Taking Hits on Energy, Davis Jabs at FERC

SACRAMENTO

Gov. Gray Davis won’t know for certain until Tuesday night which Republican will be pounding on him this fall. But he already knows his soft spot. And that’s energy.

Those $43-billion long-term power contracts, in particular, are political losers. Never mind that they helped get California through last summer with air conditioning, while stabilizing the market and forcing down the spot price of electricity.

Most voters aren’t buying it. They agree with Davis’ critics: He purchased too much juice for too many years at too high a cost.

So the governor last week moved to shift future responsibility for the contracts to the Bush administration, specifically the Federal Energy Regulatory Commission.

Davis gave the green light for the Public Utilities Commission to file a complaint with FERC alleging that the state was overcharged by $21 billion.

“The sellers had California over a barrel,” contended PUC President Loretta Lynch, adding that in an atmosphere of blackout threats, they put “a gun to our head.”

Davis praised the contracts when he unveiled them last June. Their average cost was about 7 cents a kilowatt. The state had been paying around 30 cents, buying electricity for bankrupt utilities. But recently, the spot-market cost has dipped into the 3-cent range.

The contracts were vital, Davis now says, but “we still paid more than we should have.” He wants the feds either to set a lower price or order renegotiation.

It’s reminiscent of former Gov. Jerry Brown in 1978, when Davis was his chief of staff. Brown had spoken out loudly against Proposition 13, the property tax-cutting initiative.

When it passed overwhelmingly, the governor eagerly embraced and helped implement the measure. Flip-flop, critics cried. Not really. But Brown did adapt to the voters’ mood, and that’s what Davis is doing.

This governor has picked up the voters’ vibes: The state got took. He has given up trying to explain how the contracts helped keep the lights on and tame the market. People aren’t listening. They believe the yearlong criticism of him by Republicans and power companies.

“We’re never going to win this issue,” a Davis advisor concedes.

But Californians also blame the federal government for not protecting them from the gougers, including the president’s fellow Texans, now symbolized by evil Enron. It took dogged pressure from Davis--like a yapping terrier--and a new Democratic majority in the U.S. Senate to goad FERC into finally setting crucial price caps.

Voters distrust both the federal government and the power producers. So Davis has decided to pile on. He’s putting the monkey on FERC. If it refuses to help, the governor can argue he’s done all he can.

“We just want people off our back,” a Davis aide says.

Not just Republicans, but people like PUC President Lynch. Internal politics also is at play.

Score one for Lynch. Although a Davis appointee, she was a harsh critic of the contracts and demanded renegotiation. Her leverage was PUC control over an electricity rate structure necessary to finance $11.1 billion in bonds the state needed to reimburse its power purchases.

“We wouldn’t have gone down the renegotiation road without Loretta holding out,” a state official says.

A deal was struck. It included Davis’ agreement, several weeks ago, to renegotiate the contracts. But talks have lagged. By permitting Lynch to take her case to FERC, the governor has punctuated his commitment to renegotiation.

It also pressures the power companies to settle, Davis hopes. Settle or suffer a drawn-out suit.

Davis’ vulnerability was seen in a Times poll last week. By 2 to 1, voters disapprove of how the governor has handled energy. Their overall impression of him is slightly favorable, but among those who view him unfavorably, the biggest reason by far is his “poor” performance on energy.

His perceived failure on energy contributes to an image, for many, of weak leadership.

But Davis and the voters are in sync on one thing: Deregulation should be dumped. A poll by the Public Policy Institute of California found voters declaring, by 3 to 1, that the state should “reregulate power to control prices.”

The GOP candidate, no doubt, will argue for less regulation and more free market.

Davis recently told a Democratic state convention: “California will return to the disastrous deregulation scheme over this governor’s dead body.”

The political grave can be avoided, Davis believes, if voters don’t dwell on the past, but focus on their energy future. Will it be public control or market control? Unregulated markets can be manipulated by profiteers.

Davis will pound back with that winning argument.