Shock’s Silver Lining
That California’s power crisis has been dealt another huge shock is not all bad. The bankruptcy of Pacific Gas & Electric has legal scholars puzzling over how federal court supervision of the debt-ridden utility will affect rate-setting, sale of assets such as the transmission system and the state’s role in the crisis. And that’s apart from figuring out how it affects Southern California Edison, the chief private utility in the southern part of the state. Despite executives’ denials of any bankruptcy plans, will Edison be forced into the same boat? Even with all these questions, a good shake can have benefits.
There’s no doubt that a federal bankruptcy judge has the power to sort out at least some of the befuddling problems of the state’s energy crisis. Few tears will be shed, for instance, if a court-ordered restructuring of PG&E;’s debt trimmed some of the outlandish profits reaped by private generating companies that sold power to the utility over the past six months. Federal involvement could also force the Federal Energy Regulatory Commission to abandon its hands-off stance on regulating wholesale prices. There is bipartisan support in Congress for FERC to conduct a thorough investigation of the price spikes that pushed the utilities into default and forced the state to spend billions as the power purchaser of last resort.
And what of the utilities themselves? PG&E;’s award of more than $50 million in employee bonuses the day before it filed for bankruptcy was a terrible political move, but it is not the jackpot issue. The utility’s transfer of billions of dollars to its parent company even as cash flow problems worsened will be a more likely and fitting target of scrutiny by bankruptcy overseers.
Not least, the shock of the bankruptcy may also convince Californians to take urgent conservation action before the hot summer months. The state must also expedite a $1-billion conservation program passed by the Legislature late last week. No matter who is at fault, summer blackouts are a certainty unless both business and residential customers take energy savings much more seriously.
The bankruptcy certainly pulled the rug out from under Gov. Gray Davis, who had been trying without success to make a deal with PG&E;, Southern California Edison and San Diego Gas and Electric to buy their transmission systems in exchange for state assistance with debts. Just Thursday night, Davis had bowed, in a television address, to the necessity for big rate increases. He no doubt meant to assure Californians that he was taking strong action to solve the crisis and keep the utilities from bankruptcy, but he disappointingly offered no new initiatives. In the clearest possible slap at Davis, PG&E; was at the steps of the Bankruptcy Court the next morning.
However embarrassed Davis must have been by the sideswipe, he should not allow anger to dictate his response. He needs to demonstrate he’s above such pettiness and perhaps even acknowledge that his snail’s-pace progress was part of the problem. Davis redoubled efforts over the weekend to strike a deal with Edison for its part of the transmission system, but PG&E;’s bankruptcy certainly complicates the transaction.
Perhaps it was never possible to deal with the utilities’ past debts and restructure the state’s power at the same time. Bankruptcy is a rough but effective tool for dealing with debt, one that might help legislators and the governor focus more sharply on future reforms.
Much now depends on the federal bankruptcy judge, Dennis Montali, who is known as an effective mediator able to persuade reluctant parties to settle. California’s economy has survived the power crisis so far, but it is not endlessly resilient. If PG&E;’s bankruptcy speeds debt resolution and focuses the governor and Legislature on reforming the state’s power generation, transmission and pricing systems, business will welcome any increase in predictability.
Californians are starved for answers. The federal court’s involvement, despite the grave circumstances, could provide some.
