The unlikely populist

California's Gray Davis is scoring political points by bashing Bush and "greedy" Texas energy firms, but the cautious centrist probably won't become the scourge of the energy industry.


June 1, 2001 11:27PM (UTC)

Now that Gov. Gray Davis and President Bush have had their summit, which changed absolutely nothing, one question remains: While Davis has escalated his rhetoric recently, declaring that California is "at war with greedy power generators from Texas," does he plan to wage a real war? Or will it merely be, to borrow a phrase from Winston Churchill, a "phony war," designed to prop up his sagging poll numbers but leaving the energy mess and those "greedy" Texas profiteers essentially untouched?

Davis says he wants federal price caps on sales of wholesale electric power to California, which now costs more than 10 times what it cost two years ago. Bush won't grant them. Which isn't exactly a shock: Neither would President Clinton, and he wasn't an ex-governor of Texas close to the firms now reaping record profits from California's power crisis.

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For all Davis' attempts at seeming outraged at Bush's attitude, of course it should surprise no one. After all, Bush's Florida recount consigliere, former Secretary of State James Baker, is on the board of Houston's Reliant, one of the most controversial Texas firms in the power crisis. And Bush's close friend and frequent host for campaign plane trips, Ken Lay, is both head of the nation's leading electricity marketer, Enron, and the leading advocate for continued deregulation of the California market.

It's easy to say that Texas has California by the throat because of the changeover in the White House. California is the Democrats' megastate, its bastion of campaign funds, electoral votes and cultural energy; Texas is the Republicans'. The favored child of the Clinton administration is the unwanted orphan of the Bush administration. Bush is not unmindful of the fact that his embarrassing defeat in the national popular vote came as a result of a tidal wave of California votes for Al Gore.

Plus, the Clinton/Gore crew was sympathetic to "soft path" notions of conservation and renewable energy, pioneered by California in the Jerry Brown day. The Bush/Cheney crew regards that as unmanly. California and Texas may well be at war economically -- with California's dot-coms displaced on the Forbes 500 list of the nation's most valuable companies by Texas' energy outfits.

But all this doesn't quite explain how California lost power over its destiny to Texas. In fact, it was the work of Californians, Republican and Democratic politicians alike, along with state energy executives looking for bigger profits and an asleep-at-the-switch media. And while Davis may well have to go to war with Texas energy profiteers to ease the crisis, to date the evidence shows he'd rather wage a rhetorical war against Washington and Texas than a real one.

California's energy woes, of course, are mostly the result of a homegrown deregulation scheme hatched by Republican Gov. Pete Wilson and his Public Utilities Commission, inspired by the example of Margaret Thatcher's Britain. Democrats, under the influence of Clinton-era market ideology and blitzed by lobbyists, went along. The state's major media ignored the issue. California's Big 3 private utilities spent over $50 million on political campaigns and lobbying from 1994 to 2000, most of it on behalf of deregulation. A few people, like former state Sen. Tom Hayden and consumer advocate Harvey Rosenfield, tried to sound an alarm. But they failed.

After deregulation, California's private utilities proceeded to sell off many of their power plants to a group of Southern power companies, most of them based in Texas. This moved the generating capacity from under the state's regulatory aegis into a wide open market. The utilities thought they'd made a killing. Actually, they'd made a little over $3 billion, much of which they passed through to holding companies and invested in power plants in the Northeastern U.S., Latin America and Asia. That's less than half what the state has already spent this year making up for the utilities' shortfall.

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Continuing the decade-long pattern under Republican Govs. Wilson and George Deukmejian, neither the Southern power companies nor the California utilities built new plants in the state. (Some were built by municipal utilities, and Davis moved to build plants after he took office in 1999.) The danger for California was masked by wet years in 1998 and 1999, making hydroelectric power plentiful and cheap. But as the weather changed in 2000, rainfall declined, the Sierra snowpack diminished, hydropower dried up and the Texas cartel tightened its grip on California's electric power market. Since greater scarcity equals greater profit in an unregulated market, the Southern boys were in clover. A state that spent $7 billion on electric power in 1999 spent $27 billion in 2000 and looks to spend at least twice that in 2001.

Now Davis is blaming Washington for California's woes, but his stance is somewhat disingenuous. With Bush refusing to intervene to help solve the energy crisis -- most notably by imposing price caps -- Davis says he'll sue the Bush-controlled Federal Energy Regulatory Commission to force it to use its authority to rein in exorbitant electricity costs. But here's the reality: That lawsuit wouldn't actually come until late June; the Davis team just filed for administrative relief from FERC last week. Relief is a long way away.

And while Democrats, including Davis, have begun to talk of state action against price-gouging energy firms -- in the form of a windfall-profits tax, or the state's seizing or operating power plants -- it remains just talk for now. It's hard to imagine the centrist, cautious Davis becoming the populist scourge of the energy industry and truly playing hardball. It's far more likely that he'll continue to call on the hostile Bush administration for help, while knowing that rejection may in fact be far more helpful politically.

But that's a dangerous course, too. Bush is not the governor, and he's not on next year's California ballot. The buck has to stop somewhere, and voters may decide it's much closer to home than Texas or Washington.

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Clearly Davis needs political help. After suffering his own personal Pearl Harbor with Pacific Gas & Electric's surprise bankruptcy declaration in April, California's embattled governor has plummeted in the polls. A Public Policy Institute poll shows energy moving from nowhere last year to the most important issue in the state, chosen by a whopping 43 percent of those surveyed. And only 29 percent approve of Davis' handling of the crisis, including just 32 percent of Democrats.

When Bush and his fellow Texas energy industry alumnus, Vice President Cheney, finally released their long-awaited energy policy, it was a gift to Davis. A document that reads like something from the 1950s, the Bush/Cheney plan is an unreconstructed paean to fossil fuels and Our Friend the Atom, with a few sops to renewable energy and conservation added late in the day in response to polls showing conservation and renewables to be very popular. It's no surprise that its main proponents are the American Petroleum Institute, the Edison Electric Institute, the National Mining Association and the Nuclear Energy Institute.

Davis seized this opportunity to change the subject from his own stewardship by trashing the Bush/Cheney plan, engaging in a brief media firefight with Cheney himself, and becoming the national Democratic Party's official respondent to the president's weekly radio address. (That came about because party leaders, themselves somewhat unclear about energy policy, acceded to the embattled governor's request.) He hired top Gore campaign spokesmen Chris Lehane and Mark Fabiani, and for the last week at least has turned his opposition to Bush's energy policies into a short-term political windfall.

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But Davis still hasn't laid out an alternative energy policy; he merely trashed Bush's and called for federal price caps. And while he did, as he occasionally has before, raise the prospect of state action against the generators -- such as seizing power plants or imposing a windfall-profits tax -- several of his most important advisors have been trashing those ideas privately.

Public opinion could conceivably strengthen Davis' spine politically. California newspapers are full of tales of power plant operators manipulating output and creating unnecessary "maintenance" outages to drive up spot market prices, and the California Public Utilities Commission says several witnesses have come forward to confirm those tales.

In response to allegations that the companies are engaged in price gouging, the Legislature could enact a windfall-profits tax, and several bills to do so have already been introduced. There are even more direct, dramatic steps the government can take under its declared state of emergency. Davis has the authority under his emergency powers as governor, for instance, to commandeer either the Texans' California power plants or their output from those plants, and he has threatened to do so.

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In fact, California Treasurer Phil Angelides, originator of the just-enacted state public power authority, which came too late to help this year, says his financial advisors tell him the state could use those plants to produce power for less than half the current price and still give the companies a 30 percent rate of return.

Angelides is no pie-in-the-sky Utopian. A wealthy former developer and hardball political player, his work as a state Democratic Party chairman during the 1992 elections is seen by many Democrats as having been crucial to electing Barbara Boxer to the Senate, and to Clinton and Gore becoming the first Democrats to carry California since 1964. Other Democrats support his crusade to take over power plants if the "big gouge" continues, including state Senate President John Burton. Even one of the Democratic architects of deregulation, state Sen. Steve Peace, now disgusted by what he calls "rampant manipulation of the marketplace," has spoken favorably of a state-takeover plan. And the ever-cautious Los Angeles Times has endorsed the idea.

How might it work? The governor could issue an executive order giving the state temporary title to a power plant itself or to the power it produces. The plant would continue to operate, with all its costs being covered by its revenues. Ownership would be returned to the company after the crisis had eased. The value of what had been taken would be determined through some kind of after-the-fact negotiation.

Some worry that such a step might halt the construction of the 14 power plants currently being built in California. But the Southern cartel isn't building those plants.

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While Davis has talked tough about the greedy Texans, there's evidence that he is using such threats to refocus blame on Bush and Texas, and will never pull the trigger. In a recent press conference following a meeting with Texas power company representatives -- which the governor said was intended to lay down the law to them -- Davis said something curious about a proposed windfall-profits tax, a means of pressuring generators to cut their prices that most experts consider to be less drastic than seizing power plants. "I said," recounted Davis, "that as the son of two Republicans it was not in my nature to seek a windfall-profits tax. But I was not ruling it out. My attitude on that would depend on whether or not they showed good faith. Then I showed them the picture that I stare at every day of Ronald Reagan in my conference room. I mean, he's watching over me."

The boys down in Houston probably didn't feel too threatened by that soliloquy. With that sort of self-reported rhetoric engaged against them, action may be all they will respond to.

As Davis ramps up the rhetoric if not the action, he and the state are also moving in seemingly contradictory fashion both toward keeping the lights on at all costs and toward turning out the lights to keep down costs.

Even as Davis bashes Bush's energy policies, he supports some of them, if only privately. He is moving toward using more dirty power sources such as diesel generators and even the burning of fuel oil, plus fast-tracking new power plants to keep the lights on. The governor also needs to drive down power consumption as well as the skyrocketing cost to the state treasury, which is now paying for power for the state's strapped private utilities. But while California is a conservation-minded state, it may be hard to get people to take more dramatic steps than they do naturally. The new Field Poll indicates that most Californians continue to view the so-called energy crisis as a phony one, manufactured by energy companies to manipulate prices. This will make it difficult for the governor to achieve his conservation goals.

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So it may be necessary for Davis to back the notion of planned blackouts rather than rolling blackouts. The idea, first proposed months ago by Los Angeles Times columnist Peter King, then codified into a proposal by UC-Irvine economist Peter Navarro and the United Consumer Action Network, in which California, along with Oregon and Washington, would not buy power beyond a certain price, is gaining steam.

But this is rationing, which could prove hideously unpopular. So Davis is, after his fashion, letting others get out front on the idea. Those others include Assembly Speaker Bob Hertzberg (D-Sherman Oaks), Senate Energy Committee chairwoman Debra Bowen (D-Marina del Rey), a number of Republican legislators and, in what might be a surprise to the Davis team, Republican gubernatorial candidate Bill Jones, who is now running relatively close to Davis in private polls. The Independent System Operator, manager of the state power grid, now controlled by Davis appointees, is easing into it by beginning 24-hour blackout "forecasts" at the end of the month.

There's still no evidence Davis has the spine to tackle the political and economic forces that block the exit to the state's energy nightmare. While it's clear that the job isn't made easier with the Lone Star flag flying over the White House, and that California's crucial electricity-generating capacity is run largely out of a new mission control in Houston, Davis' anti-Bush Texas-bashing is still mostly rhetoric. The governor had a good week politically, but there's no long-term solution on the horizon.


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