Dan Walters: Davis points to energy traders' gaming as root of state crisis

By Dan Walters -- Bee Columnist
Published 2:15 a.m. PST Tuesday, March 4, 2003

Gov. Gray Davis, whose hesitant handling of California's energy crisis is the deepest scar on his governorship, made his case Monday that the state -- and inferentially himself -- were the victims of a huge conspiracy by energy companies to soak consumers.

Led by Davis and Attorney General Bill Lockyer, the state filed 3,000 documents with the Federal Energy Regulatory Commission purporting to prove that there had been, in Davis' words, "an industrywide pattern of cheating and stealing from California ratepayers."

"There's not just one smoking gun," Davis added. "It's an entire arsenal ... a compelling case that energy generators took advantage of California consumers." He is asking FERC to order refunds of at least $9 billion from energy sellers.

Whether the documents, alleging gaming among traders and generators to create artificial shortages and thus drive up electricity costs, support the rhetoric is impossible to say because they remain sealed by FERC order. Thus, we are left only with California officials' interpretation of what the documents show.

The overheated -- and not always accurate -- wording of the cover sheets that were released, however, makes one wonder whether the politicians really do have a case, or are trying to impress everyone with the sheer volume of the filing. At one point, the state asserts that the $44 billion in energy costs that were imposed on California from May 2000 to June 2001 "imposed great hardship on the state's citizens and businesses, crippled the state's two largest utilities, and took the state budget from a multibillion-dollar surplus to a multibillion-dollar deficit, thereby robbing schools, police forces and many other essential services of needed funds."

The latter declaration runs directly contrary to everything that Davis and others have said. The state did, in fact, lay out more than $8 billion for power purchases in 2001 after the utilities credit was cut off, but the money was carried on the books as a loan, not as an expenditure, and was recovered through a series of refinancing loans now being repaid by utility customers. The statement may have been designed to impress federal energy commissioners, but it undermines the filing's credibility.

All of that aside, even if one assumes that everything Davis and other officials allege is absolutely true and proven by the 3,000 pages of documents, it still doesn't let the governor and other politicians entirely off the hook, for these salient reasons:

* If Enron et al manipulated California's energy market, it could happen only because former Gov. Pete Wilson and the Legislature -- particularly former Sen. Steve Peace -- created an unworkable, complex and irrational system in 1996. Those who really knew the energy business could see its flaws immediately and some, perhaps, exploited them. Whether they acted illegally, or materially affected the market, remains to be seen.

* When the crisis first arose in 2000 in the form of sharply rising wholesale power costs, Davis and other politicians refused to act decisively to nip it in the bud. California utility executives begged Davis and state utility regulators to allow them to raise rates and sign long-term supply contracts, but officials delayed for six critical months, until the utilities had their financial backs to the wall. Had they acted boldly in 2000, we would not have had such a severe energy crisis in 2001.

* California still doesn't have in place a workable substitute for the discredited 1996 plan, nor do its politicians show any signs of working on the problem. Californians' power rates are still among the nation's highest, and with many much-touted generation projects on indefinite hold due to chaotic market conditions, the state is very vulnerable to another supply squeeze.

State Sen. Debra Bowen, D-Marina Del Ray, who chairs the Senate's energy committee, put it this way during a recent hearing: "The energy policy California has right now is a little like the turtle on the fence post. We know it didn't get there by itself, we're not quite sure who put it there or why, and we know it can't get down by itself."

All the finger-pointing in the world doesn't alter that summary of the state's never-resolved energy crisis.

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