A rising star dims amid blackouts

Another day, another $50 million.

That's the daily taxpayer tab to keep the lights on in California, and just as that sum erodes the state treasury, it is also inflicting a slow-drip water torture on the political fortunes of Gov. Gray Davis.

The filing for bankruptcy protection late last week by Pacific Gas & Electric Co., the state's largest utility, is the newest evidence of sinking confidence in a governor who won office by 20 percentage points and just months ago was seen as a future Democratic presidential contender.

In addition, there is carping from within Governor Davis's own party, sagging popular support, and worst of all, a crisis whose near-term solution now looks more uncertain than ever.

If anything, the situation looks as if it will get worse before it gets better.

PG&E chairman Gordon Smith told the investment community in the wake of last Friday's bankruptcy filing that further electricity outages in California are now "virtually inevitable."

The bankruptcy filing, though dramatic and one of the nation's largest, caught no one completely by surprise. Yet its timing seemed to inflict maximum political damage on Davis, who termed it a "slap in the face to California."

The governor had taken the rare step of going on statewide television to boost public support for his energy plan only to be upstaged by the bankruptcy filing.

"He looks like the proverbial deer caught in the headlights," says University of Southern California political scientist Sherry Bebitch Jeffe, referring to the governor. "There is an undercurrent of worry in the state Democratic Party, and this is clearly taking a toll on Davis."

More blackouts likely

That worry is underscored by broader signs that the nation's largest state could suffer regular electricity outages this summer, damaging an already-slowing economy, tarnishing the state's reputation as a place to do business, and hurting the Golden State's overall quality of life.

One recent transplant to California from New York says this past winter was the coldest she has ever experienced. "In New York it's colder outside, but at least it's warm inside," she notes, having lowered the thermostat in her Berkeley, Calif., home to save electricity.

In an effort to right the ship and his own political fortunes, Davis took his case directly to the people Thursday evening via a rare television address, something no governor had done since the depths of the state's recession in 1992. It was fundamentally an energy pep talk, but the governor acknowledged his troubles by capitulating on a key point.

Davis reversed gear and embraced the need for higher electricity rates, a politically risky move that analysts say was apparently taken only because it paled compared with the even riskier political prospect of prolonged blackouts.

The state Public Utilities Commission approved a 27 percent hike in rates last month, a figure Davis essentially endorsed in his address to the state. But because that price hike was not authorized for payment of the utilities' mounting debts, it did not end their financial bind.

Ironically, Davis's embrace of higher rates may have been too little too late, damaging him politically, yet not in time to ward off blackouts or prevent the bankruptcy move by PG&E. Some consumer groups are promising a ballot initiative to thwart what they see as a massive bailout of the state's utilities, an eventuality that Davis has resisted for fear it would end up in court and freeze any new energy investment in the state for years.

In short, California's energy crisis has also become a political one for the governor and any hoped-for quick resolution has been laid to rest.

"We can't fix 12 years of inaction overnight," Davis told Californians. "But we're making real progress."

Even that tepid claim, far short of the grander optimism the governor effused earlier in the crisis, is increasingly being challenged. State Republicans, stripped of every state office but one in 1998 elections, are not strong enough to seriously challenge Davis next year, but they're seeing his problems as a building block to their own rebirth.

Criticism from within

More surprisingly, at the state Democratic Party's own recent convention, State Controller Kathleen Connell, a Democrat, openly criticized the governor's energy plan.

Davis's vulnerabilities are many. In tackling the crisis earlier this year, the governor had three priorities: keeping retail rates unchanged, avoiding blackouts, and restoring health to California's nearly bankrupt utilities. He's failed on each.

"His biggest political problem is that there is no clear conclusion to all this," says Tony Quinn, a Sacramento-based Republican political analyst. Mr. Quinn says Davis may face his greatest challenge in next year's elections from the far left, from an independent or Green Party candidate fueled by consumer groups that want the state to completely take over the electricity industry.

Quinn and others say the crisis also has the power to incite a general anti-incumbent groundswell that could threaten office holders of both parties.

Still, Davis dwarfs any conceivable opponent and has already raised an intimidating $27 million war chest. A key question, say analysts, is the nature of the energy crisis when electioneering begins in earnest next year.

Tough times for PG&E

PG&E is in trouble because the state's 1996 deregulation plan capped retail prices while wholesale electricity prices have soared. The state's two largest utilities claim to have $13 billion in debt, resulting from purchases of power that they are not able to recover through retail rates.

The governor's office had been negotiating with the utilities to purchase their transmission lines, but talks with PG&E had foundered.

PG&E filed for protection under Chapter 11, which puts a federal judge in charge of overseeing a reorganization plan put together by the company and its creditors. That could take months or even years.

Meanwhile, the utility has promised that it will continue to provide power to the same extent it did before the filing.

Chapter 11 proceedings introduce enormous uncertainty into the crisis. A federal judge now has a hand in setting rates, leaving consumers more vulnerable. And the utility's parent company will be scrutinized for funneling assets out of the utility to the parent, a move that critics say unfairly inflates the utility's debt claim.

Another action raising eyebrows is the utility's granting of more than $50 million in bonuses and pay raises to a number of employees on the eve of its bankruptcy declaration.

The utility is owned by PG&E Corp., a profitable company that will continue to do business as usual. In fact, one of the holding company's subsidiaries is a power generator that has profited from the same soaring wholesale energy prices that have crippled its sister utility.

(c) Copyright 2001. The Christian Science Monitor