Posted on 03/08/2002 8:03:29 AM PST by Gophack
Displaying anger and exasperation, Gov. Gray Davis vigorously defended his handling of California's energy crisis yesterday and asserted that his policies saved the Golden State from severe economic decline.
"I kept the lights on," Davis said in an interview with editors at The San Diego Union-Tribune. "It just sounds a little presumptuous, but I think I should at least get a round of applause. I don't get squat."
Davis also drew a sharp distinction between himself and Bill Simon, his Republican challenger in the governor's race, declaring that he opposes deregulation, which Simon supports.
"Deregulation was a total scam to rip off consumers," Davis said of the 1996 legislation that ended regulation of much of the state's electricity supply.
The governor said he rejected suggestions from power companies to raise rates to cover soaring costs – as they did during the first months of the crisis in San Diego – because that would have caused 400 percent increases for consumers.
On the other hand, Davis said he rejected, for practical reasons, the idea of seizing power plants and compensating their owners.
"I didn't think seizing a power plant that is 30 to 40 years old would be a good expenditure of money," Davis said, referring to the state's aging power plants.
Instead, Davis said he tamed the crisis through conservation, speeding power-plant approvals and negotiating long-term contracts, along with assistance he acknowledged from federal regulators who imposed price controls.
Davis bristled when asked about criticism that he panicked and paid too much for power in those long-term agreements.
"If I didn't panic, you wouldn't be able to put out your paper," he said, visibly agitated. " . . . I kept the lights on in this state, do you understand that? I kept the lights on! (Critics) don't know what they're talking about."
The agreements were signed at the height of the electricity crisis last year and bind the state to $43 billion in electricity purchases over two decades, at prices now more than twice the going rate for electricity. Davis said he is continuing efforts to renegotiate the contracts.
"We are very close to a substantial reduction with one of the generators," Davis said.
But the governor added that only a minority of the suppliers is negotiating in good faith for new terms in the agreements, which the state is seeking.
"Only about 25 percent of the generators are talking," Davis said. "Another 25 percent are going through the motions and the other 50 percent have told us to take a flying leap."
But Davis said he is confident the Federal Energy Regulatory Commission will assist the state in restructuring the long-term electricity contracts. The governor agreed that the commission might attempt to force California to relinquish control of its electric transmission system as the price of its help with the contracts, but vowed to fight that move.
"There's no advantage for us in joining a regional (transmission grid)," he said.
Davis also reported that he has received "private assurances" from Patrick Wood III, the chairman of the FERC, that rules will be put in place to prevent "disruption" of the California electricity markets, when the electricity price caps expire, which is scheduled for Sept. 30. State officials are asking for extensions of the caps.
He criticized California's electricity deregulation, calling it a "scam," but hinted, as he has in the past, that his assessment might change if the state had electricity generating reserves of at least 15 percent, a cushion he presumably believes would prevent manipulated shortages and gouging.
Davis singled out Dynegy, Duke and Reliant – major state suppliers – for exacerbating the crisis of 2000 and 2001 by charging high prices.
Surprisingly, Davis offered a pat on the back to Enron, the bankrupt Houston power trader accused of fraud. "Enron was the best of the lot," he said. "They dealt with us more honestly."
But Enron, once the nation's largest electricity trader, stands accused by Attorney General Bill Lockyer and others as having been a prime force behind the manipulation of the state electricity.
Enron and other suppliers deny the charges and say the crisis in California was caused by electricity shortages.
During the height of the crisis, Davis repeatedly accused Texas-based power executives of price-gouging.
Looking toward the November general election, Davis confidently predicted he will defeat Simon by 10 percentage points and suggested his opponent, a political neophyte, lacks the experience to be chief executive of the nation's most-populous state.
The governor's comments marked his most-detailed defense of his energy policies since learning Tuesday night that his opponent will be Simon, a Los Angeles businessman who argues that growth and prosperity are best nourished by reduced taxation and regulation.
Davis' comments were made during a question-and-answer meeting with the Union-Tribune editorial board, attended by editors and reporters from the newsroom. The board regularly invites newsmakers to discuss current events.
Davis touts himself as a pro-business Democrat, but he said government intervention in markets is appropriate during emergencies. "If there ever was a role for government, it is to make sure the unbridled market does not make the state dark," he said.
Placing himself back at the peak of the crisis, Davis said: "What am I going to do? The utilities are in bankruptcy. Nobody can buy the power; there's no credit-worthy buyer. What would you have done? Tell me what you would have done?"
Had the state not signed the contracts, Davis said, "we would have (had) several more blackouts, businesses may have left the state . . .
"You hired me to get a job done, I got the job done and I'm plenty tired of people sitting on the fence saying, 'Oh, we should have done this, and should have done that.' Let them run for governor."
Earlier yesterday, Davis toured a new skilled nursing facility at the Veterans Home of California in Chula Vista, meeting with its first four residents.
Davis told Terry Boucher, a World War II Navy veteran: "You look awfully darn good."
Staff writer Amy Oakes contributed to this report.
Ok Gray, we will give you that one. The lights are on, BUT NO ONE IS HOME
Exactly!!!
Now that is hardly a socialist solution, is it?
when the electricity price caps expire, which is scheduled for Sept. 30.
Folks, that is only FIVE weeks before the election! What perfect timing to remind the electorate of what a clown this jerk is. What can freepers do to insure that the price caps are NOT extended, and INSURING a Simon victory?!
This is the absolute truth! I've lived in CA for a total of 26 years and have never before experienced such a cool summer here. There wasn't a single day I needed to use air conditioning. But I have yet to see this pointed out in any of the CA media. They're mostly blaming our energy problems on Enron, the evil deregulators -- anyone but the guilty.
I sure will remember what actually happened, though.
D
You didn't keep the lights on. It was the utility workers who did that. All you did was make it harder for them to do their jobs. You forced the world's largest Investor-Owned Utility into bankruptcy, effectively making the retirement savings of 100,000 [+/-] utility workers worthless.You are just a small-time con-man who has saddled California with ten more years of fiscal problems. Now get the hell out of office before you do any more damage.
How right you are. Here is an example:
"how do we solve the problem" [by JasonC]
That is tolerably obvious. The only reason the problem continues, is that those who have to take the hit to adjust to realities, are the most powerful actors in the story. Meaning the governor, the state government generally, consumers/electors, and the green left.They are trying to shift the costs and adjustments onto others, by using their political muscle. Those shifts are not what a "technocratic", direct solution to the problem requires, and in fact as likely to make things worse without solving anything. And of course the powerful actors in the story, are surrounded by flatterers and syncophants who tell them what they want to hear, tell them it is all someone else's fault, and peddle useless patent-medicine "remedies", simply because the peddlars want those things done anyway.
What is the real solution to the problem? You treat it seriously like a crisis, and move every lever to help reduce the problem, and you don't pay any attention to whose ox is gored (within charitable limits), and you don't play blame-games, or fight over it. You accept it, pay for it, solve it, and get moving again. Trusting that getting moving again will help everyone far more than the direct things at stake in the crisis.
So much for the abstract points about how it ought to be dealt with and why it isn't. You probably still want to know what will solve the crisis, what practical steps are needed.
In the short run, new supply is not available, and supply in demand are not in balance. Ergo, like a force of nature, demand must be reduced. There is one and only one known mechanism that will reliably do that every time it is tried. Higher prices on the user end. (Higher prices up at the producer end will not reduce demand one iota). That is what high prices are for, to ration an available supply over the users. They also ensure that the decision, who shuts something off, is made on a basis of economic urgency. E.g. a high energy price will make an energy-intensive process unprofitable; then use of that process will cease until the price of energy falls again. The amount the price needs to go up to ration is an empirical matter, but it is going to be on the order of 5/3rds to 2 times the old prices.
A charitable limit here is that some provision can be made for the poor facing higher energy bills. It would defeat the entire purpose to do so by fixing prices, or to leave no incentive to switch things off. The two purposes are easily combined. You just leave the price for them the same as for everyone, but subsidize their budgets with direct checks, for 2 years, starting at ~75% of the amount the bill is expected to go up, and phasing out by ~$30K family income. It is very important that these folks face the same price of power, thus the same incentive to economize. They just have more money to deal with the situation while adjusting.
Next, everything possible must be done to increase future supply, and ASAP. And everything means everything, not 2-3 pet or patent remedies. Emmission caps should be waived for this year and the next. Regulations restricting entry into the power-generating business, co-generation, etc should all be waived for 2 years and if necessary extended for 2 more.
(continued)
35 Posted on 05/12/2001 02:06:52 PDT by JasonC
[ Reply | Private Reply | To 21 | Top | Last ]To: Scrith
(continued)
But those are minor items, and the major ones, the ones the dispute is mostly focused on, are about returning the state to a place were power companies can do business, without losing all of their capital. Attacks on the power companies must cease. Lawsuits against them must be dropped. Pursuit of "price gougers" and "profiteers" and all the rest of that dismal litany of tyranny in high dudgeon, must be ended immediately. Power companies should be thanks for their efforts, apologized to for past regulatory mistakes and excesses in the heat of the moment, etc. "But really, they are..." Who cares? It doesn't matter. The idea is to make it attractive to supply power to the state, not to dispense olympian justice.
And that means among other things that those who lost all of their property because of state regulatory mistakes, should be made whole by the state. How? By the state buying the two grid companies, SCE and PG&E, for prices equal to their averages last summer. And paying all of the bills of those companies. And funding whatever maintenance was forgone during the crisis, recapitalizing the system, etc. (The existing bonds of the companies can temporarily become industrial revenue bonds, i.e. taxable state obligations with a limited claim, to the stream of earnings of the power companies only). This will pay most people's bills and stop most of the fighting. The approval of the PG&E bankruptcy judge is needed for this, but the offer is sufficiently generous no one else is going to exceed it, so the creditors will approve it quickly. Funding this will, up front, require a large state bond issue; more on that later.
The grid companies will then be state owned. The state should make clear that it does not intend to hold them indefinitely, but will instead resell them in the stock markets in 2-3 years, after things settle down. By an intial offering of 10% of them, the remainder sold gradually to pension funds, mutual funds, etc.
All of the proceeds from eventual re-privatization should be earmarked to retire principle from the bonds needed to fund thing in the first place. Thus the state will have more bonds outstanding for 2-3 years, gradually reducing over 5 years or so. After that period, only the net cost of fixing things will have been paid. The capital value of the utilities will be roughly the same paid out (last summer prices) and received (resold, fixed, into a stabilized market).
However, the grid companies broke for a reason - poor regulation at the time the demand imbalance hit. The deregulation from several years ago is obviously not working as intended. Personally, I think it is obvious why - consumer prices were not freed at the same time as producer prices. But I am not selling a patent remedy during a crisis. The time to deregulate the CA power market, is later after all of this has settled down, and the immediate crisis is over. Therefore, it is time to take a step back here. "Doctor, it hurts when I do this." Then don't do "this".
The state should go back to a cost-plus system of regulation in the power market. Because it is true and tried. Use it until the situation has been restored to calm and balanced, and worry about ideal solution later. What does "cost plus" mean? It means that power suppliers are offered their full economic costs (including bonded debt) plus a decent, 12% return on their equity. Rates are set high enough to achieve this. When costs increase, rates must increase. In principle, this can be done with long term contracts rather than direct regulatory orders, but the latter will probably work better until things calm down, simply because it is less clear at the moment what future prices will be, etc.
(continued)
36 Posted on 05/12/2001 02:08:58 PDT by JasonC
[ Reply | Private Reply | To 18 | Top | Last ]To: kattracks
(continued, 3rd and last part)
Now, all of the above is going to require laws to be passed, bills to be signed, regulators to be given instructions. Much of the initial hurt of it all will fall on ratepayers, who elect the pols who have to do these things, which is why it is hard to get it to happen. "But will the power supplier companies go along?" For an end to the fighting, and all of their past bills paid off, and all of the lawsuits and name calling dropped, and a stable environment to operate in afterward? You bet, in a New York minute.
In addition, it will require some upfront funding, in the form of a state bond offering, probably on the order of $25-50 billion initially, but cut in half after the grid companies are resold. The next costs of the crisis will thus be capitalized and on the books of the state. The real economic cost will come gradually, as this debt is retired. To meet it, the state should reduce spending (besides the charitable outlays mentioned above, which will be temporary). Everyone else is going to have to tighten their belts, and the state government should not be an exception. On the contrary, it should lead. 5-10% cuts in salaries for all elected officials would be a good place to start.
Above all, the state as an entity should accept the blame for the whole affair, along with accepting the bill for it. In "buck stops here" fashion. "But it was Johnny's fault!" This is not a nursery school playground. Leaders are expected to be above such pettiness and capable of a little greatness of soul when the moment requires it. It is in fact more honorable to accept a blame not truly due, than one that is. "We screwed up, we are sorry, we will fix it and we will pay". That is the way to fix this; above all it is the way to end the fighting and get everyone working on a solution instead of against each other.
And the overall cost of the whole thing, if tackled head on in that sort of businesslike, technocratic, realistic fashion, will not be daunting. California is a very wealthy state. The state economy is $1 trillion, bigger than most of the nations of the world. In an ordinary year of growth working Californians add new income - wealth every year - on the order of $25-30 billion. This whole crisis will wind up cost a year's raise, and that is about it.
Provided that the fighting is stopped, and the crisis is not allowed to kill the golden goose, growth. The sooner everyone gets back to work, the better, and that matters far more than who gets the tab for mistakes already made, costs already irrevocable. Everybody is going to pay for those mistakes. Ratepayers are with higher rates, lower government spending too, and higher debt that gets paid off by taxpayers in the long run.
It is stupid to try to get the power suppliers to pay instead. Because doing so reduces the available supply, drives potential entrants away, punishes those trying to help in the supply-demand imbalance. The reason it is being attempted anyway, is those entities do not have the political power that the pols and the ratepayers do. But that way lies sorrow - no reduction in demand along with reductions in supply or increase in suppliers' real costs, which can only drive wholesale prices still higher, not lower. The first thing to do if you find yourself in a hole is to stop digging.
All of this is, as I say, tolerably obvious. The reason things aren't handled this way is that the leaders in California don't have the guts for it. In fact, if they solve the problem they will get credit not blame, no matter how much some grumble over who paid.
But the existing leaders are too timid to realize that, and instead flail uselessly in the other direction. Why? They are scared of their masters, the voters, that is why. Scared to tell them the truth, that the state screwed up and now the people are going to have to pay to fix it.
37 Posted on 05/12/2001 02:09:34 PDT by JasonC
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Gee, that's funny. Last April 30th, Davis told FERC that the Cal-ISP was an RTO.
On April 25, the Federal Energy Regulatory Commission, also established in 1935, made a decision that echoed the centralizing philosophy of the Senate. FERC agreed to impose modest wholesale price caps on electricity sold in California this summer, but only if California submitted a proposal by June 1 to join a new 8-state regional transmission operator (RTO).
My favorite line was... I should at least get a round of applause. I don't get squat.
Which appears to me to be Gov trying to show himself as victim and as unappreciated. I will be sexist for a moment, but there is nothing like a girlfriend, wife, mother, sister, or even child who says you don't appreciate me and what I do for you, you don't love me anymore. I think the Gov. is trying to use this line of guilt trip argument on the press& voters in an act of absolute despiration.(/sexism)
I suspect Davis knows how deep a whole he is in and except for all the campaign money he has sitting in the bank to buy media time to spin lies, he knows the odds are long against his winning this election if it is fought on the issues or decisions are made on anything but habit (i.e dems vote for dems) or emotions (so groups vote on pandering promises to them). So I suspect we will see all kinds of outrageous adds.
Maybe a pro-symons truth squad can be started. Remember in the Gore speeches, how it became a media event to count the number of lies that Gore made in each speech? Maybe a group can start publishing the lies Davis makes each time he runs and ad, each time he makes a speech and then start feeding that score to the media and see if they pick up on it. It really helpded discredit Gore and make a lot of independent voters question him. The same tactic might work on Davis. Just a thought.
Implementation of the ["mitigation"] plan [e.g. "price caps] would be halted if California Independent System Operator Corp. and the state's three largest investor-owned utilities fail to submit a regional transmission organization plan by June 1 [2001]. The mitigation plan also contains a sunset provision to put California "on notice that they need to work right now" to improve supply and delivery, said Chairman Curt Hebert Jr.The plan follows a series of actions by FERC to address the problem, including the Dec. 15 power market remedies order, an order aimed at increasing supply in the West and speedy approval of an emergency expansion by Kern River Gas Transmission Co. to serve California, Hebert noted.
"This commission cannot help you, if you will not help yourself. File an RTO [plan]. We hear your arguments that it's a natural market, that it's a regional problem," Hebert exhorted the state. FERC's mitigation plan "obligates" Cal-ISO and the utilities to "undertake real reform to promote a regional solution," Hebert insisted.
Ouch! Thank you. Davis must be really upset. Davis and the Cal Legislature, along with DWR must have really pissed off FERC. They will get some serious pay-back. Rule one, when FERC says jump, jump first and ask how high second. They very seldom are vicious, but when the staff or Administrative Law Judges get upset they are judge, jury and executioner all roled into one. Ouch. It is clear the California power issues are now going to be interstate commerce and Davis will have little say.
If I were Bush, I would ask FERC to extend the price caps until after the election. You can bet the Davis and the Democrats at large are just itching to use this issue to bang the GOP over the head with. Their banging is what got the stupid price caps instituted in the first place. now that they're in place, what would it hurt to keep them in place for another couple of months? It would gall the Dems to high heaven to be deprived of this issue.
I fully agree. For that reason and to make Davis even angrier, Bush--with Simon glued to his side-should make a whirlwind tour through CA about Sept. 15 announcing that because he cares so much for the people of CA, he is recommending to FERC that the price caps be extended until Nov. 30. And add that he and Simon are going to work as closely as possible to solve CA's energy problems for now and for decades. Simon and Bush really need to coordinate their political strategies. It should be made clear to the people of CA that Davis is antagonistic toward Bush, but that Simon and Bush are best buddies. Capitalize on the 80% approval Dubya!
Would Davis, Boxer, Feinstein, Waxman, Burton, et al become apoplectic over that or what??!!
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