

But that’s a whole other chapter in this ongoing saga.

Consumer Watchdog
Consumer Watchdog
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