Viewpoint by Tom Elias: Davis energy tactics looking worse every day

December 04, 2001

It was Garry South, re-election campaign manager for Gov. Gray Davis, who first employed the d-word during these early days of the 2002 run for governor. Richard Riordan, the former Los Angeles mayor and very likely Davis opponent, is a "doofus," South said. The implication was that Riordan gets confused and cannot understand complex issues.

But these days, even as Davis maintains a sharp focus on preparing his state to prevent and fight potential terror, it is Davis who looks confused, at least on energy policy. The governor has been outmaneuvered at every pass by utility executives and power generators, and residential electric users in almost every part of California will soon be holding the bag if power generators prove unwilling to renegotiate long term contracts.

Even his own one-time loyal aide, Loretta Lynch, the Davis-appointed president of the state Public Utilities Commission, won't accede to all his plans, refusing to rubber-stamp every energy contract the governor agreed to during the pressure-filled, blackout-riddled days of last spring.


Despite all Davis' accurate fulminations against "out-of-state pirates" who took over many California power plants, those companies and the utilities who sold the plants to them will now come out whole, while consumers pay through the nose.

That's the bottom-line meaning of both the court-approved settlement agreed to by the PUC and Southern California Edison Co. and the reorganization plan that's likely to emerge from the bankruptcy filing of Pacific Gas & Electric Co.

For the Edison settlement, worked out by the Lynch-led PUC even as Davis was pressing for a state bailout of the badly mismanaged company, guarantees consumers will continue paying the higher rates imposed last spring for years to come. Never mind that wholesale power prices today are a fraction of what they were then. It also means power generators will get most of the money they're owed, a debt largely caused by last spring's absurdly high prices.

This means Edison customers will continue paying rates ranging from 14 percent to 47 percent higher than they were before the energy crisis, even as wholesale prices fall.

The Edison settlement plainly was influenced by the reorganization plan PG&E submitted to a bankruptcy judge in San Francisco just a short time earlier. PG&E brass want to remove their largest and most productive generating facilities, including the Diablo Canyon nuclear power plant, from any state regulation by giving them to a new subsidiary of PG&E's recently created parent company. It's an old-fashioned shell game, designed to keep the pricing pea beyond the reach of state regulators and consumer advocates for the rest of this new century.

Only the bankruptcy judge can stop this, and then only if he can figure a better way to restore PG&E to solvency. The PUC cannot stop it or the higher rates PG&E's parent will surely charge, and the commission feared Edison might devise a similar scheme to thwart price regulation permanently if it were also forced into bankruptcy.

Davis has been flailing impotently in all this. He doesn't even have sufficient influence with his own appointees to the PUC — now the commission majority — to win their approval for the long-term electricity purchase contracts he spurred last spring.

No doubt, those contracts helped stabilize the power market, but the prices they call for also are now plainly excessive. Even the Davis administration today seeks to change them. That's why the PUC defied immense pressure from Davis and refused to give up its pricing authority by agreeing to simply pass through to consumers any costs from the state contracts.

Now consumers face not only higher prices, but because Davis and state Treasurer Phil Angelides have not yet been able to sell $12.5 billion in bonds to pay for energy already bought, there's the strong possibility of a huge state budget deficit and the large cuts in services that could bring. The latest Davis estimate is that the deficit could reach as high as $14 billion.

Could anyone have managed this any better than Davis has?

"Almost any Republican governor looking at the energy shortage and the excessive wholesale prices of last spring would have told the generators, ‘OK, we'll have a few blackouts, but we won't pay those kind of prices,'" maintains GOP political consultant Arnold Steinberg, who helped run one of Riordan's mayoral campaigns.

No one will ever know if that's true, but it's likely that enduring a few blackouts would have been preferable to indenturing the state's consumers for years to come.

The bottom line is that Davis may have tried to protect consumers, but has not and cannot. That's why he's the one who now looks confused, at least on the key issue of energy. He's lucky Election Day is still a year away.

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