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Jolt of Hope

Amid intense meetings with fellow governors and federal officials on the power crisis, Davis has an opportunity to pull it off.

January 14, 2001

California's runaway electric power market could be brought under control under a partial agreement reached late Saturday by state, federal and industry officials who had conferred for seven tense hours from Washington and Los Angeles by telephone and television conference call. If the details can be worked out and the pact made final--both are big ifs--California consumers and the state's economy could let out a sigh of relief.

Under the tentative deal, the state would buy power from the generating companies and resell it to the state's private utilities, whose credit ratings have been undermined by high spot power prices. They are now deeply in debt to power producers, who are refusing to sell them more power.

In making his announcement, Gov. Gray Davis said that power consumers would be protected from absorbing any higher rates. Using the state's credit in this fashion is acceptable because it is the state's responsibility, ultimately, to keep the power flowing. But Davis and lawmakers must be certain that both consumers and taxpayers are protected from bearing costs that properly belong with the private power generators and the utilities. Clearly, much work needs to be done, and skepticism expressed by federal officials after the deal was announced reflected this. Meetings will continue early in the week, but negotiations are racing the clock as private utilities run out of available cash.

Los Angeles and a few other cities are still served by publicly owned power companies and have evaded shortages, but of course their fates are tied to the health of the state.

No matter the risks in long-term contracting being proposed, the other possibilities are worse. One is the constant threat of rotating blackouts almost throughout the state, which could have a devastating effect on the economy. Another is that Southern California Edison and Pacific Gas & Electric, which serve about 25 million Californians, would go bankrupt, with disastrous consequences for the state. Still another threat is a drastic escalation of homeowner electric bills that almost certainly would trigger a ratepayer political revolt and lead to a 2002 election ballot measure--probably ill-considered--to re-regulate the power market.

Another positive note came out of Sacramento Friday as Davis met with Oregon Gov. John Kitzhaber and Washington Gov. Gary Locke to develop a regional strategy for power conservation and cooperation. California has depended heavily on power from the Northwest in recent months. The three governors called on the Federal Energy Regulatory Commission "in the strongest possible terms" to impose reasonable price controls on wholesale power sales in the West.

The commission has refused to do so under Chairman James Hoecker, who insists that the open market be allowed to work. But Hoecker leaves office Thursday. His likely successor under the incoming Bush administration, Curt Hebert, has indicated he would be receptive to the idea of a short-term price cap.

Davis' pact with the governors of Oregon and Washington sets a far better tone than some of the rhetoric in his State of the State address last Monday. Then, he decried the sale of California power outside the state and vowed, "Never again will we allow out-of-state profiteers to hold California hostage." Of course, there are suspicions that generators or marketers have tried to manipulate the market to drive up prices, but there is no proof of this yet. Investigators need to continue pursuing this possibility vigorously.

The power crisis is real, and the problems will persist at least until new plants come on line in the next two or three years. However, the state finally has a basic battle plan in place. It is up to the governor and the Legislature to make smart decisions, avoiding the pitfalls of ignorance that led from the 1996 deregulation law to the current mess.

Davis may not have had a hand in causing the crisis, but it is largely his to fix. If he removes the immediate threat and steers a steady course to a reliable, reasonably priced electrical supply, he can be a hero. No one, least of all Davis, wants to contemplate the alternative.

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