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The life 
& times 
of
Warren Swil
 
 
 
 
 
 
 
 

V 1

Those of us among the 5.6 million Los Angeles County customers of Rosemead-based Southern California Edison may feel we dodged a bullet this week.  But if recent events in the state’s tumultuous electricity markets are any guide, the worst is still ahead.

Under enormous pressure from Edison and the state’s other major investor-owned utility, Pacific Gas & Electric Co., the Public Utilities Commission on Thursday “temporarily” increased electricity rates by 9 percent for residential customers and up to 15 percent for large businesses for a period of 90 days. Compared to the tripling of rates customers of San Diego Gas & Electric endured during 2000, and relative to increases of up to 76 percent requested by the companies, the actual rate hike most of us will see in our bills next month is quite modest.

But that is small comfort, indeed. Without an urgent, massive overhaul of the state’s failed deregulation experiment, we are destined to continue down the slippery slope of threatened blackouts and higher rates forced on us by a seriously flawed system in which everyone’s a loser – except the obscenely profitable, private power generators with the market power to hold California hostage.

By all the accounts of the cost of a kilowatt hour and the billions of dollars supposedly “lost” by the utilities, we might be mislead into believing this is an economic problem that might be amenable to an economic solution. However, electricity deregulation was a political creation, and the crisis has now reached such staggering proportions that only a political solution at the highest levels of state government can solve it.

Today’s debacle was born back in 1996 when both houses of the state Legislature, without a single dissenting vote, approved an unprecedented deregulation plan based on faulty assumptions and a largely secret deal negotiated with the utility companies themselves. Perhaps the single biggest mistake was the belief, widely touted by then-Gov. Pete Wilson, that deregulation would foster immediate competition; but a major underestimation of demand and the effects of a booming economy based largely on energy-intensive high technology industries combined to exacerbate a situation that started out as a high-risk gamble with an uncertain outcome.
After many hours of hearings, the PUC this week found itself in an unenviable position. In it’s proposal, which clearly sided with consumers, the commission unequivocally stated the two utilities knew they were taking a risk when they pushed for deregulation. They did not deserve a bailout, it said. 

Making the demand for a huge rate increase appear even more outrageous, the PUC also noted the utilities had derived some $18 billion in benefits from deregulation, but had used the proceeds to buy back stock, retire debt and pay dividends to stockholders. 

The companies claim they have lost about $8 billion because of the rate freeze – part of the deregulation package to which they agreed – that continues until March 31, 2002. 
It doesn’t take much to figure out that if they had not returned all the benefits of deregulation to their stockholders, some of them may now be available to cover the unforeseen cost of purchasing power for customers.

Unsurprisingly, the credibility of the utility companies has taken another blow.
“I’ve always recognized that unbridled capitalism has its disadvantages,” said state Sen. Jack Scott (D-Pasadena) on Thursday. “There has been price gouging. We need a free market, but it needs to be regulated.”

Scott, who described the issue as a “top legislative prioity,” was absolutely right.
Thanks to the PUC, Edison customers have been given some breathing room. But we have little reason for optimism. The entire electricity fiasco has become a political football, and to date no one has been willing to step forward with serious proposals for solving it. 

After failing to get the Federal Energy Regulatory Commission to intervene in December, Gov. Gray Davis this week called a special session of the Legislature to deal specifically with the issue. Davis has not missed an opportunity to remind us that deregulation was not his creation, but that does nothing to solve the present – very real – crisis facing the state.

It is time for some bold leadership from Sacramento. There are several short-term and longer term measures – such as direct state intervention in the “market”  and demand management through higher prices for peak-hour usage – that are immediately available, but not without political risk. The biggest risk, however, is allowing consumers to bear the brunt of the cost: this surely would be remembered as the “Gray Davis electricity tax” when he runs for re-election next year.

Let us hope Davis can rise to the occasion. He has, in fact, promised to do just that. Tomorrow he will deliver his state-of-the-state address, and has made it known he will devote much of it to the power crisis. Davis can no longer dodge the issue; he must come up with clear, imaginative proposals that calm investors, reassure customers and begin to restore some order to the chaotic situation.

During the 1996 debate over deregulation, the state’s three investor-owned utility companies were so confident their gamble would reap big rewards that they spent more than $4 million on lobbyists and pumped hundreds of thousands into political campaigns. There can be no clearer identification of the political nature of deregulation  than this. 

Despite the wailing and not-so-thinly-veiled rumblings from Wall Street, it will take political will of extraordinary proportions to stop the drift into ever-deeper crises and save the electricity industry without punishing those least responsible for its problems – us, the customers.