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| Davis Botches Power Crisis
by John M. Curtis Copyright August 18, 2001
When the spot price soared to $2,900 per megawatt hour, California’s major utilities hemorrhaged into insolvency. Fearing political repercussions, Gov. Davis sat idly by, stubbornly refusing to instruct the Public Utilities Commission to raise rates. Promising he wouldn’t hike rates, Davis caused the state’s major utilities to cumulate massive debt. Jumping into the power business, the state began buying power on the mercurial spot market to supply the California Independent System Operator to keep the lights on. Spending $60 million per day on exorbitant spot prices, the state quickly racked up $12 billion in debt for power purchases, resulting in Davis finally endorsing a whopping 40% rate increase, rubber-stamped by the PUC. With the legislature passing $13.5 billion in revenue bonds to save the state from going broke, Davis found a convenient scapegoat to bailout cash-strapped utilities and pay back the state. Yes, poor ratepayers must pay the freight for the governor’s mistakes and legislature’s failed experiment in deregulation. Davis correctly recognized that California’s OPEC-like power cartel took plants off-line to create scarcity and skyrocketing prices. Energy suppliers, though denying it—with the help of the now defunct California Power Exchange—bid spot prices through the roof, forcing the state’s major utilities to lose massive sums of money. Once recognized, Davis had the executive power—through eminent domain—to seize suspected plants, assuring ratepayers access to affordable power. Davis made no such move and the power industry continued to turn the screws. With the help of Los Angeles Department of Water and Power’s S. David Freeman and a cadre of neophyte power consultants, the state proceeded to nail down long-term contracts with power companies like Enron, Williams, Reliant, Duke and a host of others. Buying power 5 to 10 years into the future, Davis committed California to long-term contracts, despite economists’ warnings that the spot market would eventually collapse. Dropping below $50 per megawatt hour, the state is now upside down, paying more for electricity than it can hope to recoup from the whopping 40% rate increase. California lost $46 million in July with deficits now projected upwards of $500 million next year, once again forcing ratepayers to foot the bill. Yes, Davis had a secret plan to break the backs of price-gouging power companies by entering into ill-advised long-term contracts. With ratepayers as his safety net, it didn’t matter how he squandered billions of dollars. How convenient to bail out the state and utilities on the backs of ratepayers. Davis’ number one spin meister S. David Freeman finds a silver lining telling the press that today’s welcomed surpluses were needed to break the vicious spot market. Jumping the gun, Davis was badly out negotiated by power companies, nailing down long-term contracts, knowing full well that that they were taking the state to the cleaners. Davis’ conservation plan backfired together with suppliers keeping power on-line, now creating today’s whopping surpluses. With only a few new power plants coming on-line, California’s power crisis couldn’t have suddenly reversed itself without generators cranking out power. Now the state is faced with either eating its surplus power or selling it off at 10 cents on the dollar. Projecting surpluses through 2004, the state faces a power glut or reversing gears, lowering rates and encouraging greater consumption. Since pushing more consumption would be politically suicidal, Davis must now find more excuses for mismanaging the crisis. Already told not to expect more than a billion in rebates, Davis faces more humiliation trying to salvage the state’s growing losses through bond sales and future rate increases. Bringing more power plants online, the state confronts even greater surpluses, with neighboring states following suit. Unloading surplus power, at this point, looks grim considering the current glut. If Bush and Cheney were right about California’s inadequate generating capacity, how’s it possible that the state is suddenly oozing electricity? Bush and Cheney were dead wrong blaming California’s power crisis on too few power plants. Gov. Davis was correct to finger out-of-state power suppliers for manipulating the market, causing widespread shortages and skyrocketing prices. Pulling together a makeshift group of costly, hotshot consultants, Davis was badly out maneuvered by clever power brokers locking the state into exorbitant long-term contracts. Costing ratepayers billions of dollars, the high-price of living and doing business in California won’t end anytime soon. With the power glut not going away, Davis must admit his mistakes and find a way to provide relief to ratepayers. Ratepayers shouldn’t bear the brunt for legislature’s failed experiment in deregulation or pay for the state’s mismanagement. As long as California boasts a budget surplus, it should be used to reimburse ratepayers, not fund new programs. Ratepayers shouldn’t pay for the governor’s inexperience or legislature’s mistake of deregulating the power industry. It’s also time for the White House to quit blowing smoke and admit that free enterprise sometimes doesn’t work. 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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earing political fallout, acting indecisively and making costly mistakes, Gov. Davis must take the heat for bungling the state’s power crisis. Suddenly oozing electricity, California’s ominous power shortage instantly morphed into a power glut, projecting depressed prices and record surpluses well into the foreseeable future. Vanished are the rolling blackouts predicted to blacken the Golden State, threatening widespread chaos and economic disaster. Explaining the mess, “California hasn’t built a new power plant in nearly 20 years,” said Vice President Dick Chaney blaming California for not keeping pace with growing power demands. When Stage 3 power emergencies and rolling blackouts hit in January 2001, Bush and Cheney blamed the crisis on a shortage of power plants. Blowing more smoke than a Texas barbeque, Bush and Cheney refused to acknowledge California’s dysfunctional power market, caused, in large part, by a defective deregulation scheme allowing generators to manipulate the market and bid prices into the stratosphere.|
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