Power politics

California Democrats are trying to buy electricity to sell to state utilities, but Republicans and energy companies are crying foul.


Anthony York
January 18, 2001 7:35AM (UTC)

During his State of the State address last week, California Gov. Gray Davis said he did not want to point fingers or assign blame for the state's ever-worsening electricity shortage.

But in virtually the next breath, Davis attacked "out-of-state energy companies" for "threatening to disrupt people's lives and damage our economy," placing the bulk of the blame for the crisis on non-Californians who also happen to be big boosters of the Republican Party and George W. Bush.

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To say that Davis' attack is the opening salvo in the 2004 presidential race may be a bit of a stretch. But Davis, who is often mentioned as a contender for the Democratic Party presidential nomination, has vigorously attacked energy suppliers, who gave almost $17 million to political candidates during the last election cycle, $11.5 million of which went to Republican candidates. The industry also gave eight times as much money to Bush as it did to Al Gore.

"It makes political sense for the governor to attack them," said John Nelson, spokesman for Pacific Gas & Electric. But Nelson notes that the Federal Energy Regulatory Commission, controlled by Clinton appointees, has failed to enforce the Federal Power Act, opting instead to allow the markets to set the wholesale electricity price, and pushing California's investor-owned utilities to the brink of bankruptcy.

California Democrats say the short-term solution is for the state itself to get into the power business. Since suppliers are threatening to stop selling power to debt-saddled utilities, the state, with its stellar credit rating, may step in and buy the power itself. At the Capitol Tuesday, the state Assembly passed a bill that would effectively turn the state into a power distributor. Though the state's 1996 deregulation bill prohibited utilities from signing long-term contracts for electricity with other producers, the bill passed by the Assembly Tuesday would let the state itself buy power in long-term contracts.

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The bill's language allows the state to pay up to $55 per megawatt-hour for electricity, nearly twice the price of the average pre-deregulation wholesale price. Since the wholesale market was deregulated, that price has shot as high as $300 per megawatt-hour on the open market.

"We'd have been $4 billion ahead if we had signed some of those contracts that were on the table back in August," said Assemblyman Rod Wright, D-Los Angeles, chairman of the Assembly Committee on Energy Costs and Availability.

The deal, essentially, allows the state to do what it never allowed the state-regulated utilities to do: enter into long-term contracts to lock in energy rates.

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Meanwhile state Attorney General Bill Lockyer, a Democrat, has launched an investigation into the manufacturing and sale of electricity, to see "whether there have been illegal or unfair practices associated with it," said Lockyer spokeswoman Sandra Michioku.

Among the charges being investigated by Lockyer's office are claims that electricity producers have made money on both ends of the electricity deregulation process. Michioku confirmed that the state was investigating claims that producers sold off natural gas that was supposed to be allocated for the production of electricity, thereby artificially creating an electricity shortage.

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"There are a lot of questions, and among the things we're looking at is natural gas," she said. Consumer advocates, such as Doug Heller of the Foundation for Taxpayer and Consumer Rights, have also hinted at price-gouging practices by energy producers.

"In a year, we've seen wholesale prices jump to more than 10 times what they were," Heller said. "Something just isn't right."

But producers deny the charges. Southern Energy Co. spokesman Chuck Griffin said: "We are running every watt of capacity we have at these plants during these crisis times. We're burning all the gas we can burn to make electricity."

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Joe Bob Perkins, president of the Houston-based Reliant Energy Wholesale Group, told the Houston Chronicle: "[Davis] has accused us of holding back capacity. He says it over and over again. You say it long enough and people may begin to believe you, and I'm concerned about that. We have done everything we possibly can to run those plants and make power available."

But PG&E's Nelson says he has heard conflicting reports about the process known in the trade as "bumping." "There was a story about that in the paper this weekend. Some of the producers said no way they would ever do that, and others said yeah, of course they do it, so I'm not sure what to think."

Regardless, Nelson said at least part of the problem is on the demand side. He cites figures that say demand for energy has increased by as much as 6 percent per year over the last five years. At the same time, California has not built a new power plant in 20 years. "Six percent may sound small, but when supply is flat, it makes a big difference." Other studies, however, show smaller increases in demand.

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He said the problem has also been exacerbated by increased demand in the Pacific Northwest. As the region continues its meteoric growth, he said, energy sources California relied upon in the past have dried up.

Davis spokesman Steve Maviglio says the governor has secured a commitment from some producers to sell energy to California at $55 per megawatt-hour, but there's carping about whether that's a fair price.

Consumer advocates say it's too high. Heller says it's twice what the state should pay. But most of the major energy suppliers say the $55 per megawatt-hour figure is too low. Some producers want contracts as long as 17 years, while others, such as Southern Energy Co., have said they would not be able to sell at $55.

Among those who are said to have agreed to the deal is California-based Calpine. But skeptics in the Legislature say that is because the company wants to build a power plant and needs the blessing of state officials.

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"It's just a way to endear themselves to [Davis] so they can get their pet project," said one Republican legislator who requested anonymity. "The fact is that this price is still being negotiated, and Lockyer's investigation is part of the negotiation."

In effect, the Republican charged, the attorney general's office is keeping the heat on power suppliers while the governor negotiates a rate. Both Democrats, of course, dismiss that claim.

"That's just way too cynical," Michioku said. "We're taking our responsibility to investigate, and it has nothing to do with the negotiations. These allegations of collusion were raised when energy prices started skyrocketing."


Anthony York

Anthony York is Salon's Washington correspondent.

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