Deregulation

Electrifying Performances

California's senators' responses to the energy crisis

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It was a great Di Fi Moment.

On January 31, Dianne Feinstein, the senior senator from California, gazed down from the dais of the Senate Energy and Natural Resources Committee and lambasted out-of-state electricity producers for charging outrageous prices to Golden State utilities during the wee hours of the morning.

California consumers, living for weeks on the edge of rolling blackouts, were mostly asleep at 3 a.m. and demand should have been low, Fein-stein argued. But wholesale electricity prices went as high as $2,400 a megawatt-hour.

Feinstein wants temporary federal price controls on wholesale electricity. She says that will give California breathing room during its energy debacle. The reactions of Feinstein and her junior colleague, Sen. Barbara Boxer, to California's energy woes are instructive. Though neither had a direct hand in the misguided restructuring plan, they nonetheless suggest why it will be a long time before things get back to normal.

Finding little traction that day, Feinstein delivered one of her signature blasts, developed during her days as mayor of San Francisco and honed by years on the political stage. It was part threat to the producers, veiled in a call for moderation, and part plea, clothed in an offer of mediation.

She acknowledged, as everyone does now, that California went astray when it freed wholesale electricity prices but left consumer rates fixed. She listed things the state has done, from increasing retail rates 9 percent to speeding approval of power plant construction. She said she had urged Cisco Systems chief executive John Chambers and the mayor of San Jose to drop their opposition to a new generating plant in their backyard.

"However," Feinstein continued, in a soliloquy aimed squarely at placing the chief blame with the producers, "when spot power at 3 a.m. in the morning is 500 times higher than it would be normally, that to me, in my simple self, is price gouging, any way you look at it. So I am making a request—which you can ignore—as the senior senator from the state involved, that you go back to your CEOs, and you ask them, 'Please, don't price gouge. Please, California is trying to work their way out of this situation. Give them an opportunity to do so.' I'm going to be around here for six years. I'll be on this committee, and I'm going to watch the situation.

"All of you have made a lot of money off of this. And I don't begrudge that. All I'm asking—you can ignore it—is to please give this state an opportunity to work its way out. Please recognize that if you're going to sell power at 3 a.m. in the morning and charge 500 times the going rate, that there are some of us that might look at that as very real and very profound price gouging."

"Now, you may say, 'Well, she's very naive to say this.' But in my nine years as mayor of San Francisco, I had a relationship with CEOs, that anytime I went to them, and asked them to do something voluntarily for the city, I never was turned down.

"[Pacific Gas & Electric] knows that."They always responded. And Chevron responded. Bank of America responded. Every big corporation in the city.

"This is really the first industry I've seen—the power generation industry—that really is willing not to care what happens, not to care about the people that are being thrown out of jobs now, about the small businesses whose rates are going up dramatically.

"All I want to do is ask you to relay that message to your CEO. He can tell me to get lost—that's OK—but if you just do me the favor, just relay that message, I'd appreciate it."

After Sen. Feinstein wrapped up, Keith Bailey, president and CEO of The Williams Companies, an Oklahoma energy supplier, responded. "Senator," he said, "I don't have to go home to relay it to the CEO because I am the CEO of Williams." Bailey insisted that costs are "driven by competitive markets"and that's the reality."

Sen. Boxer has been less engaged than Feinstein in the power fiasco. Still, she has been quick to side with the consumer groups that wield enormous clout in California. Boxer introduced a flurry of legislation that she said would "bring an end to chronic electricity shortages, while providing Californians with much- needed financial relief."

One bill would impose a windfall-profits tax on energy suppliers. The 100 percent tax on any profits deemed "unreasonable" by regulators would go into a trust fund to provide rebates to consumers. Another would require utilities to tell consumers how much electricity they use during peak hours and how much that power cost the utilities.

At the same hearing, Boxer said she wanted "to expose the myth that environmental laws are responsible for the electricity crisis," placing a New York Times editorial into the record. But even she acknowledged that faux deregulation was a mistake. "You're right, Mr. Chairman [Sen. Frank Murkowski (R-Alaska)], when you say that the deregulation that was pushed in California by Pete Wilson—and the legislature, Democrats and Republicans together—didn't fully deregulate," she said. "It said you can't pass the price on to consumers. However, Mr. Chairman, I would say to you, if in fact [utilities] could, prices could go up, you know, 1,000 percent, 600 percent. So I ask you, whether in the real world, consumers would accept that kind of increase?"

Consumers surely would rather not see that sort of price hike. Politicians, despite their role in creating such problems, want to be associated with soaring energy costs even less. But they may ultimately have little choice, and the paralysis that the prospect of rate increases inspires in California's politicians now may only exacerbate problems later.

"The last thing elected officials in general want to be associated with is outrageous electric bills or outages," says John Fielder, a senior executive with Southern California Edison. "But both of those are certain."