Q&A with California Governor Gray Davis

At the mercy of forces that show no mercy

A lightning rod for California's deepening electricity crisis, Governor Gray Davis has, in his own words, "been criticized for everything under the sun." But Davis insists that his plan to keep the lights on is taking shape. On Apr. 9, the battle-weary governor signed a $2.76 billion deal to buy Southern California Edison Corp.'s 12,000-mile transmission system. That's on top of the $4 billion already spent to buy power for the state. But Davis failed to strike a similar deal with Pacific Gas & Electric Co., which filed for Chapter 11 on Apr. 6. A few days later, the governor spoke with Los Angeles Bureau Chief Ronald Grover and correspondent Christopher Palmeri.

Q: You have been criticized for not moving fast enough when prices first started to surge last summer.

A: Haste got us into this mess in the first place. The deregulation measure passed in 1996 without a single dissenting vote. It turned out to be a disaster of the first magnitude.

Q: Should consumer rates rise to reflect the real cost of power?

A: If the true market price were passed on, it would mean increases of 150%-200%, which could easily shock the economy into recession. If we did that, there's no question an initiative on next year's ballot by consumer groups to eliminate deregulation would pass. That would be self-defeating because it would dry up investment in private plants in the state.

Q: So your solution is a mixture of public and private investment?

A: I believe generators will make investments. The free market works as long as you have more power than demand. If you have more demand than power, as we do now, you are at the mercy of forces that show no mercy.

Q: Do you believe the federal government should impose rate regulation and order compensation from out-of-state power suppliers who may have manipulated the market?

A: Whatever you think of California, our state contributes disproportionately to the technology and economic growth of America. My hope is that the Bush appointees will be practical people who realize it's not in the country's interest for California to pay disproportionately for the mistakes it made in 1996.

Q: Do you think PG&E will still reach some sort of settlement with the state?

A: I believe the market will force PG&E to accept something along the lines of what we offered Southern California Edison. For weeks, I've been telling them they had to wait until we had a deal with Edison. PG&E either didn't believe it would happen or didn't want it to happen. They gave themselves $50 million in bonuses and then dove into bankruptcy.

Q: Why is buying transmission lines from the utilities a good idea?

A: For 15 years transmission upgrades in California were necessary. In a deregulated environment, investment chases the highest returns and the highest return is not in upgrading transmission lines.

Q: How much will this crisis cost the state?

A: The general fund will be fully reimbursed by June 30 for all of its expense plus interest. I pray for the day that I can get back to the thing that caused me to run, which is education. Between Dec. 19, when I finished the budget, and now, I may have spent 10 hours on subjects other than electricity.

Q: Some people have argued that you should use your emergency powers to force plants to be built.

A: The worst thing you can do in government is to give an order that nobody follows. Everybody wants me to seize these plants. You know what will happen? The generators will just withhold power. They'll say, "fine--we'll lose money for two weeks, but you're the one in the dark." And then everyone will say, "Davis, that was a pretty stupid move."

In the 12 years that preceded me, not one major plant was built in this state. Since April, 1999, I have approved 12 myself. Seven are under construction. By the end of 2003, we will have more power than demand. I have one great strength: People underestimate me all the time. George W. Bush and I are both blessed with that attribute--low expectations.

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