Davis’ Critics Should Wake Up, Smell the Kilowatts

It’s the great American pastime: booing the home team manager when he yanks the pitcher too late. Or too soon. Hooting the football coach when he settles for the field goal. Second-guessing. Kibitzing.

Hey, that’s our right and pleasure. And if they don’t like it, let them go try to drive a truck or teach kids instead.

Same for the politicians we razz.

But it does seem a paradox that for months the boo-birds’ chant was that Gov. Gray Davis coulda, shoulda pushed for long-term electricity contracts last summer--and now that he has signed such pacts, he’s hearing catcalls.

“By inaction [Davis] allowed a problem to become a crisis,” former Gov. Pete Wilson recently wrote in an op-ed piece. Among other derelictions, Wilson asserted, Davis was negligent for not using his emergency powers to override the Public Utilities Commission’s ban on long-term contracts between the utilities and electricity wholesalers.

A Republican-backed TV attack ad now has picked up on this theme, claiming that the Davis-appointed PUC “blocked long-term, cost-saving contracts.”

Actually, the PUC then was run by Wilson appointees and it repealed the ban itself, but that’s another column.

Let’s pause here briefly to play the blame game. Play it honestly.

It was Republican Wilson, his PUC and a bipartisan Legislature--GOP Assembly, Democratic Senate--that enacted the misguided deregulation scheme five years ago. These politicians, plus big business and the private utilities, rammed it past the sleepy news media, consumer groups and public.

When the flawed plan began causing chaos last summer, Davis indeed looked like the deer in headlights. The Democratic Legislature was useless, being preoccupied with elections.

Out-of-state power companies gamed the system and gouged Californians for billions. The feds just watched.

So everybody’s at fault--including us voters. We chose these decision-makers. Now we’re all paying.

But in January, Davis began negotiating those coveted long-term contracts. His goal was to buy power for 5.5 cents a kilowatt-hour. The crowd cheered.

Last Friday, he released the basic details of 38 pacts, lasting from a few months to 10 years, and covering about half the state’s power needs. The average 10-year cost is 6.9 cents a kilowatt. Total: $43 billion.

Now comes the kibitzing: These long-term prices are higher than the spot cost on some days. The contracts run too long. There’s no way to get out of them. Consumers will be stuck as supplies increase and prices fall. Some power companies are protected from possible tax hikes. . . .

Davis’ replies: Spot costs are down partly because those long-term deals have reduced demand on the daily market. At any rate, they’ll undoubtedly rise with summer temperatures. The state was in a weak bargaining position; kilowatts were selling for an average 27.5 cents. All it could offer was multiyear guarantees. The trade-off: price and supply stability.

Davis’ lead negotiator, former DWP chief S. David Freeman, tells how it was to negotiate with power companies already owed billions by California utilities: “What bargaining power did I have? I didn’t have a gun. First thing they said was ‘Pay me what you owe me.’ The only leverage we had was offering long-term contracts.”

A reporter asked whether there’d still be blackouts during hot spells. Freeman drawled: “No one is saying the crisis is over. . . .

“We weren’t negotiating with the Lord over the weather. We were negotiating with some people that are a long way from the Lord, I’ll tell you.”

Experts are paid to kibitz. And their views vary.

Robert Michaels, an economics professor at Cal State Fullerton, thinks long-term contracts were a mistake. With increasing supply, the market would have worked and prices fallen.

Peter Navarro, a UC Irvine economics professor, says the governor panicked. He should have seized a generating plant or two and acquired bargaining power. But he has presidential ambitions and “the last thing Gray Davis wants is to look like Karl Marx.”

Severin Borenstein, director of the UC Energy Institute in Berkeley, says: “You’re not going to get any wild bargains with long-term deals. Just insurance. But saying we shouldn’t buy long-term is like saying you shouldn’t have bought homeowner insurance because the house didn’t burn.”

Myself, I just know we’ve had six rolling blackouts already this year and roughly 60 blackout scares. Electricity costs have skyrocketed from $7 billion in 1999 to an expected $50 billion this year. I can live with a guaranteed supply of 7-cent kilowatts.

I’m glad the manager’s making moves, not just sitting in the dugout with his eyes glazed. That doesn’t mean we shouldn’t boo the guy. But not on this play.