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Power Crisis Haunts Davis

November 02, 2002|Nancy Vogel | Times Staff Writer

SACRAMENTO — Josh Higgins is a Republican, yet he voted for Democrat Gray Davis for governor in 1998. He won't do it again. Not now that his Chino Hills brick factory is paying $40,000 a month for electricity, up from $15,000 before the power crisis.

"Our costs are crushing us now," Higgins said. "The governor did a horrible job. He hamstrung us on the long-term contracts, which we'll be paying for forever."

It's a widespread impression among voters. No issue hurts Davis' chances of reelection more than his handling of the blackouts, price spikes and power market meltdown of 2000 and 2001, the governor's political advisors say. In focus groups, they say, voters complain that Davis procrastinated, failed to grasp the situation and panicked by signing too many expensive power contracts.

His Republican opponent, Bill Simon Jr., has tried to reinforce that impression with television ads that accuse Davis of costing California consumers $11 billion by failing to act on the energy and budget crises.

California's partly deregulated electricity industry shook apart in a wild ride propelled by free market forces, an upset between supply and demand, and unpredictable politics. More than a year after calm returned, investigators are still trying to piece together why the state could not keep the lights burning and avoid outrageous prices for a basic commodity.

The Davis campaign is quick to point out that power prices have dropped to reasonable levels and that the state has suffered no blackouts since May 2001, despite dark predictions.

"No governor in America has probably ever faced the dire situation he did when our electrical grid was basically in danger of collapsing," said Garry South, the governor's chief campaign strategist. "Hindsight is always 20/20, and we have scads of people in the press and electorate who now have the advantage of hindsight to second-guess what the governor did."

Nobody knows just how many billions of dollars have been siphoned away from California consumers by the unraveling of the state's deregulation plan -- or how six days of blackouts and the threat of many more have affected the state economy.

But the two-thirds of the state not served by publicly owned utilities paid $7 billion for power in 1999, $27 billion in 2000 and $26.7 billion in 2001. The state treasurer is now in the process of selling $11.9 billion in bonds to pay back the state general fund for electricity purchases in 2001. Utility customers will pay off those bonds through their bills over the next 20 years. That makes it less likely that customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric will see their rates -- now among the highest in the nation -- fall any time soon.

Davis has repeatedly and accurately described deregulation as the brainchild of appointees of his predecessor, Republican Gov. Pete Wilson.

But the market created under that plan faltered on Davis' watch. Those critical of his response are numerous, from state lawmakers to consumer advocates to academics. Their judgments vary, too, and often conflict.

Some say Davis should have seized control of private power plants to keep electricity flowing. Or he should never have allowed the state to get into the business of buying electricity for financially crippled utilities. Some critics say the governor waited too long to condemn manipulation of the market by private energy sellers. Others say that by doing so, he alienated the power companies capable of solving the state's supply shortage.

Persistent Complaints

But the most frequent, persistent complaints about Davis' handling of the electricity crisis boil down to these: He did not raise electric rates on businesses and homeowners early enough, thereby increasing the overall bill for the energy crisis. And he locked up large amounts of power under contract when wholesale prices were still soaring in the spring of 2001, so that those $43 billion worth of contracts -- some lasting 10 years or longer -- became an expensive burden on utility customers.

James L. Sweeney, a Stanford University professor of management science and engineering, recently published a book called "The California Electricity Crisis." In it he concludes that decisions by political leaders, including Davis, transformed a difficult challenge into a full-blown crisis.

Sweeney argues that if Davis had pushed his appointees on the California Public Utilities Commission to raise electricity rates, the higher rates would have boosted conservation. That would have helped keep power supplies from getting so tight and thus dampened wholesale power prices, Sweeney said.

"By not allowing price increases at the time they were needed, he greatly increased the wholesale prices and therefore greatly increased the total expenditure the ratepayers are going to be forced to bear," he said.

Sweeney and others also argue that higher power rates could also have helped keep PG&E and Edison from becoming financially crippled.

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