The NewsHour with Jim Lehrer

JIM LEHRER: Finally tonight, a California power update, Spencer Michels reports.

SPENCER MICHELS: California continues to struggle with electricity shortages, high prices, and billions in unpaid bills. State officials are trying to negotiate contracts with electricity producers. And the legislature has approved a plan to put the state into the power business, over the objections of Republicans. It is a crisis situation. California could end up spending $70 billion for electricity this year– ten times more than was spent in 1999.

SPOKESPERSON: Governor Gray Davis. (Applause)

SPENCER MICHELS: Repeatedly, Governor Gray Davis has blamed the generators of electricity– he called them snakes– for manipulating the energy market in a time of shortages, and for vastly overcharging the state for power. In January he called on the legislature to take action.

GOVERNOR GRAY DAVIS, California: Provide $4 million to the attorney general to investigate and prosecute possible racketeering, market manipulation, price fixing, and other potential violations by merchant generators. These generators may be acting within the law, but if they’re illegally gaming or manipulating the market, the attorney general will track them down. (Applause)

SPENCER MICHELS: But at the same time, Davis has been engaged in private talks with at least one big power producer: Duke Energy of North Carolina. Details of those talks were revealed by the “New York Times,” working with the PBC series “Frontline.” Documents obtained by the “times” show that Duke Energy proposed to California to forgive some of the debt the state owes the company. In return, the generator wants California to call off any investigations or legal actions against it related to overcharges for power. Those alleged overcharges have prompted consumers advocates, like Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights, to decry the energy producers.

HARVEY ROSENFIELD, Consumer Advocate: Right now the State of California has been brought to its knees by energy companies who are using their power to cut off electricity in order to force state politicians to bail out the utility companies. This is nothing more than economic blackmail. And everybody knows what happens when you make a payment to a blackmailer: It never ends.

SPENCER MICHELS: But the Governor said he needs to keep the lights on in California, and so he agreed to let state officials talk with Duke Energy. He explained his decision to “Frontline” reporter Lowell Bergman.

GOVERNOR GRAY DAVIS: We need the generators to be part of the solution. They’ve made a ton of money off of California. The federal government has sat back under both Clinton– who I believe was a good President, but in this issue we got no relief– and President Bush and done nothing to moderate these outrageous prices.

SPENCER MICHELS: Duke Energy’s profits from sales of electricity quadrupled in the first quarter of this year. The documents show that the company asked Davis to drop any state investigations of the firm, and not initiate legal action against Duke. In return, the company proposed making an appropriate payment to the state. In a rare interview, Duke‘s chairman, Richard Priory, told Bergman the company was merely offering ideas and throwing in suggestions.

RICHARD PRIORY, CEO, Duke Energy: The intent here is to try to get a solution for California. If it’s going to continue to degenerate into a whole series of nothing but allegations, lawsuits, and what have you, the fact of the matter is, the real problems are not being addressed. And thus, what could have been a one-year problem or a six-month problem can easily turn into a five-year problem or a ten-year problem with dramatic effect on the state.

SPENCER MICHELS: The Governor acknowledged his representatives had met with Duke officials. When shown confidential documents that said Duke Energy wanted to embrace the governor’s political and public relations needs, he told Bergman he was not about to end state investigations of the company.

GOVERNOR GRAY DAVIS: I know that Duke made a number of demands, including that the attorney general drop its investigation, which we have no intention of asking the attorney general to do that. The entire amount of money owed Duke is in the $100 million range. That may sound like a lot, but given the huge sums of money these people make, it really isn’t. And it’s… We are not about to call off the dogs when that may be the best vehicle available to us to get justice for the ratepayers of this state, meaning the PUC‘s investigation and the attorney general’s investigation.

SPENCER MICHELS: So far, those investigations have not resulted in any charges. But California’s lieutenant governor filed a private suit against Duke and four other producers for illegal price fixing. Duke Energy has been ordered by the Federal Energy Regulatory Commission to justify its high prices or rebate $20 million to the state. But Duke says its prices are fair. 90% of its power is sold in advance, under contracts. In a NewsHour interview last year, Duke spokesman Tom Williams defended his company’s pricing policies.

SPENCER MICHELS: The utilities and the consumer groups seem to think that the generators are making a lot of money in this crisis. Is that true?

TOM WILLIAMS, Duke Energy Spokesman: (October 2000) Duke Energy sells the bulk of its power in the forward market. It was sold a year ago for the plants we have in this state now. So the power’s already been sold, and the price of natural gas has gone up 2.5 times since last summer.

SPENCER MICHELS: Is it true that you’re making a lot of money on this tight supply situation?

TOM WILLIAMS: There is a very tight supply situation, but we’re reinvesting our profits back into the market to fix the problem.

SPENCER MICHELS: For his part, Davis, searching for energy solutions while criticizing the generators, was not willing to condemn Duke for its offer to deal.

GOVERNOR GRAY DAVIS: Duke at least came to us with a suggestion, so I have to give them high marks for that. There’s obviously part of that suggestion I find offensive and would not go along with in any case, namely slowing down anyone’s investigation. But within those constraints, there may be room for a meeting of the minds.

SPENCER MICHELS: Duke‘s chairman acknowledges that if the electricity crisis doesn’t get solved soon, it will have international repercussions.

RICHARD PRIORY: There’s a huge impact not only on this country, but the impact on this country and its impact on other countries as well. And so the quicker we can get this thing solved, bring it to a head, put forth the leadership necessary to do that, I think the better off everybody is going to be. It’s been suffering from leadership. There simply hasn’t been sufficient leadership to make this thing come about.

SPENCER MICHELS: Consumer groups have ridiculed the secret meetings between the state and Duke Energy, suggesting Duke‘s offer might be considered a bribe. Meanwhile, not-so-secret talks between the Governor and power generators– big ones, including Duke, and small ones– are taking place this week as the state tries to find a way out of the energy mess.

JIM LEHRER: A “Frontline” documentary on the energy crisis will be broadcast on June 5 on most public television stations.