Power Firm’s Offer to Davis Denounced
Lawmakers and consumer advocates Wednesday denounced an expansive proposal in which a major North Carolina power supplier offered political support to Gov. Gray Davis if Davis would end antitrust and other investigations and stop criticizing electricity deregulation.
Duke Energy, one of the largest independent power producers in California, initiated talks with the Davis administration in March. The company released documents Wednesday that proposed an overall strategy to Davis for resolving the state’s energy crisis, and a “global settlement template” between the state and Duke.
According to Duke’s proposal, the company is seeking “prompt suspension of state investigations, lowering of rhetoric and stay of state litigation” being contemplated by the state attorney general, California Public Utilities Commission, Electricity Oversight Board and state auditor.
The document suggested that Davis explain the energy crisis to the public by shifting blame to his predecessor, former Gov. Pete Wilson: “[Davis] will continue to indicate that the California crisis is an aberration due to flawed legislation of Gov. Wilson, not a necessary consequence of deregulation, and will not advocate scrapping deregulation in wholesale power markets.”
For its part, Duke said it would take an unspecified discount on $110 million it says it is owed by the state’s private utilities, “without admitting legal liability, because Duke has done nothing illegal.” Duke also would increase its commitment to build more power plants in California “if there is a rational and stable business and regulatory climate.”
The company also offered Davis political help.
“Duke is committed to expediting high-level confidential discussions that would embrace the governor’s political and public relations needs,” said the proposal submitted to Davis’ aides last month.
“It is unbelievable,” said Harry Snyder of Consumers Union. “The attorney general ought to open an investigation into whether they have attempted to bribe the governor. It is an attempt to subvert democracy.”
In an interview, James Donnell, head of Duke Energy North America, said the company was not offering to help Davis with his 2002 reelection or aspirations for higher office. Rather, the company was offering to help Davis win political support for aspects of his energy plan, including the purchase of the transmission system from private utilities.
“We offered real solutions; we can help here,” Donnell said, adding that he spoke with one of Davis’ top aides Wednesday and agreed to continue negotiations.
Davis spokesman Steve Maviglio said Davis intends to meet with power generators next week. But he termed Duke’s offer a “wish list,” and said the Democratic governor has no plans to scuttle investigations of Duke by Atty. Gen. Bill Lockyer.
Maviglio said Davis did not see the documents until Tuesday. Nor has Davis spoken to any Duke representatives, leaving that task to Davis’ chief of staff, Lynn Schenk, the governor’s lawyer, Barry Goode, and other top aides, Maviglio said.
Lockyer spokesman Nathan Barankin declined to discuss the proposal but said: “Our investigation is active and ongoing.”
Duke executives released the documents Wednesday after news reports surfaced about the settlement offer. Duke submitted the proposal in late March, before Davis agreed to a rate increase, before Pacific Gas & Electric filed for bankruptcy, and before Davis reached a tentative deal to rescue Southern California Edison by purchasing its transmission system for $2.76 billion.
The proposal urges the governor to take several steps, including tempering his criticism of electricity deregulation. In the past, Davis has criticized Wilson for approving what he says was a flawed electricity deregulation scheme in 1996, but has stopped short of denouncing the concept of electricity deregulation.
“Our concern,” Duke spokeswoman Cathy Roche said, “is that the rest of the country not say that deregulation is a failure, when the failure was the particular market and set of regulations that California came up with.”
Sean Walsh, who was Wilson’s spokesman, charged that the document “absolutely smacks of collusion between Duke and Davis.”
“This thing stinks,” Walsh said, calling on Davis to release all communications between Duke and the governor’s office. “This is a deal to try to cover Gov. Davis’ backside for his failure to act promptly and responsibly.”
Sen. Steve Peace (D-El Cajon), who carried 1996 legislation aimed at implementing aspects of deregulation, called Duke’s suggestion a “smoking gun.”
As California goes more deeply into debt buying power, electricity rates rise and summer blackouts loom, power generators are engaged in a campaign to save deregulation nationally by “creating the fiction that the California product was unique,” Peace said.
“Given the same circumstances,” Peace said, “any of the [states’] markets can be manipulated.”
Duke has been among the most politically active generating companies, regularly meeting with public officials and stressing its commitment to the state. The company owns three major power plants in California, having bought them from private utilities.
In July, Duke sent a letter to Gov. Davis offering to sell California utilities 2,000 megawatts of electricity for five years at what now would be considered a bargain rate. The administration did not act on the suggestion.
Duke is the first major generator to take steps toward settling with the state, agreeing that it would forgive “an appropriate amount of certain receivables,” although no amount is specified.
“We wanted the state to work with us in setting aside suits that are without merit,” Donnell said. “They’re unhealthy for the marketplace.”
Duke said in its offer that it should receive “an appropriate discount for being the first to settle.”
The company would not say how much of a discount it would take on money it claims to be owed for power sales in California. But Joseph Fichera, a consultant retained by Davis to work on the energy crisis, said he expects generators to take at least 20% to 25% less than they claim they are owed. If the state agrees to drop its investigations, generators would take an even larger discount, Fichera said.
Senate President Pro Tem John Burton (D-San Francisco) called Duke’s offer bizarre.
“Without admitting ‘legal liability,’ they are admitting they are ripping us off,” Burton said. “People do settle lawsuits. But stopping an investigation? What is it we are supposed to find?”
However, industry spokesmen lauded Duke. Gary Ackerman, a spokesman for the power generation industry, said the proposal shows that Duke is “trying to be aboveboard and reach a solution to the problem.” Aaron Thomas, a spokesman for AES, another large independent generator, called Duke’s proposal “thoughtful.”
“I am impressed by the scope of the work here,” Thomas said.
In the offer, Duke said it opposes several pending bills, but singled out one by Sen. Jackie Speier (D-Hillsborough) that would give the PUC authority to investigate private power generators.
The company said that though it would agree to legislation granting the state authority to audit private power plants, audit results should be confidential to “avoid inflammatory rhetoric.”
Among other provisions, Duke said it would:
* Work with California officials to modify environmental constraints on its power plants, so it could increase power generation. Donnell said relaxation of environmental restrictions would be temporary, and could bring an additional 300 to 500 megawatts to the state this summer.
* Build a new 650-megawatt power plant by summer 2002, if the state helps it find a site and eases other restrictions.
Times staff writers Carl Ingram, Julie Tamaki and Rone Tempest in Sacramento and Mitchell Landsberg in Los Angeles contributed to this report.
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Power Points
Background
The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.
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Daily Developments
* Duke Energy, one of the largest independent power producers in California, offered Gov. Gray Davis political support if he would drop antitrust investigations and litigation.
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* Lt. Gov. Cruz Bustamante sued five major power producers, accusing them of conspiring to fix prices. The suit seeks to recover billions paid by the state.
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* President Bush will order federal workers to conserve electricity by lowering lights, setting thermostats at 78, and shutting down computers and escalators after hours.
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Verbatim
“Duke is committed to expediting high-level confidential discussions that would embrace the governor’s political and public relations needs.”
--Duke proposal submitted to Davis’ aides.
Complete package and updates at www.latimes.com/power
