by John M. Curtis
(310) 204-8700

Copyright January 23, 2001
All Rights Reserved.

hrowing California to the wolves, President George W. Bush turned his back on the Golden State seeking federal help in containing its exploding electricity crisis. “The president continues to believe that the issue is mostly a California matter,” said Bush spokesman Ari Fleisher, showing, once again, a total misunderstanding of California’s energy problem. Now in the hot seat, Gov. Davis finds himself caught between a rock and hard place. With consumer groups breathing down his neck, energy suppliers crying foul, and utility companies teetering on bankruptcy, Davis has the unenviable job of finding a workable solution. While some are jumping at a quick fix, Davis wants to get it right. Calling him timid and indecisive totally ignores the evolving formula needed to fix California’s energy crisis. Doing the peoples’ business, Davis is burning the midnight oil finding the best solution for hard-working Californians. Undoing the damage from Wilson’s failed free market experiment in deregulation is no easy task. But let there be no mistake, the work has begun.

       Pulling no punches, the usually diplomatic governor diagnosed California’s sickness from the get-go. He saw energy peddlers acting like OPEC, strangling supplies and driving prices through the roof. No matter what the spin, there’s little doubt that dog-eat-dog competition backfired. With prices skyrocketing, utility companies could no longer meet their margins and began running in the red. Regulated by the PUC and unable to raise prices, it was just a matter of time before they went broke. Like rare champagne or caviar, free markets and open competition didn’t lower prices and increase supplies—it created a bidding war, pushing prices to unprecedented levels. While electricity suppliers would like to blame soaring natural gas prices, the spot market price for electricity rose 500%, not the 40% attributable to increases in natural gas. Whether it’s Sony PlayStations or kilowatt-hours, prices go through the roof when unbridled greed gets in the way. There’s just no way that runaway markets stabilize energy—or anything else.

       Giving an accurate diagnosis sometimes displeases uncooperative patients. Talking straight, Gov. Davis ruffled the feathers of energy peddlers. “He has come out repeatedly and hammered my members,” said Gary Ackerman, executive director of a trade group called the Western Power Forum, representing energy producers and marketers. He calls us greedy, pirates, and price-gougers, and then he got to the bad stuff. [The administration refuses] to see the high price here are the same prices people are paying in other parts of the country,” contradicting Bush’s idea that it’s only California’s problem. Sure, California’s major utilities—Southern California Edison and Pacific Gas and Electric—are teetering on bankruptcy, but California’s lifeblood can’t be held hostage by cavalier power brokers. With no end in sight, the present open market system of supplying energy has failed—and failed miserably. No business, consumer or utility can tolerate wild price gyrations and conduct business as usual. Stabilizing markets, reining in the chaos and protecting California consumers is Davis’ top priority.

       Wilson’s 1996 deregulation plan forced utilities to sell off most of their generators and forbids them from entering into long-term contracts. Reversing this mistake, Davis now wants energy suppliers to bid for long-term contracts, hopefully at last summer’s price of $55 per megawatt hour. Buying long-term electricity contracts provides a short-term fix, while the state goes forward with conservation and constructing new power plants. Today’s Stage 3 alerts and rolling black-outs are caused by a statewide shortfall of only 10 megawatts or just one small power plant. There’s at least one power plant due to come online this year and 6 others in development. With improved energy efficiency and conservation the state estimates it can save at least 7 megawatts, reducing the shortfall to a measly 3 megawatts. Loosening some federal pollution standards—as President Bush suggests—helps existing power plants easily pick up the slack and generate more than California’s current needs.

       Putting long-term contracts to bid, Davis is giving energy suppliers one last crack at negotiating a reasonable deal with the state. Should they play hardball, Davis will have no other option but to invoke Eminent Domain and confiscate power plants to supply the state electricity. Unpopular with free market zealots, the state must defend its own commercial interests and finally reverse deregulation. Expecting federal help is all but dashed now that free market advocate Curt L. Herbert Jr. heads the Federal Energy Regulatory Commission [FERC]. Creating its own energy authority, the state can generate affordable electricity, selling it at cost to utilities and municipalities. Unaffected by the current power crunch, the Los Angeles Department of Water and Power serves as a powerful prototype for a larger state power authority. Endorsed by its director S. David Freeman and state Treasurer Phil Angelides, contingency plans are now in the works to create a $10 billion dollar state power authority should long-term contracts prove unworkable.

       Faced with more Stage 3 power emergencies and rolling black-outs, Gov. Davis and the state legislature are spending sleepless nights hammering out a workable solution. Criticizing Gov. Davis for not leaping at the first quick-fix makes good politics but offers little practical help. By all accounts, Davis is doing a masterful job protecting consumers and helping California’s beleaguered utilities now facing extinction. Few people imagined that the state’s venerable utilities would go the direction of dot.coms. Pushed into insolvency by a runaway electricity market, it’s time for the state to reassert control. With President Bush setting firm deadlines, the clock is running out on half-measures and harebrained schemes. Having correctly diagnosed the problem, Gov. Davis must now wield the pen and salvage California’s energy future. With deregulation now in the tank, there’s no turning back to business as usual. Like clean air and water, California also deserves stable, predictable, and, yes, affordable energy. Anything less won’t get it done.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in political consulting and strategic public relations. He’s a seminar trainer, columnist and author of Dodging The Bullet and Operation Charisma.

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