Gray Davis’ Trail of Broken Promises

Two days after Democrat Gray Davis was reelected governor of California in one of the nation’s most contentious gubernatorial races, he stuck the proverbial knife into the backs of the millions of California residents who voted for him–albeit reluctantly–by forcing consumers who were victimized by the state’s disastrous experiment with deregulation to contiinue paying sky-high electricity rates as a way to bail out the state’s financially strapped utilities.

When Davis’ reelection campaign kicked into high gear earlier this year, his administration spread a rumor that the incumbent governor was going to order state regulators to slash electricity rates so Davis could win the support from the Californians who abhorred his handling of California’s two-year energy crisis.

The rumor didn’t seem that far-fetched. Davis told the San Francisco Chronicle when he was first elected governor in 1998 that the Legislature’s job is to implement his vision. He hand-picked Loretta Lynch to serve as president of the Public Utilities Commission two years ago, just six months before the energy crisis reared it’s ugly head, and would not allow her to move an inch without first consulting him.

During a press conference last year, Davis said he could solve the state’s energy crisis in “20 minutes” by simply increasing electricity rates. Ultimately, when California’s utilities were left on the brink of bankruptcy and could no longer afford to buy power for its customers, rates went up a record 43 percent and Davis positioned Lynch to absorb most of the backlash from angry consumers so as not to tarnish his reelection campaign. Publicly, Davis criticized Lynch and the record rate hike. But behind the scenes it was Davis who told Lynch to get it done, according to a few of the governor’s long-time aides.

The rate hike was supposed to be a short-term fix and the money was to be used by Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric, the utilities that were left insolvent as a result of the energy crisis, for the sole purpose of buying electricity for its customers. That much we believed. When power prices plummeted last summer, both utilities were collecting upwards of $500 million a month in extra cash, which could have easily been used by SDG&E, Edison and PG&E to pay off a mountain of debt the companies incurred when the price for power exceeded the legal limit the companies were allowed to charge its customers.

But state regulators wouldn’t allow the utilities to use the money in that fashion because it would have been seen as a sure sign that California was bailing out the three utilities, who lobbied hard for deregulation in the first place, at consumers’ expense and it would have almost certainly tainted Davis’ reelection campaign.

That’s all changed now that Davis is back in office for a second term.

Last week, Davis’ PUC voted unanimously in favor of keeping the rate increase locked in indefinitely and said that the money, an extra $5 billion a year, will now be used by SDG&E, Edison and PG&E to pay creditors. The price of California’s disastrous experiment with deregulation is quickly approaching the $100 billion mark. And it’s the unwitting consumer who is forced to foot the bill.

It’s no coincidence that the PUC vote took place two days after Davis was voted back into office. It’s unfortunate, however, that no one saw this coming because if word leaked out that the PUC was going to sock consumers with the costs of the energy crisis, Davis may not be governor of California today.

Consumer groups, specifically the Foundation for Taxpayer and Consumer Rights in Southern California, sounded an early alarm that the Davis administration would eventually bail out the state’s three largest utilities when the companies cried poverty in late 2000. The activists were called liars and quacks by lawmakers and the media when they dressed up as pigs and challenged the utilities claims of financial distress on the steps of the Capital building in Sacramento. But they turned out to be right all along. It’s Governor Davis who spent the past two years giving Californians lip service.

JASON LEOPOLD can be reached at: jasonleopold@hotmail.com


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JASON LEOPOLD is the former Los Angeles bureau chief of Dow Jones Newswires where he spent two years covering the energy crisis and the Enron bankruptcy. He just finished writing a book about the crisis, due out in December through Rowman & Littlefield. He can be reached at: jasonleopold@hotmail.com

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