California Governors Report Admits Dire State of Utility Situation Source: Knight Ridder/Tribune Business News Publication date: 2000-08-03

Aug. 3-- California's energy shortage is going to get worse before it gets better, and the state's flawed experiment in electricity deregulation has made it difficult to fix the problem, according to a report to Gov. Gray Davis released Wednesday. The report, by the president of the Public Utilities Commission and the chairman of the Electricity Oversight Board, recommends that the state retake control of the wholesale electricity grid from a private board and consider re-regulating the entire system if the federal government won't respond to pleas for relief.

Davis did not act on either of those recommendations Wednesday. But he said the problem, which is rapidly evolving into the biggest crisis in his tenure as governor, requires "unprecedented action to address an unacceptable situation."

Davis formally asked Attorney General Bill Lockyer to investigate possible price-fixing by electricity wholesalers a probe Lockyer has had under way for several weeks. The governor also ordered state agencies to take new energy conservation steps and do whatever they can to streamline approval of new power plants.

Davis also created a new state task forced modeled on the National Security Council to coordinate action of the state's energy-related agencies.

The report to Davis which came from two officials appointed by the governor stopped short of recommending price controls on electricity sold in Orange and San Diego counties by San Diego Gas & Electric.

The report, and the governor's response so far, disappointed consumer advocates, who said it didn't go far enough, and energy producers, who said it went too far.

"It appears that the state regulators charged with administering and overseeing this whole electric deregulation scheme are confused and are trying to buy time," said Michael Shames, executive director of the Utility Consumers Action Network. "That's unnerving.

"They're driving the bus. But they are essentially saying, `Where's the pedal? Where's the brakes? How hard should we push it? We need time to study this.' You don't want the bus driver taking the driver's exam while he or she is making decisions."

But Jan Smutny-Jones, chairman of the Independent System Operator the private board created by the Legislature to provide reliable energy by managing the state's power grid said any move back toward more regulation would be a mistake.

"The ISO has a fiduciary duty to the people of California to keep the lights on," Smutny-Jones said. "It has met that duty."

One problem cited in the report was a built-in conflict-of-interest for ISO board members whose companies benefit from higher prices. Smutny-Jones is executive director of a group of energy wholesalers who produce about 40 percent of the state's electricity. But he said he would welcome an investigation into his board members' practices. "Bring 'em on," he said. "There's been a lot of loose talk based on very few facts. I don't think there's any harm in putting some light on it

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-- Martin Thompson (mthom1927@aol.com), August 03, 2000