B E E
E D I T O R I A L S
Deregulation not to blame but Davis is: His inaction allowed a problem to become a power, and fiscal, crisis
By Pete Wilson
(Published June 3, 2001)
The plain and simple reason California will inescapably suffer hundreds of hours of blackouts this summer is because California will not have a sufficient supply of electrical power to meet demand. Five years ago, when deregulation was passed by unanimous vote of both houses of the Legislature (and without a murmur of dissent from any Democratic constitutional officer, including then-Lt. Gov. Gray Davis), California enjoyed an excess of supply over demand amounting to some 30 percent.
Deregulation was enacted to create free market competition; first, to drive down what were then among the very highest power costs in the nation and, second, to attract private power providers to invest in the creation of new generating capacity to meet the exploding power needs of the New Economy and keep in California all the jobs that it would produce.
And deregulation did succeed in stimulating a significant increase in applications to build power plants, especially after the effective date of the legislation in 1998 and the defeat that year by California voters of Prop. 9 (which unwisely sought to repeal deregulation). The total megawattage of the filings for 1998 doubled that for 1997. After the effective date (March 1998) of the deregulation legislation, AB 1890, and the defeat of Proposition 9 (November 1998), removing the threat of repeal, the total for 1999 was double that of 1998 -- exceeding the 5,000 MW mark in '99 alone.
Just look at the filings for 1997, 1998, 1999 and 2000 in the California Energy Commission graph (above). Far from causing the problem of energy shortage, as the Davis administration charges, deregulation caused providers to file -- by mid-2000 -- applications to build new power plants that promised to add 10,000 megawatts to California's power supply.
That's why I signed it.
I did so even though I disagreed with two of the provisions of AB 1890 -- just as I (and every other governor in history) signed other bills which, though imperfect, promised significant and needed beneficial change from the status quo, which was certainly true of deregulation.
No one could have anticipated in 1996 the combination of factors -- less hydroelectric output in the West, warmer summers, sharply higher electricity demand, constraints on natural gas supply -- that turned an electricity surplus into an electricity problem by 2000. The reason we will suffer power blackouts this summer is because the Davis administration has by inaction allowed a problem to become a crisis. Now the power crisis threatens to become a state fiscal crisis.
Governor Davis has been quoted as saying, "If I wanted to raise rates, I could have solved this problem in 20 minutes." Sadly, by temporizing on needed actions to raise rates and other steps required to avert crisis, he made crisis inevitable. As a result, California bonds have suffered two downgrades by Wall Street rating agencies, and he has put in jeopardy state spending for parks, schools, transportation and other capital needs. He has been warned by the state legislative analyst to sharply reduce the state budget.
The administration failed to monitor either the explosive growth in electricity consumption by the New Economy in the last five years, which gobbled up the energy surplus that existed at the time of deregulation, or the curtailment of production of natural gas, which led to price spikes in recent years. It failed also to heed early warnings from weather forecasting agencies that the summers ahead would be among the hottest in a century.
It ignored a 1998 warning by the California Energy Commission of possible energy shortages by as early as 2000. And when possibility became hard, hot reality in San Diego in 2000, it continued to ignore it, putting in place a political, palliative rate cap instead of dealing with the problem.
Fully a year ago, or earlier had he chosen to do so, Governor Davis could have invoked the almost unlimited powers conferred upon the governor of California by the State Government Code to deal with an emergency, including explicitly the sudden and severe shortage of electrical energy. These powers include the suspension of statute and regulation. It was this power that I used after the Northridge earthquake in 1994 to rebuild and reopen Los Angeles' shattered freeways -- just 64 days after their destruction, instead of taking the two and one half years that would otherwise have been required by law.
Fully a year ago, Davis could have acted unilaterally, without the Legislature, to suspend operation of the rate cap that the investor-owned utilities (PG&E, SCE and SDG&E) recently complain of but eagerly requested at the time of enactment.
He could have, by decree, suspended the provision that prohibited the utilities from forward contracting with power wholesalers.
He could have, by executive order, suspended and truncated the nightmarish process required by state law for approval of siting. Had he done so early enough, when he might even have made a difference this summer, and done so not just with peaker plants but also with large plants, he might have greatly accelerated construction of the power plants that will be required to allow us to escape from blackouts, power price spikes and the severe job loss and economic injury certain to result from a power supply that is neither reliable nor affordable.
All these actions, Governor Davis could have taken a year ago -- or earlier: A governor can foresee the emergency and exercise his extraordinary powers to prevent it. He is not required to wait and compel California to suffer it.
Had the governor heeded the early warnings -- about hot weather, or the threat of insolvency to the utilities -- and had he acted, using the full range of his extraordinary emergency powers when he should have, he could have prevented the problem from becoming the crisis it has become.
We might have incentivized power providers to build enough new plants fast enough to avoid blackouts this summer.
PG&E would not have been compelled to declare bankruptcy and Southern California Edison would not be teetering on the brink.
Energy costs would not have spiked to the present outrageous levels.
The state would not have burned through billions of taxpayers' dollars.
And California's jobs would not be threatened, as they are, by raiders from other state governments who are aggressively seeking to lure California employers to their states and steal our jobs.
The blame game waged by the governor's office adds insult to injury. It will provide no comfort to Californians sweltering in darkness this summer. But it does do a serious disservice to ratepayers and taxpayers by seeking to mislead those who are not aware of the real, unhappy facts of California's present crisis.
The honest explanation for it is simple, not rocket science: State government cannot ignore the law of supply and demand. It is not the state's responsibility to build power plants. But it is its responsibility to create a regulatory environment that will give incentive to private sector providers to do so. Deregulation, even with imperfections that the governor could have cured by fiat if the need arose, was a significant advance in achieving that incentive as subsequent filings by providers attest.
The problem grew into a crisis not because of deregulation but because of Governor Davis' failure to act. That is the plain, unhappy truth of the matter. I take no joy in saying so. I have been prepared to be helpful to the governor during this very serious challenge to our state's well-being, just as when I responded to his request for my assistance in passing Proposition 39 (the school bond issue) in the most recent election.
Just as my perception of what was best for California caused me to help him then, I am compelled now to speak out to prevent the rewriting of history and a deliberate effort to mislead the public and to discredit deregulation in order to shift the blame for his own inaction.
Pete Wilson is the former governor of California.
-- Anonymous, June 05, 2001