Davis Faces Growing Criticism on Power Crisis

SACRAMENTO —  Gov. Gray Davis deals with California’s electricity crisis by sounding common refrains: His Republican predecessor signed the bill that deregulated electricity, and federal regulators and out-of-state power producers are the villains.

“I don’t have the legal authority to deal with all the actors,” Davis told reporters here two weeks ago. On a PBS business news show last week, he said: “Generators can charge anything they want today, and the only people who have any control over them is the Federal Energy Regulatory Commission, which has refused to take any control.”

But an increasing chorus of critics say Davis failed to heed early warnings of power shortages, has shied away from tough, decisive action, and has dwelt too long on his rhetorical attacks.

“He has come out repeatedly and hammered my members,” said Gary Ackerman, executive director of Western Power Trading Forum, representing energy producers and marketers. “He calls us greedy, pirates, price-gougers, and then he got to the bad stuff. [The administration refuses] to see the high prices here are the same prices people are paying in other parts of the country.”

Davis is not running from the issue. He has immersed himself in it. People who have met with him say he understands its complexities. But the refrain that he is not responsible for the situation rings hollow to many who believe the time to act has long since arrived.

“He can’t make a decision. He’s risk-averse,” said one Democratic official who is working on solutions but declined to be identified.

At a meeting with utility executives and legislative leaders in mid-December, former Secretary of State Warren Christopher, a Southern California Edison board member, lectured Davis on the nature of leadership and the need to be decisive.

After Christopher finished, a participant recalled, state Senate leader John Burton (D-San Francisco) tossed a dollar bill toward Davis. After a pause, Davis, a note of glee in his voice, pointed out that the buck didn’t stop at him: It had landed closer to a utility executive from Pacific Gas & Electric.

In September, Davis said public reaction to rising costs of electricity could result in a backlash like the movement against property taxes that spawned Proposition 13 in 1978. At the time, he promised to spend October working on the problem and perhaps hold a summit meeting and propose solutions in November.

No summit took place, though he has met behind closed doors with experts and industry leaders. And although he offered some proposed solutions on Dec. 15, Davis now says he won’t reveal his full plan until he delivers the State of the State speech Jan. 8.

In the months since September, Edison has announced that it faces bankruptcy. Announcements of power shortages and threats of blackouts have become almost routine.

The California Public Utilities Commission is considering rate increases of up to 76% for Edison, and U.S. Energy Secretary Bill Richardson has invoked emergency authority and ordered that power plant owners sell electricity in California, even though utilities may be unable to pay.

Davis has called for a special session of the Legislature. And in an initial round of proposals, the governor offered to spend $1 billion on conservation efforts and to speed approval of new power plants.

“People need to understand the limitations on his powers,” said Davis spokesman Steve Maviglio. Noting that the Federal Energy Regulatory Commission wields much of the power, Maviglio added: “We didn’t ‘deregulate’ electricity. We ‘federalized’ it. The governor has no power to control rates charged by the generators. That’s up to FERC.”

Although Davis cannot control wholesale electricity prices, the governor has broad power, including the authority to take steps to buy transmission lines and power plants. Also, Davis exerts considerable control over his appointees to the PUC.

The PUC can opt to grant the rate increases that utility executives say they need. And by pushing legislative solutions, Davis can take a major role in rewriting the statutes that deregulated the industry.

The buildup to the crisis has been a little like a car crash in slow motion.

In the summer of 1998, there were four Stage II power alerts, meaning the electricity supply was seriously strained. In July 1999, the California Energy Commission issued a report warning of short supplies and frequent power alerts.

In February, a state Senate committee held hearings on the issue, and presciently reported that “the demand for power is in danger of stretching the state’s electric supply to the breaking point.” San Diego utility bills began to spike in the summer.

Davis and others say that warnings notwithstanding, a confluence of problems blindsided all experts. Severe winter cold in parts of the country and a lack of rain have diminished power supplies.

“I don’t think anyone expected the kinds of shortfalls and price spikes we’ve had,” said state Sen. Debra Bowen (D-Marina del Rey), who held the February hearings. “We knew there would be bumps. But no one expected eruptions.”

PUC Appointees Seem Hesitant

Still, questions persist: Could the Davis administration have acted more quickly and decisively?

The governor was slow to make key energy appointments. He waited six months to name PUC members.

Davis’ appointees fear his wrath if they take action with which he might disagree, and those he has named to the PUC have at times appeared hesitant to act.

The governor keeps his own counsel, and appears to trust few people outside a small cadre of advisors. Until the energy situation turned into a crisis, he could count no recognized expert on energy issues among his advisors.

Utility officials are most upset that the PUC blocked their efforts earlier this year to enter into long-term contracts to buy electricity, leaving them scrambling to buy much of the energy they resell on spot markets.

The PUC since has taken steps to allow the utilities long-term contracts. But the wholesale cost of electricity has quintupled, and the utilities have no hope of striking deals for power at prices anywhere near as favorable as they might have paid in the summer.

Long-term contracts, Maviglio said, can be a “double-edged sword.” Though they might have ensured a power supply, a deal that locks in high prices could damage the economy, especially if a recession hits.

Business leaders say that although higher rates can damage them, the biggest threat is an unreliable power supply. Davis has cultivated business groups, raising millions from them for his 2002 reelection effort and steering a moderate course on policy issues.

So, he probably will not ignore their pleas, even if it means granting a rate increase to ensure that the utilities can avoid bankruptcy and that power continues to flow.

“You’ve got to have reliability, so if there must be a rate increase, so be it,” said a business leader, summing up a widely held belief. “But on the other side, nobody is telling the governor, ‘You’re not raising rates high enough or quick enough.’ ”

The bulk of the votes in the 2002 election will come not from captains of industry but from residential customers. If Davis’ PUC permits a general rate increase, voters will be reminded of the rate hike each month when utility bills arrive. Worse for Davis would be rising rates coupled with blackouts.

“Fundamentally,” said one Democratic political consultant, “this is a test of his character and management style. People expect their lights and their heat to stay on. You pay a very high [political] price if it is not there.”

Davis has won some points with consumer advocates, which could be important come election time. He set up a conference between them and utility executives last week in an attempt to start building consensus among the rivals.

“He seems to have accepted that any decision he makes will not be popular,” said Harry Snyder of Consumers Union. “He is acting like a grown-up about that. . . . I can’t say how it is going to turn out. It is an open book. He is better than I thought he was going to be.”

To be sure, Davis recognizes the political implications of the situation. The governor, a prodigious fund-raiser, canceled a dinner that was to be put on in early December by energy producers. It would probably have netted his reelection campaign roughly $100,000.

Davis raised more than $21 million for his reelection campaign in his first 18 months in office, including more than $500,000 from energy producers, marketers and utilities.

Energy industry representatives were among the recipients of invitations to fund-raisers in Sacramento and Los Angeles “celebrating” Davis’ birthday earlier this month. A ticket cost $5,000.

Whether energy industry representatives attended won’t be known until he files his next campaign finance report at the end of January.