by John M. Curtis
(310) 204-8700

Copyright June 1, 2001
All Rights Reserved.

hrowing Gov. Gray Davis an anchor, President George W. Bush rebuffed the feisty California governor for escalating his incendiary rhetoric about the power crisis. Huffing and puffing, “I’m going to pursue every recourse possible to me,” said Davis, threatening to sue the Federal Energy Regulatory Commission [FERC], despite the fact that the U.S. 9th Circuit Court of Appeals already rejected a lawsuit filed by state Sen. Majority Leader John Burton (D-San. Francisco) and Assembly Speaker Bob Herztberg (D-Sherman Oaks) and the city of Oakland seeking injunctive relief—price caps—on wholesale electricity prices. “This agency [FERC] has failed its duties miserably,” said Davis, pitting his administration—and indeed California—against the Bush White House. “For too long, too often, too many have wasted energy, pointing fingers and laying blame . . . ,” Bush told the World Affairs’ Council—a veiled reference to Gov. Davis’ tough talk. Bush and Cheney have long maintained that California’s energy crisis was its own doing: passing faulty deregulation and failing to build enough new power plants. Sticking to his guns, “Price caps do nothing to reduce demand, and they do nothing to increase supply,” remarked Bush to a rumbling applause.

       Not living up to its hype, Davis’ tête-à-tête with Bush lasted 40 minutes—more than double its billing without producing any miracles. No one expected Bush to cave in on price caps since the White House announced its energy policy earlier in the month. Using his own litmus test, “Will any action increase supply at fair and reasonable prices? Will it decrease demand in equitable ways? Anything that meets that test will alleviate the shortage, and we will move swiftly to adopt it,” said Bush, demonstrating that his mind was shut before landing in the golden state. Price caps aren’t a substitute to building new power plants or conservation. They’re an attempt to control runaway energy prices threatening to bankrupt the state. Bush and Cheney know that California can’t continue paying $1900 per megawatt-hour without going broke. Spending more that $60 million a day, the State has already squandered $7 billion from the general fund—and there’s no end in sight. Long-term power contracts won’t deal with the runaway spot market where the state must purchase daily power to keep the lights on. “Long term, the answer is build more power plants, and that’s exactly what they’re doing,” Cheney told the U.S. Chamber of Commerce, essentially blaming California for causing its own problems.

       Stating the obvious, Bush and Cheney have chosen smoke-blowing over practical solutions. With the economy teetering on recession, the White House can ill-afford to ignore the nation’s most populous state—16% of the U.S. economy. Everyone knows that increasing supply and reducing demand is essential. But the immediate danger is not rolling blackouts: It’s the potentially lethal hemorrhage to the state treasury from inflated electricity purchases. Temporary price caps won’t cure the state’s sickness, but it will reduce the cost of treatment. Pretending that there’s nothing that can be done or that temporary price caps would sabotage California’s long-term energy market defies common sense. Slipping 20% in the polls, Davis found a convenient scapegoat fingering the White House. Directing the public’s ire toward Bush is sound PR, but it doesn’t turn on more light bulbs. “They didn’t address it [power shortages] soon enough,” remarked Cheney, to growing criticism that Davis failed to act decisively to stem the emerging power crisis. While Bush and Cheney haven’t been too helpful, they’re correct in recognizing that Davis and Public Utilities Commission chair Loretta Lynch buried their heads while the state’s major utilities amassed billions in debt. Unable to raise rates for months, they headed toward bankruptcy.

       Strapped for cash and unable to buy power, Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric now depend hopelessly on the state to purchase power. Costing upwards of $60 million a day, even the recently passed $13.5 billion dollars in revenue bonds won’t last forever. Without caps on electricity prices, the bonds will go up in smoke along with the state treasury. State treasurer Phil Angelides already voiced warnings, but the White House still prefers sophomoric debates about free markets. Yes, California caused its own misery by voting to deregulate its power industry in 1996. Yes, the state made a terrible mistake. But it’s also time for Bush and Cheney to stop blaming California. Acknowledging that his administration “takes very seriously our responsibility to make sure that companies are not illegally gouging consumers” offers California few assurances. Bush must recognize that even legal gouging by energy suppliers can’t continue. Williams’ Energy increased first quarter profits from $77.8 million in 2000 to $484 million this year—that tells the whole story. California simply can’t transfer all its wealth to out-of-state energy suppliers.

       Instead of threatening lawsuits, the state must return to high-level diplomacy and help the White House find a face-saving way out. Ratcheting up the rhetoric only compromises California’s bargaining position. Even with Sen. Jeffords’ jumping ship and the Democrats retaking the Senate, fighting the White House only assures that California will get the short end of the stick. Al Gore found out the hard way what happens in the courts. Now Gov. Davis must change strategies, stop posturing and begin the painful process of working with the powers that be. Toning down the hot talk and creating a more hospitable atmosphere would be a step in the right direction. No one expects unilateral capitulation on either side. Suggesting that the Clinton White House opposed price caps, Bush cleverly sidestepped the issue. Clinton might have responded forcefully had he known that California was in dire straits. Despite who’s at fault, it’s disingenuous to suggest that Clinton would have turned his back because he philosophically opposed price caps.

       California has stumbled. It wasn’t Gray Davis who authorized deregulation back in 1996—nor was it George W. Bush. Inviting out-of-state power brokers into the state opened a can of worms leading to the price war that sent energy prices through the roof. Ferreting out fraud and manipulation won’t help today’s runaway energy prices. Bush’s right when he says that pointing fingers won’t lower demand or increase supplies. He’s dead wrong when he says that nothing can be done. Temporary price caps won’t sacrifice future investment in California’s electricity market. Runaway energy prices can’t last forever without causing catastrophic damage to California and the U.S. economy. Gov. Davis must stop looking ahead to his reelection and start finding ways to work with the administration to fix California’s energy problems. Trashing the White House only makes matters worse. California’s hardship reminds outsiders that even rich states sometimes need help. Price caps aren’t a perfect fix, but they apply the needed brakes to a runaway freight train. Getting off the high horse, both sides need to control their tongues and meet each other halfway.

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 the author of Dodging The Bullet and Operation Charisma.

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