Bush Silent on Energy Crisis in California

Gov. Gray Davis of California got little more than good wishes when he came to Washington last month seeking a way out of his state’s energy crunch. If he makes a return trip after George W. Bush takes office, there is no reason to believe he will fare any better.

Bush has not said a word publicly about the crisis. Neither has his nominee for Energy secretary, former Sen. Spencer Abraham of Michigan.

Privately, Bush aides said the president-elect is far more interested in encouraging oil and gas exploration than in wading into the murky mess that has boosted wholesale electricity prices in California to unprecedented levels and left the state’s major investor-owned utilities warning of bankruptcy.

Feeding the perception that Bush is unlikely to intervene is his own background as an oil industry executive. Several of his senior aides also have ties to the oil industry, and a number of his advisors and campaign contributors are players in the private power market that is profiting from California’s electricity crunch.

Ideologically, Bush is an avowed champion of deregulation, free markets and states’ rights, all of which have played a role in California’s predicament.

“It’s very unlikely for California to expect any major federal bailout for consumers or utilities,” said David Nemtzow, president of the Alliance to Save Energy, a bipartisan association of energy industry and environmental groups that includes the Los Angeles Department of Water and Power and Pacific Gas & Electric Co. “The general perception is that this is a situation of California’s making and now California is bearing the consequences.”

Even if Bush wanted to move aggressively to help California, it is unclear whether the federal government can do much to ease the crunch in the short term.

“There are no obvious federal solutions” to the current crisis, said Stephen Wiel, director of energy analysis at Lawrence Berkeley National Laboratories and former chairman of the Nevada Public Utilities Commission. “None of us know how to get out of this mess. It’s just too complicated and snarled. The impacts of what they did in California are really a surprise to everyone.”

When the East Coast was beset by surging heating oil prices this winter, Clinton tapped into the nation’s strategic oil reserve to ease the shortage. But there is no national reserve of kilowatts.

Even Energy Secretary Bill Richardson’s recent order requiring emergency releases of water from hydroelectric dams in the Northwest to get more power to California has its limits. The intervention has had little effect on prices so far, and water cannot be released indefinitely without damaging the rivers’ delicate ecosystems in an already dry year.

Over the next year or so, the focus is likely to be on the appointments Bush will make to the Federal Energy Regulatory Commission, which is responsible for ensuring that interstate markets for gas and electricity are competitive and not subject to price manipulation.

“FERC is the logical remedy,” said Ralph Cavanagh, energy program director for the Natural Resources Defense Council, an environmental group based in San Francisco. “It is the one agency with the interstate jurisdiction that is needed to enforce competitive markets across state lines. The appointments Bush makes there are the single most important ones for California.”

Potentially, Bush could appoint a new majority on the five-member commission during his first year in office. The term of the current chairman, James Hoecker, already has expired, and two more vacancies are likely in 2001.

Bush made respected appointments to state regulatory jobs in Texas, industry observers said. The man Bush chose to lead an electricity deregulation effort in Texas, Public Utilities Commission Chairman Pat Wood, is widely respected by both industry leaders and environmentalists. He has been a strong proponent of restructuring the electricity market while retaining the sort of pollution standards and emphasis on renewable energy that environmentalists applaud.

“He’s a high-quality appointment,” Cavanagh said. “And if that’s the kind of person that George W. Bush appoints to the FERC, we’ll do fine.”

Over the longer term, the Bush administration will be in a position to play a major role in addressing the problems of deregulating electricity markets nationwide.

As governor, Bush signed legislation to restructure the Texas electric market in a way that is regarded as more progressive and efficient than California’s scheme. He has put people in charge of the deregulation effort there who are applauded both by energy industry leaders and environmentalists.

“Most of the progressive features of electricity restructuring in Texas did not come from Bush, but the governor supported them. And in the end, Texas produced better deregulation than California,” Cavanagh said. “All of Bush’s political instincts would probably be to find a way to leave these issues to the state of California. But we hope his Texas experience is a strong positive indicator that he will not.”

If California’s crisis begins to have serious effects on other Western states, some observers think an energy team appointed by Bush could try to use federal influence to encourage deregulation in other states and make it easier to build more power plants in California and elsewhere.

“The ball is really in George W. Bush’s lap,” said David Freeman, general manager of the Los Angeles Department of Water and Power. “He can say, ‘Well, I believe in the marketplace. You all have to tighten your belts. It will all be OK in a couple of years.’ ” Or he can choose the ticket to greatness, like Nixon going to China, and come out on the side of the consumer over the long term.”

Some energy policy advocates fear that the new administration’s ties to the private sector will tilt its policy toward industry interests.

Vice President-elect Dick Cheney headed Halliburton Co., a giant oil services firm. Commerce Secretary-designate Don Evans is chairman of Tom Brown Inc., an oil and gas company. And National Security Advisor nominee Condoleezza Rice is a director of Chevron Corp.

Bush’s major campaign contributors include Sam Wyly, an Austin, Texas, businessman with interests in independent electricity provider Green Mountain Energy; Ken Lay, head of the Texas energy company Enron Corp.; and Dennis Bakke, president of the Virginia electricity firm AES Corp. None is expected to be timid about making his views known.

Lay, for example, sits on an advisory group appointed by Bush’s transition team that is crafting the new administration’s legislative agenda on energy. Wyly is a longtime confidant of Bush.

“Bush has good friends and people who have been strong supporters of his candidacy in this business,” said Mark Cooper, director of research at the Consumer Federation of America. “And anybody who has an electron to spare is selling it and making a bundle these days. It’s like having snow shovels on the day of a big blizzard.”