California Energy Crisis Puts Governor On Hot Seat

by Harold Meyerson

California's deregulation debacle is forcing Gray Davis to do the unthinkable: choose between a proven donor base (the energy industry, which has given him hundreds of thousands of dollars) and an irate public. This is a choice Davis devoutly wishes he did not have to make; he is in politics, so far as anyone can discern, specifically to raise money and offend nobody. For months, he resisted making this choice, even as energy executives, consumer activists, business lobbyists, editorialists and ratepayers all demanded action. Davis' dilemma recalled nothing so much as the old Jack Benny radio routine, where Benny, whose character was famously a tightwad, is accosted by a burglar who demands, "Your money or your life!" A ludicrously long silence then follows until the burglar, exasperated, repeats his demand. "I'm thinking it over!" Benny replies. And so was Gray.

On Monday night, Davis finally announced his decision -- at least, part of it. On the toughest question of all, what to do with the $11 billion or $12 billion in debt that California's three privately owned utilities have incurred, the governor is still thinking it over. Davis ducked completely the issue of whether the state should issue bonds -- for which taxpayers would ultimately have to pay -- to rescue the companies from their own folly. On the other aspects of the crisis, however, he emerged, however improbably, as Gray the Bold: threatening to take over the power plants of miscreant companies, vowing to have the state, by itself or with the state's 30 municipally owned power companies, build an alternative system of its own. Dizzied and breathless from his own display of decisiveness, Davis barely stayed erect as he promised to seize and condemn; I can't recall a more timorous display of courage. But he got through it -- and the state got a badly needed assurance that it will return to a rational energy policy.

The deregulation of 1996, however, prompted the big three private utilities to sell their power plants to other energy companies, most of them based out of state, which sold them back the power at market rates -- often on the very day the power was needed. If plants were down and demand was up and prices were soaring, the energy companies had absolutely no incentive to bring more plants online. The system was a prescription for disaster, and disaster soon followed.

America may be the most capitalist nation on the planet, but Americans' commitment to market economics is a sometime thing -- and when the market causes havoc, they usually rein it in. An L.A. Times poll released last weekend shows that by a 2-to-1 margin, Californians support re-regulating the power industry. Even California business lobbies pronounced themselves pleased with Davis' speech: Power outages and mega--rate increases play no better in Silicon Valley than they do in Watts.

There's opposition to Davis' proposals, of course, but it is almost entirely ideological in nature. "It doesn't make sense to get into a public power authority," Assembly Republican leader Bill Campbell told the Sacramento Bee after Davis' speech, "except that it broadens the involvement of government, which is what liberal Democrats want to do." Where Campbell merely saw creeping liberalism, James Flanigan, the Times' normally sober-sided economics columnist, saw galloping Stalinism: "Many California political and business leaders are saying that electricity is a unique commodity that cannot be subject to competition," he observed darkly in Sunday's paper, "that only a state authority, on the model of the old Soviet Union or China, can run an electric system."

Flanigan must have some wild and crazy sources. The business and political leaders I've heard cite as their model L.A.'s own Department of Water and Power, which, under the leadership of S. David Freeman, has provided stable, clean, affordable power. They cite the public power authority of New York state, established by Franklin Roosevelt, or that of the state of Nebraska, where every power company is publicly owned and where power rates are 20 percent lower than the national average. Clearly, I'm listening to a pretty tame bunch of executives, but if Flanigan has uncovered a nest of Bolsheviks inside the Bohemian Grove, it is his duty to name names.

In proposing to put the state into the power business, Davis was borrowing -- and watering down -- a proposal from state Treasurer Phil Angelides. On the Friday before Davis' speech, the treasurer sketched out in considerable detail a new public authority, backed by $10 billion in bonds, to oversee an extensive conservation program, build power plants of its own, and to buy existing power plants and the grid from the state's embattled private utilities. Instead of simply bailing out PG&E, Southern California Edison and their ilk, taxpayers would buy their facilities, in return for the cash with which the companies could repay their debts. Davis has shied from endorsing this equity-for-debt swap, but state Senate leader John Burton has embraced Angelides' proposal.

Angelides has a keen understanding of the role that public investment has always played -- and must continue to play -- in making California the most dynamic and, at times, successful state in the American experiment. In his two years as treasurer, he has become the pre-eminent leader of the forces endeavoring to return the state to its midcentury glory, when California boasted America's best schools, highways and universities. He's consistently invested state funds in projects that rebuild inner cities and inner-ring suburbs, and has led the charge to reduce the popular-vote requirement for local bond issues from two-thirds to a simple majority (a cause state voters partially endorsed this November when they reduced the requirement for school bonds to 55 percent). Now, he's drawn on California's 90-year-old progressive tradition, and its commitment to publicly owned power, to find a solution for an energy market run amok. By every measure, Angelides has become California's outstanding statewide public official -- and has won clear claim to lead this state when Davis' tenure in office is up.

But Davis has had a good week, too, even if he can no longer plausibly claim, as he did in his first year as governor, to be the only California official with a mandate to set policy -- the Legislature's task, he added, being merely to "implement [his] vision." Now events have forced Davis to redefine not only the Legislature's mission but his own. At his best, the governor's role, it's now clear, is to implement Phil Angelides' vision.