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California and the West | ON CALIFORNIA

A Light in the Tunnel?

April 11, 2001|PETER H. KING

SACRAMENTO — As the old joke goes, the light at the end of the tunnel might well turn out to be a train coming the other way. Or, to pass along a Russian proverb an old raisin farmer once shared with me, a drowning man will grab at sea foam. Still, there is a case to be made that the big events of the past few days--PG&E's bankruptcy filing and the deal to purchase Edison's transmission lines--represent a favorable turn of events on the California energy front.

This is not, admittedly, the majority viewpoint. As many a doomsayer already has said, neither bankruptcy judges nor transmission lines are capable of generating a single jolt of electricity. Deal or no deal, the gougers remain on the hunt, licking their chops in anticipation of a summertime feast. And rates can be counted on to go up, up and up some more, even as the lights go off in rolling blackouts to come.

So where's an optimist to find any headroom?

The answer begins with the idea that California's energy crisis actually is four crises, all tangled together in one incomprehensible ball of woe. There is the crisis of utility finances, with the once-mighty PG&E and Edison falling deeply into debt in a matter of months. There is the crisis of supply not meeting demand, for a variety of reasons (even our sub-crises have sub-crises). There is the crisis of the flawed deregulation model itself--a fundamental, systemic failure which left the vault open for the gougers. And finally, there is the crisis of trust: In this mess, nobody trusts anybody, any time, anywhere.

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And so last Friday morning, PG&E did Gov. Gray Davis, and California, a big favor. It took off the table its gigantic piece of the utility finance puzzle. True, the governor may have lost face when PG&E ducked into bankruptcy court, but he also gained a measure of freedom. The bankruptcy judge will do whatever he will do; Davis is out of it. And in hindsight, there simply was no way the governor was ever going to resolve PG&E's credit crisis. It was too wide a chasm to bridge.

The utility maintained that the $9-billion gap in its budget was the responsibility of its rate-paying customers to resolve. Its many critics contended just as adamantly that, since PG&E had dug itself into this hole, it should be required to dig itself out. That PG&E made piles of money early on through deregulation further complicated the equation.

On Monday, playing good utility to PG&E's bad utility, Edison agreed to sell the state its transmission lines and produce a decade's worth of low-cost, regulated electricity--in exchange for the cash needed to beat back its creditors. The deal requires legislative approval, and consumer activists quickly ripped into it (see "trust crisis"). Again, though, Davis has done his part. He delivered the deal, cutting himself free from what had been the most vexing of the four crises.

From here forward, Davis can forget utility financing and bear down on the remaining, and more manageable, crises. Already there is a significant amount of new supply in the proverbial pipeline, but it won't be ready for the summer. This means Davis must coax Californians into lowering demand through conservation: Expect him to begin announcing, perhaps later this week, more pieces of an aggressive conservation program.

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More important than finding ways to squeak through the summer, however, is the development of a new model for California energy: Crisis No. 3, for those scoring at home. Clearly a deregulation system in which the cost of electricity can climb from $7.4 billion one year to $32 billion the next, and if projections for 2001 hold true, to $65 million the year after that--with demand, all the while, increasing less than 4%--is more than a little broken or "flawed."

No, deregulation as California knew it is flat-out dead. What will replace it? Those eager to plunge deeper into the free market experience say, "Aye." Nays have it. Re-regulation? Inviting, but it would appear to present the same basic problem faced by all the king's men, when they tried to put Humpty Dumpty back together, again.

The bet here would be on some form of public power, be it the Los Angeles municipal model, or a statewide power authority, or some version of the kind of co-op systems that have been in place for decades across rural America. Whatever, it would be helpful going into the summer if Davis and Co. could give Californians some sense of the shape of an energy future to come.

Conserving electricity, in fact, might be made to seem an almost joyful experience--if Californians could be convinced that, at the end of the hard road, the state was going to be rid of the pirates and bunglers who put it in this fix in the first place. Of course, to make that sell, first there must be trust. . . .

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