California dreamin'

Posted: Jan 25, 2001 12:00 AM
WASHINGTON, D.C. --California Gov. Gray Davis' bright political future seems to have dimmed with the lights. Davis, an amiable gentleman each time I have met him, is up for reelection in 2002. Like most California governors, he had been widely mentioned as a potential presidential candidate in 2004. But now those hopes may have blown a fuse. Today, the Golden State's chief executive is contending with rolling blackouts, the prospect of bankruptcy in the state's two biggest utilities and howls of outrage from more than 70 percent of California's 33 million residents who suddenly started noticing their light bills. And, as so often is the case in American politics, the good governor is looking for someone to bail him out of this mess -- and absent that, someone to blame. When the lights come back on, he need look no further than a mirror. In the past three weeks, "power politics" has taken on a new meaning in our most populous and prosperous state. California's "deregulated" electric utilities, prevented by state law from raising retail rates on consumers and facing demand that far outstrips their generating capacity, have been forced to buy wholesale electric power -- up to 25 percent of the state's needs -- elsewhere. And, because California law can't regulate what a hydro-electric plant in Oregon or a gas fired plant in Nevada charge for electricity, the state's two biggest investor-owned "retail" utility companies, Pacific Gas and Electric and Southern California Edison, lose money every time a customer flicks a switch. How, one might ask, could any legislature pass a law that regulates the retail price of a product while allowing the wholesale price of that commodity to float? For part of the answer, Californians need to remember 1996 -- in the midst of the Clinton-era "It's the Economy, Stupid" heyday -- when Gray Davis was lieutenant governor and the Democrat-controlled state legislature in Sacramento voted unanimously -- that's right -- unanimously to "deregulate" California's electricity market. The promise: lower electricity rates and a stimulus for generating "cleaner" electricity. The reality: rate caps that discouraged investment in new generating capacity, the "greens" were happy, and at least until after the election, cheap "imported" power from out of state allowed Californians to leave the lights on all night. But almost on cue, once the polls closed last November, California's 2 percent annual population growth, a 34 percent increase in electricity demand, a decade-long unwillingness to build a single new power plant, eight years of chaotic national energy policy, higher OPEC oil prices and the state's pseudo-deregulation all collided like a multi-car pile up on a California freeway. The result: Third World-style, 3-hour long blackouts; businesses looking for ways to move out of the state and Californians madder at politicians than at any time since Bill Clinton held up air traffic at LAX while he got a haircut on Air Force One. None of this makes good political news for Gray Davis -- regardless of his $20 million campaign war chest. His reluctance to consider significant rate increases -- letting consumers pay the real cost of the electricity they use -- has other politicians scrambling to avoid getting electrocuted with the governor. Republican Rep. Duke Cunningham is mulling a mix of Nixonian federal price controls on suppliers and relaxation of federal clean-air standards to facilitate the building of new power plants. Democrat Sen. Barbara Boxer wants to make that bad idea worse with retroactive price caps and refunds to consumers. And while Democrats in the state legislature look for ways to seize generating plants, the governor has joined the e-Bay generation by holding Internet auctions so the state can accept affordable bids from power suppliers. Thankfully, efforts to drive Davis' problem across the country to 1600 Pennsylvania Avenue and drop it in the lap of the new president have been rebuffed. This week, when President Bush announced that he would extend for two-weeks the Clinton administration's emergency order directing electricity and natural gas producers to sell their surplus supplies to California, he also said: no more extensions. And in the midst of howls from the left, new Secretary of Energy Spence Abraham and new Chairman of the Federal Energy Regulatory Commission Curt Hebert clarified their opposition to federal intervention. This has, as expected, produced complaints that the new administration is more conservative than compassionate. Longer term, the administration's challenge is to devise a coherent energy policy -- not to aid and abet California's effort to solve its problem on the backs of others. For California, the answer is of course obvious; allow rates to reflect real costs. Letting the forces of supply and demand work will provide the incentive for building more generating capacity -- and ultimately lower rates. Meanwhile, Golden State voters need to ponder whether they will hold accountable those politicians in Sacramento who regulated deregulation. They ought to contemplate this with their eyes open -- and the lights off.