California Power Crisis: A Solution That'll Stick?

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Protesters demonstrate in front of Gov. Gray Davis's San Francisco office

As Gray Davis meets the cold glares of western governors and energy-minded Bush administration officials at the power-crisis summit in Portland this weekend, at least he won't have shown up empty-handed.

After two days of intense arm-twisting — and amid no discernible drop-off in criticism from grumbling politicians — California is now the proud owner of a $10 billion bond-issue plan that walks like a bailout of the state's near-bankrupt utilities, and quacks like a bailout of the state's near-bankrupt utilities. And certainly the protesters' signs say it's a bailout.

Technically, it's more a giveaway. The state, with the good credit rating that the utilities lost long ago, will use the cash to sign long-term contracts with power producers at non-crisis prices, and pass the power on to the utilities. And the taxpayers, instead of paying more for their electricity, will pick up the bill.

Yes, California, there will be a rate increase

Davis also introduced an additional $404 million in conservation measures aimed at cutting statewide consumption by 10 percent. The plan will include a $20 million television ad campaign urging Californians to conserve electricity, and a WWII-style edict ordering businesses to turn off half their outdoor lights on pain of $1,000 fines.

Besides the taxpayers' bill for the payoff on the $10 billion, which will likely come out of the state's budget surplus, there will be a ratepayer's increase too, as an emergency 9 percent rate hike allowed utilities will become permanent. But for residential customers, there's a conservation component — rates would go up only if they used 30 percent more power than "baseline" levels set by a formula that takes into account regional differences in climate and energy use.

And why shouldn't consumers pay more? Sure, power suppliers have finessed the market — and allegedly got a little lazy about keeping their plants in working order — but "what the traffic will bear" is part of the free-market package. Environmental- and NIMBY-minded voters kept new power plants from being built, and their allergy to the possibility of rate increases under deregulation forced Davis to forbid the utilities, in time of juice shortage, increased demand and high operating costs, from passing any of those increases on to consumers. So the utilities went broke, and now Californians are finally picking up the tab.

What's next?

Davis now has a matter of days, not only to smooth the feathers of his regional neighbors, but also to put that $10 billion to work on deals with power producers to sustain California for the two or three years before enough new power plants are online to bring supply back up, and market prices back down.

Because next week, Bush's stay of execution — the order to western states to funnel their surplus electricity to California lightbulbs — runs out, and you can bet the folks in Oregon, Washington and Idaho won't be doing it voluntarily. The trick for Davis, in his haste to cut stopgap deals, will be to avoid paying prices that are an expensive embarrassment five years down the road.

A few mini-morals

Don't deregulate halfway. California jumped into deregulation with neither the infrastructure or the supply to carry out the plan in times of shortage. And when the shortage hit this summer, Davis refused to let the market take its course and let consumers pay for the juice they wanted.

Want conservation? Want to find the point at which supply meets demand? Lift the price caps that Davis is still clinging to and will try to sell in Portland this weekend. (Bush, who seems to have some real political guts along with 3,000 miles' separation from the Democrat Davis's problem, is against them.) Sure, you might get voted out of office, but you'll have done a valuable thing: Forcing Californians to deal with their own competing desires for conspicuous consumption and cheap electricity. And now that Davis has apparently found a point at which politics meet reality...

Stop complaining and live with it

The mess California made gives deregulation a bad name and Californians as good a deal as they're going to get. Assemblywoman Hannah-Beth Jackson (D-Santa Barbara), who like everyone else supported the bailout-esque plan because the consequences of the utilities' going bankrupt were too horrific to contemplate, pithily explained her position (and her state's) to the New York Times on the way out.

"There are no victories here," she said. "You can't win in a negotiation where there is a gun to your head. You just try to come out alive."