Politicians try to dodge energy crisis

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The San Diego Union-Tribune

The economic and technological aspects of California’s electric power crisis are extremely complicated, but the political scramble now under way among politicians, particularly Gov. Gray Davis, to minimize their exposure, is fairly simple. In fact, if it weren’t so serious it would be downright hilarious to watch the politicians dance.

Although the deregulation that sparked the crisis was enacted in 1996 with unanimous votes of the Legislature, few in the Capitol today defend its provisions. When the crisis first arose in San Diego last summer, Davis responded by reminding everyone — repeatedly — that he had nothing to do with the 1996 legislation, but believed that deregulation would work in the long run. He signed legislation that gave San Diegans short-term rate relief but ignored the longer-term issue of who would pick up the wholesale power bills being accumulated by San Diego Gas & Electric Co.

Everyone knew that San Diego’s soaring power bills were just a taste of what could eventually happen to millions of other Californians served by Southern California Edison and Pacific Gas & Electric Co. Davis played for time, hoping that the Federal Energy Regulatory Commission would ease the squeeze by forcing power generators, mostly out-of-state corporations, to scale back their prices and provide refunds to offset the utilities’ costs.

The 1996 legislation was a virtual invitation for generators to hold back power until auction prices reached their zenith, while the state Public Utilities Commission had prohibited the utilities from negotiating long-term supply contracts that would have buffered the soaring spot market in juice — two immense, perhaps fatal, flaws.

FERC, however, didn’t play ball. While it took some steps to ease the supply/price quandary, it didn’t order the refunds for past power deliveries. FERC’s refusal effectively shifted the burden back onto Davis to either force the utilities to eat their costs or impose the burden on ratepayers.

Davis bitterly denounced both FERC and the generating firms for putting California — and inferentially himself — under the gun, but he was stuck.

While the utilities and Wall Street lenders exert incredible pressure on Davis from one side, raising the specter of bankruptcies if rates are not raised, consumer activists are warning Davis that if he caves in to “economic blackmail” from utilities, he’ll feel the wrath of ratepayers.

At least one damn-the-utilities measure is being prepared for the 2002 ballot, when Davis will be seeking re-election, and he’s been dubbed “Giveaway Gray” by Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “He (Davis) was holding an ace-high straight and folded to a bluff by the utilities,” Harry Snyder of Consumers Union said Wednesday.

Davis is ready to sanction a hefty rate increase, having decided that utilities and Wall Street pose the more immediate crisis of insolvency. Davis hinted at the boost this week when he said, “everyone has to be part of the solution.”

While Davis portrays himself as being tough on the utilities in not allowing them to recover all of their costs, the deal being floated is actually quite similar to one that the utilities have been privately pressing on Davis for months. It would be a gradual escalation of rates, rather than one big bang, to recover about half of the $7 billion-plus in “stranded costs,” with the remainder eaten by the utilities and offset by the high profits they are making on their own power plants.

It will be draped with fancy buzzwords, but it’s clear that Davis would rather take the heat on rates than take flak for forcing the utilities into some kind of bankruptcy. The latter would stain his national image forever.

Consumer Watchdog
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