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Commentary | ON THE RECALL By Peter H. King

Mostly, the Lights Stayed On

It may be shocking to some, but Gov. Davis handled the electricity crisis pretty well.

September 07, 2003|Peter H. King | Peter H. King's twice-weekly column runs through the recall election.

Let us return to the late spring of 2001, to that crazed period known as the California energy crisis. A summer of blackouts appeared all but inevitable. From Sonoma County came fears that chickens would croak as coops turned into ovens. In the San Joaquin Valley, the canned-tomato crop was said to be at risk. And that was just the farm report.

There also was worried talk about the human toll. One study anticipated half a million or more overheated elderly filling California hospitals. Some cities dug wading pools, while others contemplated converting air-conditioned bus fleets into makeshift "cooling sheds." Happily, meltdown was averted for hens and seniors alike and, looking back, the doomsday scenarios seem silly -- wasted worry. Hindsight can be unkind to those who prepare for the worst.

Now, of course, California's energy crisis has given way to another round of craziness: the recall race. Not that they are unconnected. It was during the energy crisis that Gov. Gray Davis took his first, steep drop in the popularity polls. His handling of the matter receives frequent mention as a reason to run him out of office -- an argument built, more often than not, on myths that enveloped the energy situation from the start.

But, his critics will interject, Davis developed the "flawed" deregulation scheme -- no, that would have been his predecessor, Gov. Pete Wilson, now lending his expertise to Arnold Schwarzenegger.

But Davis' pricey, long-term contracts, struck with electricity suppliers mid-crisis, created a whopping hole in the state budget -- no, the money does not come from the general fund. The contracts will be paid down over time by those who actually use the electricity.

But he should have seen it coming, should have known all those new computers, not to mention new Californians, would require more power plants -- well, no, governors don't build power plants; power companies do, based on clear-eyed assessments of investment versus return.

Perhaps the most persistent complaint involves Davis' initial refusal to allow utilities to pass on wildly rising wholesale costs to their consumers. If prices climbed to reflect those costs, the critics argue, the market would have somehow worked itself out, calming the crisis.

This criticism falls apart in many ways.

The price "ceiling" the panicked utilities wanted lifted had been functioning, in fact, as a floor, installed for their benefit by framers of the deregulation plan. In the first years of deregulation, rather than letting retail prices float downward, the plan maintained this floor and the utilities raked in piles of money.

The idea was that utilities would use this extra money -- "headroom," it was called -- to pay off nuclear power plants and other big but unprofitable investments. It also provided seed money for them to create whole new international energy companies. Neat-o. For them.

Had Davis allowed the utilities -- which had done so well with fixed prices -- to abandon the model and raise prices when the market began to cut the other way, it would have been cast as the ultimate betrayal of consumers.

Another problem with the rate-increase complaint can be seen in two sets of numbers. In December 1999, before the crisis, Californians consumed 19.2 million megawatt-hours of electricity; in December 2000, 19.4 million -- virtually the same amount. The total average wholesale cost for each megawatt-hour in December 1999 was $30; the total average wholesale cost one year later was $317. If Davis had allowed retail prices to fly upward in sync with the soaring wholesale costs, the average Californian's electricity bill, despite no jump in usage, would have increased 10 times over. And no, Davis would not now be facing recall; he wouldn't even have been reelected.

Besides, the increases were cooked. The suppliers, as has been documented since, had figured out, through hook and allegedly crook, how to manipulate the supply-and-demand curve, allowing them in peak hours to name their price and drive up the wholesale cost. There's a word for that: gouging.

In hindsight, Davis was confronting nothing less than a ransacking of the California energy market. And yes, in hindsight, he might have done better.

He might have gone for the dramatic stroke, seizing plants. He might have made like Churchill, rallying Californians to ruin the manipulators' schemes with relentless conservation. Instead, he took smaller steps and negotiated with a gun to his head.

Still, the chickens did manage to lay their eggs. Tomatoes made it to the can and ketchup bottle. Hospitals were not overrun with the overcooked aged. Davis-bashing aside, for the most part the lights did stay on -- and at the time, that seemed awfully important.

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