California's Energy Crisis Endangers Governor's Political Future

By Roberta L. Barth | July 7, 2008 | 8:27 PM EDT

Sacramento, California ( -- The charmed administration of California Gov. Gray Davis is dimming under the massive power shortages in his state that are attributed to California's 1996 deregulation of the electric utilities. Davis calls it "a failed experiment.'

Politicians, especially Davis, have been scrambling to distance themselves from the energy scandal that is slowly crippling the Golden State's booming economy.

The Democratic Governor was in Washington D.C. to meet with President Clinton Wednesday, after consulting with Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers Tuesday. The California-based companies have been screaming foul, citing billions of dollars in losses and a dramatic decline in their credit ratings.

The California Public Utilities Commission held an emergency session Wednesday to hear oral arguments on a rate hike request from Pacific Gas and Electric and Southern California Edison, the state's two utility giants that currently have a residential rate freeze in effect. The PUC plans to rule on the rate hike request Jan. 4, 2001.

Meanwhile, P.G.&E. and SoCal Edison have sued the PUC in federal court in order to pass their wholesale electricity costs on to customers. The companies say they are losing money from supplying electricity, which they have to buy from other providers, and that they should be allowed to charge consumers for the costs.

The PUC said a federal-court intervention will only exacerbate the issue, so, the utility companies should withdraw their complaint. The companies responded by saying they were forced into court because of Davis' refusal to intervene.

Many consumer groups, particularly the utility-watchdog organizations, could be Davis' worst nightmare in his next campaign. Suzanne Churchill, of CALPERG, points to the $20 billion bailout of the utility industry in 1997 as the reason why they should not be allowed to increase rates. She and other groups accuse the utility companies of crying wolf.

The Utility Consumers Action Network urged Davis to reassure utility lenders by providing a short-term loan to the utility companies. This, they say, should be done without any increases in utility rates.

"The worst-case scenario is that consumers balk at the increased prices of goods and refuse to buy and then businesses either go out of business or move out of the state," Dan Carroll, the attorney representing the California Industrial Users coalition, warned.

Some consumer groups have been threatening to launch a ballot initiative in 2002 to re-regulate the utility industry.

Davis says the energy crisis is the fault of out-of-state energy companies who are gouging the California companies and the governor vows not to let the out-of-state firms bring California to its knees.

"They should think about this," Davis said, "If deregulation fails in California, it is over in America. They have a vested interest in seeing that deregulation down the road can work without sacrificing the California economy that is now contributing disproportionately to the nation's growth."

Davis will not reveal how he intends to deal with the deregulation crisis until his State of the State Address on January 8, 2001. The speech will come just four days after the PUC releases its decision on the rate hike request. The state legislature will reconvene on Jan. 3, and is expected to address the energy crisis as its first business.