Deregulation Did In Davis

By Published On: October 10, 2003

No matter whether you support competitive markets for energy or think they should be tightly regulated with kilowatts doled out by the state, Gray Davis is no longer governor because privatizing generation crashed into his administration. Deregulation did Davis in two years before he lost the recall election. California?s usual Democratic-voting public could put up with a centrist governor until their traffic lights blinked out and their ice cream gooed all over the freezer. After that, they were reminded of Davis?s inability to take charge during the energy crisis every month in their utility bills. And if the usual voting public was annoyed about its bills, businesses, whose rates sometimes tripled, were livid. A more charismatic politician might have averted the energy crisis, but then, no one would notice. A politician with a steeled spinal column could have imagined that while markets could bring down prices, they could just as well do the opposite, and thus put his or her effort into reversing AB 1890 early on?but even in that unlikely event, no one would notice, either. A more progressive politician being battered by blackouts could have laid the blame on utilities. That would have been an astute move for the utility-hating public at the time, but no one would have cared if all investor-owned utilities filed bankruptcy and rates went up anyway. An inventive politician could have immediately required ?nationalization? of generation and the grid. Everyone would?ve cared about that one?and he?d still have been recalled. No one notices that the energy crisis wasn?t Davis?s fault. It?s not voters? job to care about what didn?t happen. Face it, Davis?s bad luck of just being in office during the energy crisis did him in. They say that voters have short memories. Some of us who were in the thick of the energy crisis have a touch of amnesia, so a short trip down recall lane is in order: Enron?s little game with Silverpeak congestion showed the way for wholesale prices to get a bit carried away. This got Davis?s attention in summer 2000, when San Diego Gas & Electric customers started feeling price volatility in their bills. The California Independent System Operator (CAISO)?whose board at the time included representatives of Enron and other generators?hotly debated lowering price caps from $750/MWh to $500/MWh. By December 2000, utilities? financial health was heading to the emergency room. Davis met with Federal Reserve chair Alan Greenspan and Treasury Secretary Lawrence Summers. They didn?t even offer a photo op. Consumer groups were on the governor?s case because they thought utilities were crying ?wolf.? At the end of the year, the Department of Energy granted CAISO emergency powers. Davis?s fellow Democrat President Bill Clinton was also little help as he cut those powers off on January 6, 2001. Davis came this close to making a bold move when he ?commandeered? PG&E?s and Edison?s ?block-forward? contracts from the California Power Exchange in February. The PX turned around and handed Davis a bill for them for nearly $1 billion. Ignoring consumer groups, Davis continued to front for utilities. He offered to buy up utilities? transmission systems for $7 billion and then lease them back to them to stave off bankruptcy. That idea went nowhere. Despite speculation that Davis would become a vertebrate and use the state?s power of eminent domain or levy a windfall-profits tax, in a March 2001 ?state of the energy crisis? speech, he only begged for more conservation?asking voters to sacrifice their air conditioning and midday laundry washing. At least that went over better than raising the cost of registering cars. At the same time, he called for $8 billion in securitized bonds to get utilities back on their feet. That, again, went nowhere. In April 2001, credit-rating agencies started to downgrade the state?s creditworthiness, largely because of the energy crisis?thus increasing future costs of any bailouts or debts. During early 2001, Davis continued to call on the Federal Energy Regulatory Commission to put caps on power prices, even asking President Bush for his help in May, The resounding answer was no. It wasn?t until June 2001 that FERC revamped the market, leaving a cap of $91.87/MWh. Much to many generators? and marketers? delight, and Davis?s embarrassment, the Department of Water Resources?conscripted into the business of buying power because utilities would no longer do so?proved rather hopeless in negotiating contracts on behalf of the state. To make it look worse for the governor, Davis refused to make those contracts public until forced into it by the state controller and the media. Then to add humiliation to embarrassment, in the summer it was revealed that some of those who were negotiating the contracts, as well as some of Davis?s own staffers?including Steve Maviglio, Davis?s chief spokesperson?had investments in the very companies they had negotiated with or which they?d labeled crooks. Davis championed a bill designed to rescue Southern California Edison from the brink of bankruptcy. He was accused of doing it for his ?friend? Edison International chief executive officer John Bryson. Davis called not one, not two, but three extraordinary sessions of the legislature to deal with energy in general, but mainly to pass the Edison bailout bill. Davis lost. Putting together this short history of Davis?s actions and inactions during the energy crisis made me hanker to be one of those peroxide-for-brains memory-challenged voters who voted against him simply because he?s bloodless.

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