It’s Deja Vu All Over Again on Energy Crisis

“Fool me once, shame on you. Fool me twice, shame on me.” This old proverb should be on everyone’s mind as we search for solutions to California’s energy crisis. But apparently some state leaders haven’t learned much from the way we were fooled in 1996 when California took a decades-old system of energy policy and threw it out the window.

As California’s utilities are teetering on bankruptcy and rolling blackouts are ordered by state regulators, there’s an obvious need for decisive action. But as lawmakers rush to approve Gov. Gray Davis’ rescue plan, they should be careful not to allow their haste to subvert a sound public process for evaluating this latest proposal.

Promises were made when deregulation was enacted just a few years ago. Consumers were told that they would see an immediate 10% savings on their electric bill and enjoy fixed rates until January 2002. By then, electricity rates were supposed to drop a total of 20% thanks to a new competitive market.

But the reality of California’s deregulation law has been very different. Deregulation has forced consumers to pay electricity rates 50% above the national average since 1998. During this period, ratepayers have been required to bail out utilities to the tune of $28 billion to cover the costs of inefficient power plants, equipment and above-market rate contracts. This transfer of wealth was labeled a “competition transition” charge or surcharge, which was supposed to result in a competitive marketplace that would bring about lower energy prices. So far, $20 billion has been paid, but now the companies are claiming insolvency as wholesale energy prices have shot through the roof. And earlier this month, the state Public Utilities Commission enacted a 9% rate increase for residential consumers.

How did California lawmakers allow this to happen? Believe it or not, only a handful of legislators were actually familiar with the legislation when it was considered in 1996. All the experts advising the Legislature were employed by the electricity industry. Most of the terms and conditions were dictated by agreement of industry representatives in private meetings. The legislation was considered under crisis time pressure to avoid a threatened alternative deregulation plan by the PUC. Very few lawmakers had even seen the bill before it was presented for a vote on the floor of the Assembly and Senate. They had just one day to consider the legislation and no amendments were allowed. It passed unanimously.

Now that deregulation has failed and the invisible hand of the marketplace has California by the throat, we are following the same process that got us into this mess. Lawmakers are being asked to quickly sign off on a scheme negotiated behind closed doors by Davis and the energy industry that promises to clean up this mess. Under the plan, the state will purchase energy from power generators under fixed, long-term contracts. The state will then sell the energy--at cost--to utilities for distribution to consumers. Late Tuesday night the Assembly passed the bill, even though there are no assurances from generators that they will sell power to the state at a reasonable price.

But once again, only a handful of legislators and the governor are familiar with the details of the proposal. The deal was crafted in secret with terms and conditions dictated by out-of-state generators and federal officials who together control California’s energy markets. Consumer groups were shut out of the governor’s negotiations. Under the threat of imminent bankruptcy for the utilities, lawmakers are being asked to quickly approve a plan that few of them have seen and with little opportunity to scrutinize its details.

While the governor claims that consumer rates won’t increase under the scheme, there’s no guarantee that they won’t. Lawmakers should take the time to subject this plan to careful scrutiny and allow for ratepayer input through sufficient public hearings. No ratepayer bailout of the utilities should be allowed through hidden profit spreads in the long-term contracts. Lawmakers in Sacramento should make sure that consumers get something in return for allowing the state to act as the utility companies’ bank. The utilities should be required to sell the electricity they generate from their own plants to core utility customers--homeowners, renters and small businesses--at a price set by the PUC based on the real cost of producing the power plus a limited profit.

Gov. Davis has gone to great lengths to point out that he inherited this mess and Sacramento lawmakers have been scrambling to distance themselves from the deregulation debacle. But if they rush to judgment on the governor’s rescue scheme and repeat the costly mistakes that got us into this mess, there will be no question about who to blame.