Pete Wilson Speaks Up in Defense of Electricity Deregulation

Pete Wilson isn’t accepting blame. He’s claiming credit for California’s electricity deregulation.

Sure, there were flaws, the former governor admits. But those flaws easily could have been fixed. Still could.

Free market competition, this Republican steadfastly believes, eventually will drive down consumer costs by inspiring construction of more power plants. More supply.

He’s fed up listening to his Democratic successor, Gray Davis, whine about inheriting this mess.

“Every governor inherits something. I mean, I got a recession. I didn’t blame [George] Deukmejian for it. You do what you have to do on your watch. . . .

“I tried to give him space. But I’m not going to stand by and let him rewrite history.”

What especially “ticks me off,” Wilson says, is the Davis drumbeat that no major power plant--not one--was built in California during the 12 years before he took office. That’s a distortion, Wilson asserts.

Seven smaller plants were built on his shift, according to the California Energy Commission. And the commission agrees that deregulation attracted some major plants currently being built.

“I take credit for being the driving force behind deregulation.”

Of course, that mid-’90s deregulation scheme concocted by the governor, the Public Utilities Commission and the Legislature has been calamitous for California so far: obscenely high wholesale electricity prices that have bankrupted one private utility and left another pleading for a public rescue, a gigantic shift of wealth from California to out-of-state profiteers, and the draining of billions from the state treasury to buy electricity for utilities. Plus rolling blackouts.

Wilson says he can explain all this.

Last week, I interviewed the 67-year-old ex-governor over lunch at a restaurant near his Beverly Hills office, where he’s managing director of Pacific Capital Group, a merchant bank.

Deregulation was needed because California’s system of regulated monopolies was producing “outrageously high” electricity rates, he said. Manufacturers were moaning. They demanded a competitive market.

But an interruption here for perspective: Consumers then were paying around 9 cents a kilowatt for juice generated and sold by utilities. That hardly seems “outrageous” today. Kilowatts lately have have been averaging around 30 cents on the daily wholesale market and at times have skyrocketed to $1.50.

Consumers have been protected by PUC-imposed caps on retail rates. But these caps have sunk private utilities under billions in debt because the companies have not been allowed to recoup their wholesale costs.

The caps were “really a self-inflicted wound,” Wilson notes.

The utilities insisted on the caps, seeing them as guarantees. They mistakenly believed deregulation would produce such low wholesale prices that the guaranteed retail rates would provide excess profits. This windfall then could be used to pay off old debts on losing investments, particularly nuclear power plants.

If he had not given in to the utilities on rate caps, Wilson says, “it might have prevented the bill from getting passed.”

Deregulation required the utilities to sell their gas-fired plants and buy back the power from new owners. Another flaw, Wilson concedes, was barring the utilities from signing long-term contracts for power. The naive thinking was that wholesale prices would fall and utilities would be stuck with costly contracts. The opposite happened.

But Wilson says he was determined to launch deregulation “whatever its imperfections. They could be cured later.”

Davis has been too passive, Wilson contends.

A governor has extraordinary emergency powers, he says. Davis could “have decreed by fiat” the suspension of rate caps and the ban on long-term contracts--could have speeded plant approval by paring public hearings.

These powers, he continues, “allow you literally to suspend statues and any regulation of a governmental agency, including the PUC. One justification is--quote--the sudden and severe shortage of energy.

“That doesn’t mean you have to wait and experience it. It means you have to see it coming and do something about it. . . . He didn’t want to take the political heat.”

Wilson knows about political heat. During the recession, he raised taxes by nearly $8 billion to keep state government afloat--and survived.

Now, he’s no doubt happy to be free of the energy mess, I suggested. “Oh, I don’t know,” he replied, a gleam in his eye. “I really enjoyed the job.”

If Wilson still were governor, laws would be flying off the books. People would be screaming. But we might not be facing a summer of blackouts.