California Captolweek February 2, 2001

#521

State Power Authority

((Melissa))

State lawmakers race against time.

While the governor and legislature rush to pass measures to control power prices and keep the lights on, consumers do their part by conserving.

((Jack))

State treasurer Phil Angelides has a plan…

He joins us in studio to tell us how he thinks the state should take control.

Plus, are rate increases on the way?

And can the governor afford for this to happen?

Hello, I’m Jack Kavanagh . . .

((Melissa))

And I’m Melissa Crowley. Those stories and more next.

((Jack))

Thank you for joining us.

The clock is ticking to solve our energy crisis . . .

The state is enduring day after day of stage 3 power alerts.

((Mel))

But time and money are running out.

The legislature is working in overdrive to craft a solution.

Lawmakers are looking for a long-term plan that also prevents utility bankruptcy.

Attention this week focused on audits of PG and E and Southern Cal Edison.

On tape

((John Burton, Senate President Pro Tempore))

What they did is they just moved money out so that they could come in and cry, “poor mouth.”

((Jim Battin, Senator [R] La Quinta))

Edison is, you know, on one hand trying to work a deal out with the legislature, and on the other hand is trying to impose huge rate increases on the ratepayers, so that does bother me.

End Tape

((Melissa))

Adding to the urgency…

President Bush says a federal order forcing power sales to the state will not be extended when it expires next week.

((Jack))

Still lawmakers say they are inching closer to a long term plan that would also save the utilities from bankruptcy.

Here’s what’s on the table:

Lawmakers are debating an urgency bill authorizing the state to enter into long term contracts with power suppliers.

That bill passed the senate, but stalled in the assembly.

Another bill would allow the state to sell revenue bonds to pay for power. . . in exchange for helping pay off debt, rate payers would receive an asset, like a stock warrant.

A third proposal would set lower rates for those that use less energy.

And Washington is paying closer attention.

Vice President Dick Cheney is heading an energy task force and Western Governors met with top energy officials in Oregon Friday.

(Melissa)

But, the federal government has made it clear that California lawmakers are basically on their own.

Joining us now, with his long-term solution is State Treasurer Phil Angelides.

His plan would establish a state power authority…

the goal: state control of 15 percent or more of energy supplies.

State financing would be used to drive costs down long-term.

8 billion dollars in bond financing would go to expansion of power generation.

2 billion would be used for loans and conservation tax credits

And power transmission facilities would be acquired from private utilities.

ANGELIDES INTERVIEW

((Melissa))

We’re glad to have you with us. As we look at what this is costing the state, Phil, why is this a good plan long-term. In fact, does it put the state at risk at all for bankruptcy?

((Phil Angelides, State Treasurer))

Well, here’s really where we are today. I think if we really look at it, we do have a supply-demand imbalance. We have more need for electricity than we control, and we’re, right now, at the mercy of seven or eight, large, out-of-state generating companies, and I think the smart thing to do is to take control over our own energy destiny over the next five to ten years. We should build enough power generation so that we control ten to fifteen percent of the supply, so we always have a reserve, so we’re never victims of this kind of out of control market, and frankly, we can pay for our own power and sell it back to consumers, not at cost plus an arm and a leg profit, but at cost, and—

((Jack))

Is that the “state power authority” that we’re hearing so much about?

((Phil Angelides, State Treasurer))

Yeah, that’s the idea. It’s very much like Franklin Roosevelt did in 1931 in New York. He created the New York State Power Authority that would have a reserve energy capacity that during tight time could be put into the market so that we’re not begging and scraping, you know, to out of state generators, and frankly—

((Jack))

So the state of California would be competing with those out of state generators?

((Phil Angelides, State Treasurer))

To create a truly competitive market—you know, deregulation was supposed to create a competitive market, but the fact is, when you only have seven or eight big companies buying and building power generation—Reliant Energy, Diamond Energy, Enron—

((Jack))

But—

((Phil Angelides, State Treasurer))

It’s not truly competitive.

((Jack))

So, if the state of California were generating its own electricity, would that limit the amount of price increase that the out of state generators could achieve?

((Phil Angelides, State Treasurer))

Absolutely. Why can they charge us so much? Because they have a scarce commodity that we need, and energy, unlike almost any other product, is not a storable product, so you can’t buy a lot of it when there’s a surplus and husband it, so the notion here is that we control enough of our own energy, then we can level off the horrible spikes in the market.

((Melissa))

How does this affect the taxpayers here in California?

((Phil Angelides, State Treasurer))

Well, right now, taxpayers, ratepayers—we are paying ungodly rates for electricity, for wholesale electricity, and if you look California today, here’s the irony. Deregulation was supposed to bring great pricing and stability to the market long-term. Where are the two communities right now that have the best pricing and can count on the reliability of energy? Sacramento, where you have the Sacramento Municipal Utility District, where the people own the power, and the Los Angeles Department of Water and Power, where the people own the power.

((Jack))

That power authority sounds like a great idea. Let’s do it. Why can’t we?

((Phil Angelides, State Treasurer))

Oh, I think it’s going to be some difficult politics. Let’s be candid about that. There’s a lot of very powerful, moneyed interests because—

((Jack))

Because utilities don’t want California competing with them?

((Phil Angelides, State Treasurer))

It’s as old a debate as was Hiram Johnson’s progressive movement in California. There’s always been a question about is power just a pure commodity to be bought and sold, or is it an essential of life? I was in business for fifteen years, but I lean towards it being an essential for life. You know, we take for granted that we have a state water project that moves water around this state so that we have clean, safe drinking water and enough of it. We take for granted that we have a transportation system. It’s not owned by private utilities, and I think we need to inject an amount of public control over our energy supplies.

((Melissa))

Let’s look at—this addresses long-term better rates. In the short term, it doesn’t address a bailout and utility bankruptcy. What are your thoughts from a state treasurer’s perspective about that, and should taxpayers, do you think, have to pick up the tab for the utilities?

((Phil Angelides, State Treasurer))

Well, I have some pretty strong thoughts about it because I am the person that’s going to be asked to go to Wall Street to sell revenue bonds, and to use the state’s credit to do any financing that the Governor and the legislature agree on. I do think that the state should move right now to purchase long-term contracts and to use our good credit to get the best possible prices for energy consumers. Now, the fact is, whatever power costs it will cost, and we as consumers and businesses are going to have to pay it from today on because our only choices are let the lights go off—not a choice—; subsidize it with money intended for education, healthcare, transportation—that’s not a choice—

((Melissa))

Do the audits, though, make that harder to swallow for taxpayers?

((Phil Angelides, State Treasurer))

Well, that’s why I’m distinguishing. That’s from today forward. Now, you get to the second question, should we bail out these private companies? I think you’ve got to ask, “what’s really in the public interest here?” I don’t think we ought to be in the business of bailing out private companies and asking the ratepayers to assume that debt at the same time that the audits have shown that the parent companies have yielded benefits of several billion dollars.

((Jack))

As close as we have come in the past to a situation like this, I guess, is the Orange County bankruptcy. There, the entire county of Orange went bankrupt, and nobody came in to bail them out.

((Phil Angelides, State Treasurer))

Well, the fact is Orange County is back and alive and well today. I don’t want to be cavalier about bankruptcy, but we have bankruptcy courts to allow companies to reorganize themselves, and so I don’t think that taxpayers or ratepayers ought to be asked to bail out private utilities. Now, if they have cash problems, and, like anyone else, if they have an asset that’s to the public benefit that we can buy because it makes sense for us to buy like the transmission system or like the hydroelectric plants so that we can then own them and, from now on, have control over our energy destination and then basically own them and then put power back in the market at cost, that’s something we might consider, but I’m a private sector person before I was in government who would look very wearily upon a public sector bailout, a ratepayer bailout of private companies.

((Jack))

You mention transmission lines, and I don’t want to go into a lot of detail because we don’t have a lot of time here, but it’s interesting that the rolling blackouts have been in Northern California and not Southern California, and the bottleneck, apparently, is the so-called “path 15” halfway down the state, so that if Southern California has some extra generating capacity, we can’t get it up to Northern California. You mentioned the state looking at an asset like transmission lines. Should the state buy transmission lines or at least fix that problem with “path 15.”

((Phil Angelides, State Treasurer))

I think we should look very hard at buying the transmission lines and making sure as a state that over the next five to ten years we expand them to, in a sense, accommodate our energy capacity.

((Jack))

Because the utilities don’t have the financial resources to expand them?

((Phil Angelides, State Treasurer))

Correct, and it’s like the “highway of power.” You need enough lanes to move power throughout the state. It’s like the state water project. You know, I think if you look at the long-term and the short-term, here’s what we need to do. Long-term, we do need more power supply and conservation in California, and I think we can take two routes here. We can count on the private sector to do it, or we can say, “We’re going to let them do what they’re going to do, but we’re going to take a little control over our own destiny and supplement power supply and finance conservation. That’s long-term. Short-term, we have to keep the lights on, and whatever energy costs, we have to pay for it. Looking back, kind of the third piece, should we bail out private utilities? I don’t think we ought to bail those companies out. I think if there is something to be done in the public interest that makes sense for ratepayers, we should consider it.

((Melissa))

What kind of support is this getting? You were one of the first to suggest the public power authority. Senator Burton is carrying your bill. Do you think this is something that the legislature is going to push through? As you know, they are currently debating some other long-term contract measures.

((Phil Angelides, State Treasurer))

Well, Senator Burton, who is president of the legislature, is carrying this legislation, and he’s a very capable legislator, and I really believe that this is the right solution. It’s the right solution, and I think we’ve got a good shot at this. I’ve told members that we shouldn’t make this an ideological discussion about whether you like Karl Marx or Milton Friedman. The question should be, “How much do we need in the way of new power supply, and how much should we control our own destiny so that we’re not just subject to what the private market does or doesn’t do in the future?”

((Jack))

In the last thirty seconds that we have left, Wall Street, California, individual ratepayers all want an answer to the same question: “How long is this going to last? When are we going to be out of the woods?”

((Phil Angelides, State Treasurer))

I think we’ve got a ways to go here. I think, candidly, anyone who thinks this—

((Jack))

A year? Two years?

((Phil Angelides, State Treasurer))

Well, long-term, the next five to ten years we’re really going to have to hustle to conserve and to build new power supply.

((Jack))

Next five to ten years?

((Phil Angelides, State Treasurer))

Absolutely. This is not a short-term problem

((Jack))

All right. Phil Angelides, thank you very much.

END ANGELIDES INTERVIEW

((Jack))

We would like your feedback on the state treasurer’s plan.

What do you think about setting up a state power authority? Should the state be involved in the energy business? Would it be able to efficiently manage the industry?

You can send us feedback by going to our web site at capitolweek dot o-r-g.

And for more information on the energy crisis, take a look at a special feature on our web site, at issue: energy.

((Melissa))

In a moment, political insiders tell it like it is: Is Governor Davis bold enough to raise utility rates if it’s necessary to solve the energy crisis?

But first, those of us staggered by big bills need immediate relief and hope conservation will equal savings.

Energy experts are telling consumers to “think big.” Turning off lights makes a small difference, but heating and cooling make up the bulk of your bill.

Fix a draft and you could save 20 percent.

CONSERVATION PACKAGE

Phil and Gloria Powers work hard to conserve energy…

From energy efficient bulbs…

To keeping the temperature low.

((Gloria Powers, Practices Energy Conservation))

I wear an extra sweater, so from, say eleven o’clock to six or seven in the morning, we’re not using any heat.

But despite their efforts, savings are not reflected in their latest energy bills…

((Gloria Powers, Practices Energy Conservation))

It was a shocker. We weren’t to blame. We didn’t cause this.

This month, energy bills from PG&E and SMUD nearly doubled…

Energy consultant Rich Ferguson says that the Powers are doing a good job conserving, but offers some suggestions…

((Rich Ferguson, Center for Energy Efficiency))

It turns out that one of the big problems here is duct tape if you can believe that. It really isn’t very good for sealing cracks because in a few years it gets brittle and cracks.

Some utilities like SMUD offer home inspections to check for leaks. The cost…

Twenty-five dollars.

Ferguson also suggests replacing old appliances with Energystar or other more efficient models…

((Rich Ferguson, Center for Energy Efficiency))

A refrigerator that is ten years old uses as much as a thousand kilowatt hours per year more than a new one.

That translates to a savings of about one hundred dollars per year, and there are programs to help defray the cost of buying new energy-saving appliances. Call your utility for details.

Online, check for savings at the California Energy Commission website: www.energy.ca.gov

See how much each appliance costs to run and how much to save in each room.

The Powers say they’ll continue to conserve, but hope that permanent relief is on the way…

((Bill Powers, Practices Energy Conservation))

It’s just not right. I mean, the change in temperatures affect seniors more than other folks, and they require heating and cooling when they need it, not when it’s the cheapest.

END CONSERVATION PACKAGE

((Jack))

Time now . . for “at issue”, your chance to hear behind-the-scenes commentary from political insiders.

Straight talk, you won’t find anywhere else

AT ISSUE

((Jack))

During the energy crisis, Governor Davis has been adamant about 2 things . . . preventing increases in rates and saving state utilities from bankruptcy.

But the two are not necessarily exclusive . . . and state lawmakers and energy experts are talking openly about the inevitability of rate increases to stabilize the volatile energy market.

A taxpayer bailout is a politically dangerous proposition. Is it one that the Governor would do if it’s absolutely necessary?

Joining us now: Democratic Political Consultant Gale Kaufman…

GOP consultant Dan Schnur…

Gale, first question to you. In the previous segment of this program, did we see the next Governor of California in Phil Angelides?

((Gale Kaufman, Democratic Political Consultant))

I think you saw a future governor. I don’t know if you saw the next Governor. I think that would be a tough question for me to answer. I think you did see, though, someone who very clearly outlined some very good long-term objectives, and he said what I think we need to hear more of: that this is a five to ten year issue, that people shouldn’t expect this to be handled overnight. We didn’t get into this crisis in five minutes, and we’re not going to get out of it in five minutes.

((Jack))

Same question, Dan.

((Dan Schnur, Republican Political Consultant))

Well, Phil Angelides thinks he’s the next Governor of California, regardless of what Gale or I think, and I think the odds are that he is the next Democratic Governor of California, so I’ll couch it that way. I don’t agree with Phil Angelides’ solution. I don’t think that the same state government that’s made such a success of, say, Caltrans ought to be in the electricity business, but I will give Angelides credit for this: Here we are seven or eight months into this crisis, and for months and months the Governor and the legislators from both parties have sat on their hands, and Angelides, to his credit, was talking about a long-term solution a long time ago. He was the first state-level lawmaker out with a proposed solution. It’s not the right one, but give him credit for courage.

((Melissa))

So we’re talking about a vision. Is this what we’re looking for and the legislature is clamoring for from Governor Davis?

((Gale Kaufman, Democratic Political Consultant))

I think so, and I think this is just a horrible situation. You’ve got a legislature, thirty percent of whom who are brand new. They’ve been up here a month, and they’re just grappling with one of the most difficult situations anyone will ever have to face, and it’s hard, and they are looking for leadership, and they are looking for a plan of action, and they want to follow through on something that they understand from the point of how it’s going to impact their constituents. They have to go home and tell people what they just did. Did they raise their rate and by how much? And I think before they do that with confidence, they need more information, and they need to know that the leadership of the entire state government behind any action they take.

((Jack))

All right, so everybody is sitting in the Assembly and Senate and looking at, “when I cast this vote, how can I be attacked by casting this vote?” Isn’t that how the game is played?

((Dan Schnur, Republican Political Consultant))

That’s exactly how the game is played, and it’s that political tradition, that tradition of viewing policy goals through a political lens, that has kept this crisis from being addressed more seriously and more quickly. The legislature and the Governor aren’t equipped to deal with something like this. They can only—

((Jack))

So, we need somebody to fall on the sword? We need a Lyndon Johnson to say, “I’m not going to run for President again.”

((Dan Schnur, Republican Political Consultant))

Well, you asked the question earlier about leadership. Is it related to the Governor. I’d say what you’d need out of the Governor’s office now are two things. One is a level of leadership, and, two, is a level of trust. One of the most amazing things I’ve seen in a long time came this Wednesday when the state senate was getting ready to vote on this new ballot package. So many of those numbers had sent bills to the Governor’s office over the last couple of years with Davis’ assurances that those bills would be signed, only to have them vetoed.

((Jack))

At the last minute.

((Dan Schnur, Republican Political Consultant))

They would not vote on the ballot package until they got, in writing from the Governor, commitment that he would stand with them, and without that trust, you can’t have leadership.

((Melissa))

Let’s look at some of the folks who are taking a stand and some of our rising stars, falling stars. Senator Don Perata came out basically criticizing the Governor, saying he lacked a plan and was frustrated. Were you surprised, Gale, that he did that?

((Gale Kaufman, Democratic Political Consultant))

Well, I was not surprised. I was surprised that he was the only one who said it if you want to know the truth. I think that that’s what people have been saying privately, and I think the fact that he said it out loud gave other people—

((Melissa))

As a fellow Democrat.

((Gale Kaufman, Democratic Political Consultant))

Exactly. The right to feel that it needed to be talked about out loud. I think, to follow something Dan was saying, the issue is, you’re talking to political consultants, but the problem is you can’t look at this politically. You have to look at this from a policy perspective, and you can’t keep talking in soundbites, and you can’t keep thinking that you do a photo-op and this is going to go away. People are going to get their bills, and they’re going to know if legislators solved their problem.

((Dan Schnur, Republican Political Consultant))

If I can follow that up for just a minute by putting on my Pete Wilson alumni spin hat, I think—

((Gale Kaufman, Democratic Political Consultant))

Please don’t.

((Dan Schnur, Republican Political Consultant))

You remember. You know the one, Jack.

((Jack))

Mmmhmm.

((Dan Schnur, Republican Political Consultant))

Gray Davis is essentially having Pete Wilson’s first term in reverse. Wilson came into office, had a fourteen billion dollar budget deficit. You know, cutting seeing eye dogs to the blind, all the horrible things we had to do in the early 1990s in order to put the state back on course. Pete Wilson made a lot of unpopular decisions that were politically unpalatable at the time, but because they made sense from a policy standpoint, the politics by the time he was up for reelection took care of themselves.

((Jack))

Are you saying Davis won’t do that?

((Dan Schnur, Republican Political Consultant))

Because Davis had two easy years, I think he has been lulled into a false sense of complacency. Governing is easy. You talk a lot about education, you slap down the people in the Democratic caucus who are a little bit too liberal for your taste, and that’s it. Now, he’s having his first crisis, and I think if Davis were to look toward Wilson for an example and, say, do the politically unpopular thing if it’s the thing to do, and then the politics will take care of themselves.

((Melissa))

Is it fair to say that he’s hiding behind the legislature, or in a case of this magnitude do you have to have to be careful and cautious before you make some major policy changes?

((Gale Kaufman, Democratic Political Consultant))

I think you have to do both. I think you have to be careful. I think you have to cautious, but I also think you have to bring in the smartest people on Earth to help you solve this problem, and you have to go out and talk to the public about what you’re doing everyday so that they understand it and are comfortable with whatever decision you make.

((Jack))

One of the big players in this energy crisis is in Washington, the Federal Energy Regulatory Commission, which has basically stepped back and let California—and now the West—spin in the wind by not imposing any price control or cap on the wholesale cost of power. Is Washington—when I say “Washington,” I guess I’m talking about the Bush White House and the Republican Senate and House—using California as leverage for being allowed to drill for energy in Alaska?

((Gale Kaufman, Democratic Political Consultant))

I think they are, and I think some of the rhetoric that we’ve heard coming out of Washington is outrageous. I heard a Senator recently from Idaho on one of the talk shows saying, “Hey, so what if the lights go out in California? We’ll all survive. It’s their problem. Let them deal with it,” and I just think, again, you can’t play politics as normal with an issue like, which does have ramifications for the entire West Coast, and I think Bush is going to play it just as politically as anybody else.

((Jack))

And if it’s dropped in your lap, of course you’re going to play it.

((Dan Schnur, Republican Political Consultant))

Right, and to be fair to the new President, a long time before the crisis here in California hit this stage, he was talking on the campaign trail about expanded exploration in other parts of the country. Californians—

((Jack))

Yeah, but is drilling in the Alaskan wilderness going to lower my electric bills or keep the lights on?

((Dan Schnur, Republican Political Consultant))

It’s not an immediate solution, but it’s part of the long-term solution. What the Bush White House is talking about is drilling on less that one tenth of one percent of that refuge, and that’s part of a long-term solution of increasing energy supply, but I want to get back to the previous question about what Davis is doing. Is he hiding behind the legislature? I’m not sure the legislature gives him much cover, but until recently, there’s no question that he has been hiding, and I think you’re beginning to see impatience, not just from Don Perata, but from legislators from both parties and now the state’s editorial boards, saying, “Hey Governor. This has been going on for months and months and months and months. Instead of just piecemeal fixes here and there, how about a long-term solution?”

((Melissa))

All right, any surprises that, as we speak, the bill that passed in the senate with some strong leadership from Senator Burton did not pass in the assembly—is there any criticism that will be reflected on Speaker Hertzberg because it did not make it through the assembly for the Governor to sign?

((Gale Kaufman, Democratic Political Consultant))

No, I think what we’re talking about is what’s going on in the legislature right now. They’re trying desperately to grapple with something that’s very, very difficult to do, and I think if it takes an extra day or two to for them to get comfortable with what they’re getting ready to vote on, nobody in six months is going to remember that; they’re going to remember if their lights are still on.

((Jack))

Where’s the political cover. Point to Washington, blame Washington. Is that the political cover?

((Gale Kaufman, Democratic Political Consultant))

I don’t think there is any political cover. I think they have to do this and do it right, and that’s all the cover they’re going to get.

((Jack))

Same question, Dan. Is that the political cover? Point to Washington?

((Dan Schnur, Republican Political Consultant))

You can’t finger point. The voters don’t care about who caused the problem. They care about who is Governor, and they know it’s his responsibility to fix it. If Gray Davis needs to do three things right away, number one is, instead of increasing rates, use that surplus that he’s sitting on for a rebate to cover the cost of rate increases for ratepayers. Number two, declare the same state of emergency that the former Governor Wilson did after the Northridge earthquake to streamline the regulatory process and the competitive bid process—

((Jack))

Okay.

((Dan Schnur, Republican Political Consultant))

And then, finally, fire Loretta Lynch because if he doesn’t , then next year we’ll be calling her “The Rosebird of Electricity.”

((Jack))

All right. Loretta Lynch, just to let our viewers know is the President of the California Utilities Commission. Thank you both very much. We’ll go back to you for some final thoughts in just a moment.

((Mel))

But right now—Dan’s never at a loss for words—but some viewer feedback now on the best way to solve our energy problems.

Barbara from La Miranda writes:

“Tax credits or rebates for items such as energy efficient appliances, double pane windows, insulation and individual solar systems should be offered.”

Colleen from Bakersfield suggests: “For the short term, let the government take over if need be until more power stations can come back on.”

((Jack))

But David from Culver City thinks: “Higher rates are the best incentive for conservation. People respond to their pocketbooks.”

We thank you very much for your comments.

Now for some final thoughts on the energy crisis. The segment that we just did with Phil Angelides ended with a sobering note. He expected this energy problem to be dragging on for to perhaps ten years. That’s a sobering thing. Politically, how does it play?

((Gale Kaufman, Democratic Political Consultant))

Well, I don’t know that any legislator or the Governor has five to ten years to solve this problem. I think they have the next four to five months before the summer to make everybody comfortable that they’ve got this under control.

((Dan Schnur, Republican Political Consultant))

If the problem’s not going to be solved by next fall, the voters need to see their elected leaders working toward a solution, and I’ll predict this right now. By the fall of 2002, you’re going to see an awful lot of campaign photo-ops of Gray Davis standing in front of power facilities.

((Jack))

All right. Thank you both very much for joining us. Gale Kaufman, Dan Schnur, always a pleasure.

((Mel))

Jack, next week, continued coverage of our energy crisis.

With supply a long term issue, can the state get enough power plants on line to address the state’s needs, and at what cost to the environment?

That is our program for this week.

A quick reminder: Utilities do offer financial assistance and payment plans, so please call them for details.

Till then, I’m Melissa Crowley.

((Jack))

And I’m Jack Kavanagh. We’ll see you next time.