SAN DIEGO--The rippling social and economic effects of the energy crisis show up almost every day in this city, where troubles usually disappear as quickly as the sun burns away the early morning clouds. But San Diego felt the impact of energy deregulation last summer, earlier than any other California city, and what it is experiencing now may be a foretaste of more widespread problems, throughout the West and as far away as New York City.
A member of the San Diego Housing Commission told me she has seen a sharp upturn in the number of renters seeking new places to live, because their landlords have upped the rents to compensate for the higher gas and electric bills. Father Joe Carroll, who runs the city's largest homeless shelter, has seen his energy costs increase a half-million dollars so far--a sizable hit in a budget of $20 million. And, he says, toward the end of each month, the number of people lining up for a free midday meal gets notably larger, not because they are homeless but because their grocery money has gone to keep the heat and lights on.
A leading banker says he worries that in the next few months, as the economy softens, small businesses, unable to offset their rising utility bills by raising prices, will swell the number of "problem loans" in his portfolio.
San Diego was the first city in California where energy prices were deregulated, under a state policy adopted back in 1996. Almost overnight, monthly electric bills for many modest homes increased from $50 to $150, one of the city's congressmen, Rep. Bob Filner, told me. The screams were immediate, and eventually became loud enough that the state imposed temporary price caps for homeowners, which essentially have the effect of postponing, but not ending, some of the run-up in consumer costs.
Now, the spike in natural gas prices--a national phenomenon--has added to the woes. Deregulation, which was supposed to lure new power suppliers into the booming California market, instead has turned into a bonanza of excess profits for a handful of outside electricity generating companies, and a nightmare for three big California utilities caught between higher charges from their suppliers and the caps the politicians imposed on consumers' electric rates.
California Gov. Gray Davis and the Legislature are scrambling to keep the utilities from declaring bankruptcy, which would lead to a forced sale of their assets and, say many experts, even higher prices. Davis is negotiating for a state purchase of the transmission facilities of the three power companies, which would give them enough cash to keep their creditors at bay for a while. And he is trying to negotiate long-term energy purchase contracts at lower rates than the current ruinous spot market prices, while speeding up the approval process for new power plants within the state.
It is not clear whether the rescue effort will work. Last week, the parent company of the state's largest utility, Pacific Gas and Electric, borrowed $1 billion to refinance its own debts, and a Wall Street rating firm simultaneously warned that PG&E faces "the near-term possibility of bankruptcy." Meantime, more than $3 billion of the state's projected budget surplus (estimated last month at about $8 billion) has been used on these temporary fixes.
The energy crisis--also marked by rolling blackouts--is producing a huge political backlash. Filner, a liberal Democrat, said, "For the first time, Duncan Hunter (a conservative Republican from a neighboring district) and I are on the same side: We both want a public utility district that can protect consumers from this price-gouging."
Last Saturday, the Union-Tribune, San Diego's staunchly Republican and pro-free enterprise newspaper, carried a full page of letters to the editor under the headline, "Energy barons hold state hostage." The lead editorial of this conservative newspaper began, "We've been robbed," and called on the Bush administration and Congress to force a reluctant Federal Energy Regulatory Commission (FERC) to require the power companies to rebate the $555 million in windfall profits a state energy agency claims they overcharged in December and January alone.
The populist revolt is likely to take the form of a 2002 ballot initiative, aimed at both the power companies and the process of deregulation. Consumer advocate Michael Shames told me, "I'm not a fan of initiatives. They are blunt instruments for handling complex policy problems. But the utilities spent $40 million in 1998 and defeated an initiative that would have blocked deregulation, with a promise that deregulation would mean lower prices and better service. You can't blame people for feeling they were lied to. And now they want to strike back."
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