Davis Urges Electric Overhaul to End ‘Energy Nightmare’

Calling electricity deregulation an “energy nightmare,” Gov. Gray Davis on Monday proposed new state authority to buy and build power plants, urged Californians to reduce consumption by 7% and threatened to seize control of private power plants if the situation becomes more extreme.

In his third State of the State speech, Davis proposed a major overhaul of the state’s electricity system, an expansion of health care for low-income adults and a one-month extension for middle schools, creating the nation’s longest school year.

But confronting the most serious problem of his tenure, Davis focused on energy in a speech met with a polite response from the joint session of the Assembly and Senate.

Declaring that California will regain control over the electrical power system, Davis said: “Never again can we allow out-of-state profiteers to hold Californians hostage. Never again will we allow out-of-state generators to threaten to turn off our lights with the flip of their switch.”

In his most far-reaching proposals--albeit with few details--Davis suggested California enter the power production business by setting aside state land for power plants, provide low-interest loans to build power plants and possibly establish a California power authority.

The speech came as utility companies gained leverage in their quest for financial relief. Southern California Edison won a court ruling that could allow it to pass more costs on to consumers. And a key federal official reiterated that he might impose a temporary price cap on wholesale electricity. On the eve of an energy summit in Washington, there were indications that electricity producers might offer utilities discounts or deferred payments rather than risk a price cap.

Searching for solutions, Davis on Monday gave up any pretense of supporting the free market concept, after saying for months that he hoped to preserve deregulation. Instead, the Democratic governor offered a wide-ranging prescription that would greatly expand state involvement in the power system.

His proposals would bring more conservation, more investigations and help--though undefined, for the state’s financially strapped utilities.

“California’s deregulation scheme is a colossal and dangerous failure,” Davis said in the 50-minute speech delivered in the ornate Assembly chambers. “It has not lowered consumer prices. And it has not increased supply. In fact it has resulted in skyrocketing prices, price gouging and an unreliable supply of electricity. In short, an energy nightmare.”

Davis suggested that California join with the state’s 30 municipal utilities, such as the Los Angeles Department of Water and Power, to build power plants. If that won’t work, the state should establish its own power authority to buy and build new plants. He promised to work with the Legislature to determine which option is best.

“The remedies I am proposing tonight are reasonable and necessary under the present extraordinary conditions,” Davis said, in a speech interrupted by applause about two dozen times. “But . . . everyone should understand that there are other, more drastic measures that I am prepared to take if I have to.”

Davis has had dozens of closed-door meetings on the energy issue. But he had revealed few of his proposals. What he offered Monday was a mix of ideas that have been suggested in recent months, including one advanced last week by state Treasurer Phil Angelides to create a power authority. Angelides suggested selling $10 billion in bonds to finance such an entity.

Davis’ Message for Wall Street

Davis did not cite the cost of his plan in his address, broadcast by several stations throughout the state and by C-Span. More details probably will be released Wednesday, when he unveils his proposed 2001-02 budget.

In a message directed at utilities and Wall Street, Davis said the state must prevent Southern California Edison, PG&E; and San Diego Gas & Electric from going bankrupt. While acknowledging that there is no easy solution to the utilities’ debt, estimated at as much as $11 billion, Davis threatened to use the power of eminent domain to buy power plants to ensure that wholesale electricity prices would become stable.

“Our fate is tied to their fate,” Davis said of the utilities. “Bankruptcy would mean that millions of Californians would be subject to electricity blackouts. Public safety would be jeopardized. Businesses would close. . . . And our economy would suffer a devastating blow.”

Southern California Edison delivered a short, muted response to the speech, saying it is pleased that the governor recognizes “the importance of the financial stability and role utilities play in providing reliable and affordable power for the state of California.”

Susan D. Abbott, corporate finance director of Moody’s credit rating agency, said she was disappointed that the governor was not specific about how to keep the utilities out of bankruptcy court.

“On the issues about the immediate financial crisis with the utilities, the only thing I heard him say was that he’s asking the Legislature to work with him to make sure these companies don’t go bankrupt,” Abbott said.

Emphasizing conservation, Davis called for a 7% power reduction by all Californians. To help that happen, he said, he would offer $250 million worth of cash incentives to people who replace old refrigerators, washers and air conditioners, and build what he called “energy-smart” homes, schools and businesses.

Additionally, he plans to set aside $1 billion “to help stabilize the power supply and price of electricity . . . and help provide new power generation to meet the demands of the future.”

“It’s certainly sending the message of the urgency of the situation,” Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said after the speech. “He sent the message that eminent domain is a possibility and he is willing to employ it. Gov. Gray Davis does not get out and say something if he is not willing to consider it.”

The crisis began when rates in San Diego skyrocketed last summer. This winter, the crunch has spread statewide as utilities’ finances have been strained by rising wholesale prices. At the same time, electricity has been in such short supply that there have been threats of blackouts, while the California Public Utilities Commission last week raised electric rates by 9% for residential customers of Edison and PG&E.;

Davis, not known as a great orator, appeared stiff at times during his delivery and stumbled over his text in places. Lawmakers’ response was respectful. After the speech, Republicans denounced Davis’ call for a power authority; some Democrats lauded the concept. Senate President Pro Tem John Burton (D-San Francisco) is backing a public power authority.

“As a whole,” Burton said of Davis’ suggestions, “it would go a long way toward resolving the problem. This problem is not easy.”

Senate Republican leader Jim Brulte of Rancho Cucamonga said that though several of Davis’ suggestions tracked with Republican proposals, the governor should have offered specifics to help the utilities avoid bankruptcy. He also attacked the idea of a state power authority, saying such an entity would “do for electricity what [Caltrans] did for traffic congestion.”

Assembly GOP leader Bill Campbell of Villa Park said that upon hearing Davis suggest seizing power plants through the government’s power of eminent domain, “The hair on the back of my neck went up.”

Summit in Washington

Consumer advocates also were less than enamored of Davis’ proposals, but for different reasons.

“He had a lot of ideas that were good but peripheral,” said Harry Snyder of Consumers Union. “They don’t get to the core of the problem. It’s all ‘negotiate with the Legislature,’ rather than the governor stepping out and saying, ‘This is what the plan is.’ ”

Davis is scheduled to leave today for Washington to meet with top Clinton administration officials, federal energy regulators and utility executives. He will ask federal authorities to impose price caps on power producers.

Davis called for several short-term fixes, urging that the Legislature approve measures that would:

* Prevent California’s three largest private utilities from selling their remaining power plants. Edison, PG&E; and SDG&E; control 15% of California’s power generation capabilities. They owned 55% of the generation before the 1996 law deregulating the electrical system.

* Overhaul the board that oversees the power grid, making the members government appointees rather than energy company representatives.

* Revamp the bidding process for electricity, so utilities can buy electricity at lower prices.

* Expand the governor’s emergency power in power emergencies, and make it a crime for power generators to withhold power from utilities. He also called for $4 million to help the Department of Justice investigate the energy crisis.

For the long term, Davis said, the state should:

* Provide low-interest loans for construction of power plants and refurbishing of old ones. Owners would have to agree to sell power within California.

* Require local utility districts to sell excess power to Californians.

* Increase the California Department of Water Resources’ power generating capacity.

* Use cogeneration and other techniques to make campuses of the University of California, state university and community college systems energy-independent.

The governor continued his attack on out-of-state power producers that own much of the power sold in California, and on federal energy regulators who have “shirked [their] responsibility to protect ratepayers from this legalized highway robbery.”

And “there’s evidence that some generators may be purposely withholding electricity from the California grid to create artificial scarcity which in turn drives up the price astronomically,” the governor said.

Eventually Davis turned to other issues, among them health care. He called for an expansion of the Health Families Program, funded by the state and federal governments to provide health care for children. Davis wants to expand it to cover 290,000 low-income working parents.

He also focused on public schools, which he said remain his top priority. He called for more teacher training, a heavier emphasis on algebra, and an extended middle school year, a $1.45-billion proposal.

Davis singled out Melvin Avenue Elementary School and its principal, Susan Grossman, for improvement on the state’s new Academic Performance Index, which charts whether schools are improving their scores on the Stanford 9 exam. The Reseda elementary school shot up 79 points on the state index last year, far surpassing its target of 12 points.

Melvin Avenue teachers said they met in teams to analyze test scores. The same teams met weekly during the year to share methods and refine their practices.

Thirty-one other elementary schools showed greater improvement last year on the state academic index. Valley View Elementary in Hollywood jumped 118 points on the state index, far above its target of 15 points.

*

Times staff writers Miguel Bustillo, Carl Ingram and Duke Helfand contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Excerpts

Power

“California’s deregulation scheme is a colossal and dangerous failure. It has not lowered consumer prices. And it has not increased supply. In fact, it has resulted in skyrocketing prices, price gouging and an unreliable supply of electricity. In short, an energy nightmare.”

“We have literally lost control over our own power. We have surrendered the decisions about where electricity is sold--and for what price--to private companies with only one objective: maximizing unheard-of profits.”

“And make no mistake: We will regain control over the power that’s generated in California and commit it to the public good.”

“I’m asking every Californian to cut consumption by as much as 7%, and we will back that up with a $250-million investment. We’ll supply cash incentives for replacing inefficient refrigerators, washers and air conditioners with more efficient models. And we’ll create energy-smart homes, schools, workplaces and communities.”

“Every day, every Californian can contribute to the solution by turning off lights and appliances when not in use, shifting their usage to off-peak times, using less heat and air conditioning, reducing outdoor lighting simply for display and turning off business equipment when not in use. For example, putting a computer on sleep mode can reduce power it would otherwise need by 40%.”

*

Education

“We have put in place the building blocks of achievement: high standards, accountability, technology, modern facilities, new tools for learning, the most aggressive teacher incentive program in America, including the biggest performance bonuses in the nation.”

“And most importantly, our hard work is paying off. Test scores are up. Student confidence is higher. Public support is growing. All across the state, we are turning higher expectations into better student achievement. I thank you for that.”

“Ninety percent of all new jobs require advanced math skills. More than ever, math is the doorway to higher learning and future success. Since I took office, we’ve been implementing the toughest math standards in the nation.”

*

Health Care

“It’s time to recognize that a healthy family is more than healthy children. It’s also healthy mothers and fathers, too. I have already requested a federal waiver that will allow California to become only the fourth state in the nation to include parents in this program.”

*

Other

“The year 2000 brought us 417,000 new jobs. The lowest unemployment rate in 30 years. The largest increase in personal income in 16 years. Retail sales up 9%. Exports up 25%.”

“We’ve passed two budgets in a row--in balance, on time.”

“We’ve put a prosperity dividend back into people’s pockets, providing tax relief in record amounts.”

“We’ve funded and equipped our law enforcement at its greatest strength ever.”

“We’ve reformed HMOs. Invested in parks and water. Passed the toughest gun safety laws in the nation.”

“We’ve opened wide the doors to college with merit scholarships and Cal Grants.”

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More Inside

Unheard voices: Academic experts say they were ignored as they warned of the power crisis, A3

Relief uncertain: Gov. Gray Davis is unlikely to get immediate help in restraining soaring bills, A16

Higher costs: A judge ruled that Edison can pass reasonable costs on to consumers, A17