Dim Bulbs

Greedy out-of-state profiteers make easy targets, but the real villains of California's energy debacle are the ones under the state capitol dome.

Not surprisingly, presidential campaigner Wilson basked in the glow of the moment. "We've pulled the plug on another outdated monopoly and replaced it with the promise of a new era of competition," he proclaimed upon signing the bill into law. And in an analysis remarkable for having turned out wrong on all counts, he praised what lawmakers had done as "a major step in our efforts to guarantee lower rates, provide consumer choice, and offer reliable service, so no one literally is left in the dark." The big winners, meanwhile, didn't hesitate to show their appreciation. In 1998, the year deregulation took effect, campaign disclosure records show that Peace, Brulte, and Wilson together took in $175,000 in donations from utilities, nearly triple the amount they received in 1996.


Since that euphoric day a lot has happened in ways that few people involved in crafting the law could have imagined. Things didn't begin going haywire until last spring, when San Diego Gas & Electric's 3 million customers became unwitting guinea pigs for the out-of-state cartel.

As part of the PUC mandate to divest its nonnuclear and nonhydroelectric power plants, SDG&E in 1998 put its half-century-old gas-fired plant in Carlsbad and 18 combustion turbines scattered around San Diego County on the block. A partnership of Dynegy and Minneapolis-based NRG Energy snapped them up. SDG&E's earnings from the sale were so much higher than expected that its $2 billion in debt was quickly wiped out, triggering an end to the rate freeze for its customers. At the end of April 1998, many of those customers were paying 2.7 cents for a kilowatt-hour of electricity. By mid July, after the summer's first big heat wave, the price rocketed to 52 cents.

The great wholesale price squeeze had begun. SDG&E customers screamed bloody murder, and the Legislature, in what critics say was the politically expedient way out, responded with a Band-Aid, reimposing price caps. Again unable to pass along its wildly escalating wholesale costs to consumers, SDG&E sank deeper into the financial abyss. And as many of the plants newly acquired by the out-of-state firms went offline for "maintenance," and demand overtook supply on the Power Exchange, PG&E and Edison also began to hemorrhage. When the utilities' financial condition became so dire that the same out-of-state suppliers balked at selling electricity to them for fear of not being paid, the Clinton administration invoked an arcane wartime statute to force the independents to keep the electricity flowing. But the new Bush administration quickly signaled it would no longer do so, essentially telling the utilities -- and Sacramento -- that California is on its own.

Meanwhile, in the state capital, there's a new crowd of legislators into which those who were around in 1996 can attempt to blend, and a new, if belated, effort led by Davis to clean up the mess. Oddly, Davis may end up as the politician with the most to lose, considering the whole thing was dumped in his lap. The knock on him, aside from whatever the fallout from his rescue plan proves to be, is that he has been too cautious and waited too long to respond. Sherry Bebitch Jeffe, the USC scholar and a veteran political observer, finds the criticism ironic. "This is a politician who's always embraced caution," she says. "During the [gubernatorial] campaign he even joked about it: how it had taken him 24 years to move 15 yards down the hall to the governor's office. Why should anyone be surprised now?"

Wilson lost his voice just when his presidential bid started to take off, and still hasn't gotten it back -- at least when it comes to talking about deregulation. Now the managing director of Pacific Capital Group, a Beverly Hills investment firm, he rarely grants interviews and made no exception for SF Weekly. However, earlier this month he told the San Diego Union-Tribune, his old hometown newspaper, that he deserved credit, not criticism, for deregulation. "Do I regret having pushed for deregulation and signing the bill? No. Quite the contrary," he said. He blames federal regulators and his own PUC appointees for the disastrous results.

If that sounds like revisionist history, it pales compared to the line advanced by Peace these days. He not only insists that he wasn't deregulation's architect, but that he never liked the idea. And in what one pundit dubbed the "Attack of the Killer Myths," the filmmaker turned politician has even produced a 12-minute, documentary-style video to make his case. The video, viewable on Peace's Senate Web site, decries the notion that the Legislature is to blame, pointing the finger at the PUC, Wilson, and Congress. In seeking to "set the record straight," a narrator describes Peace as "a reluctant participant" who played the role of "amender" to improve what came out of the PUC. "Senator Peace did the best he could with the hand he was dealt," says John Rozsa, an energy consultant close to Peace and a longtime Senate staffer. If nothing else, Peace may be remembered as the first political casualty of the energy debacle. He was widely expected to be a candidate for secretary of state in 2002, when term limits require him to leave the Senate. But last month Peace announced he would not run. Sources say that after commissioning a poll to assess the damage from his association with AB 1890, the senator decided that he would be fighting an uphill battle. "Even though he feels he's been misunderstood, he concluded it wasn't worth the hassle," says a staffer who requested anonymity.

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