Energy Deregulation Called A 'Colossal Failure' in California

By Roberta L. Barth | July 7, 2008 | 8:19 PM EDT

Sacramento, Calif. ( - One day after calling California's energy deregulation "a dangerous and colossal failure," Gov. Gray Davis is coming to Washington Tuesday for a meeting with administration officials and utility company executives to look for a way out of the crisis that threatens to blackout parts of his state.

In his State of the State address Monday, Gov. Davis admitted there is no easy solution to the problem arising from growing demand and diminishing supply. "But," he said, "If I have to use the power of eminent domain to prevent generators from driving consumers into the dark and utilities into bankruptcy, then that's what I'll do."

Davis, a Democrat, said the time has come for California to take control of its own "energy destiny," and he promised to set aside $1 billion in the state budget to stabilize the supply and price of electricity and provide new power generation.

Under California's 1996 deregulation laws, the investor-owned utilities have not been able to pass their own sizable cost increases on to consumers, and now they complain they are almost out of money. Pacific Gas and Electric Co. and Southern California Edison Co. say they have lost $9 billion since June, given the huge run-up in wholesale energy prices.

But in his Monday address, Davis said allowing the companies to slide into bankruptcy is not an option: "Bankruptcy would mean that millions of Californians would be subject to electricity blackouts," Davis said.

Davis outlined 15 specific proposals to solve the energy crisis prompted by the deregulation of the utility industry. In fact, Gov. Davis devoted most of his address to the crisis and his proposals to solve the problem.

Davis was forceful and intense as he declared that he would not allow out-of-state energy companies to bring California to its economic knees. He also assured the financial market that he will prevent utility companies from going bankrupt.

He urged ratepayers to understand that California's economy is dependent upon market investors' confidence. "As California goes, so does the nation," Davis said. "If California's economy fails, then the nation will follow. It is important to show Wall Street that California is solvent."

Among the 15 proposals Davis cited, five are something he could do as governor; the other ten would require legislative action.

State Sen. Jim Brulte (R-Cucamonga), the head of the Republican Caucus, gave Davis' proposals a thumbs up.

"I had made my list of proposals to solve the problem and his were similar so I give him an 'A', Brulte said. "California's economy is healthy and strong, so we can pull out of this."

Davis said he is outraged that the Federal Regulatory Energy Commission has turned a blind eye to the out-of-state electric generators gouging local utility companies with 700-percent-price increases in one year.

He called for tough new laws that, among other things, would make withholding power a criminal offense; create 50 new PUC investigators to monitor the utility companies; streamline the permit process to get more local plants operating quicker; and oversee the process whereby local companies are forced to sell power to out-of-state companies.

The Republican Party's leader, State Sen. Bill Campbell, provided the Republicans' response to Davis' speech. Campbell pointed out that the Governor and the Democrats knew last summer when San Diego first felt the pangs of the crisis that something had to be done. He criticized them for waiting until there was a crisis to act.

"Two years ago California voters put the Democrats in charge and nothing is better," Campbell said. "With a quarter-trillion dollars under their leadership, you are stilling sitting in traffic gridlock and dealing with dimming power."

Earlier Monday, the state legislature announced its intention of forming a commission to investigate the utility industry. Assemblyman Robert Herzberg (D-Van Nuys) said the energy crisis is Davis' first crisis and the party is pleased with his proposals.

"We're taking action by forming this commission to hold hearings and get to the heart of what is going on," Hertzberg said. "We're going to subpoena utility companies if necessary."

At Tuesday's meeting in Washington - called by Energy Secretary Bill Richardson, Treasury Secretary Lawrence Summers, and Gene Sperling, director of the National Economic Council - everyone involved in California's energy crisis will talk until "something gets done," in the words of an Energy Department spokesman.

On Monday, Energy Secretary Richardson called for compromise: "Everybody needs to give a little -- the California utilities, the state government."