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THE RECALL CAMPAIGN

Energy Remains a Litmus Test on Davis as Manager

The governor's actions as the electricity debacle unfolded come under scrutiny again as he fights for political survival.

October 05, 2003|Jonathan Peterson | Times Staff Writer

It was after midnight on Jan. 10, 2001, when Gray Davis emerged from the U.S. Treasury building in Washington to face a group of shivering reporters.

The California governor revealed few details of the closed-door, seven-hour session with federal officials and energy company executives on his state's power woes. But he sounded an upbeat note: "We can see light at the end of the tunnel," he said.

In fact, many lights would soon go out, and Davis would be forced to take actions he had avoided for months.

Seven days later, as parts of California grappled with the first in a series of rolling blackouts, Davis unleashed the full powers of his office to stave off calamity. Declaring a state of emergency, he authorized the Department of Water Resources to buy vast quantities of electricity and vowed other actions to combat the crisis.

Yet today, as Davis fights for political survival in Tuesday's recall election, many believe his response was tardy and weak. And with rivals on the campaign trail attacking his performance, the governor's actions as the crisis unfolded have come under new scrutiny.

Between January and May 2001, Californians endured seven rolling blackouts, an ordeal that cost the economy billions of dollars, drove two major utilities to the brink of financial ruin and projected the image of a state unable to manage a basic public service.

An Aug. 23 Los Angeles Times Poll found that 34% of Californians who favored the recall pointed to the governor's management as the reason, with 19% specifically citing the energy crisis.

"Do we want a guy who's a poor leader when we need really good leadership?" asked Peter Navarro, a UC Irvine economics professor. "The energy crisis was his litmus test, and he failed miserably."

Davis himself conceded at a campaign forum in early September that he did not move soon enough to avert the power meltdown, noting: "I think I was too slow to act in the energy crisis."

But after an initial stumble, Davis said, he worked effectively to turn the lights back on. Others agree, saying he championed conservation, signed long-term electricity deals that brought stability and tried -- albeit in vain -- to prompt federal regulators to crack down on market gaming by energy companies.

"He made the decisions he had to make to protect the state from blackouts and to protect the ratepayers from 400% rate increases," said Susan P. Kennedy, a Davis advisor now on the California Public Utilities Commission. "When I look in hindsight, I don't know what he could have done differently."

Some Missteps

Nonetheless, an examination of Davis' approach to the debacle and interviews with policy experts suggest that a governor renowned for his hands-on control made several missteps:

* Davis pinned excessive -- and futile -- hopes on a federal rescue as conditions worsened in the crucial months of late 2000.

* Even as wholesale prices soared, Davis clung to unrealistically low goals for how much he was willing to spend on energy. Indeed, a last-ditch effort by the Clinton administration to broker a solution ended angrily, with participants, including Treasury Secretary Lawrence Summers, seething at Davis' refusal to budge.

* Davis failed to seek long-term contracts to guarantee energy supplies soon enough. When he finally endorsed the idea, the state was forced to accept agreements that cost billions of dollars more than they would have the previous summer.

* Davis brushed back requests by the utilities to raise rates. As their costs mounted, Edison International's Southern California Edison unit moved to the edge of bankruptcy and PG&E Corp.'s Pacific Gas & Electric filed for Chapter 11 protection.

The utilities' cash crunch "was reality," said William W. Hogan, an energy economist at Harvard University. "When you don't face reality, you make the problem worse."

Day-to-day decisions on energy regulation would not normally involve a governor. But as temperatures rose in spring 2000, the situation confronting California became far from ordinary.

Surging wholesale prices in May and June prompted Sempra Energy's San Diego Gas & Electric to pass on huge rate increases, sparking a consumer revolt. On June 14, a Bay Area power failure raised early questions about the behavior of energy suppliers in the newly deregulated marketplace.

On Aug. 2, the heads of two state entities, the Electricity Oversight Board and the Public Utilities Commission, warned Davis of trouble to come. But the governor took no significant action at the time.

Focus on FERC

Rather, the Davis team focused much of its hopes on the Federal Energy Regulatory Commission, the panel that oversees wholesale energy markets. At the state's request, the commission took up the issue and ruled Nov. 1, 2000, that prices were not reasonable. But they proposed only modest rule changes that lacked the teeth to end the problem.

Eight days later, Davis sent a scolding videotape to a FERC meeting.

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