When California’s deregulated energy market crashed and couldn’t be put back together again, there were widespread fears that the lights would go out in homes, schools, hospitals and businesses. Politicians, regulators and the public were on the edge for months, with candles and batteries in hand. In spite of dire predictions, the lights did little more than flicker, but there were serious outages of another kind.

There were rolling information blackouts that continue to this day, along with a multibillion dollar tab. Since the deregulation fiasco, the public has been left in the dark about energy issues. Facts are being hidden at both the state and federal levels on matters that affect human and environmental health and people’s pocket-books. Light thus must be cast on the secret deals to fight violations of a fundamental principle of democracy—open government.

While the energy crisis was at full tilt, one might have thought that state legislators and regulators would be adverse to being kept in the dark about crucial policy issues given all the unanswered questions about deregulation prior to its enactment. In 1996, the complex bill responsible for the debacle was rammed through the legislature with few lawmakers taking the time to understand its potential ramifications. Only a few short years later, the results came back to haunt politicians, utilities and Californians. It also was largely responsible for the demise of Governor Gray Davis.

When the energy market cracked in early 2001, wholesale power prices soared so high that the state’s investor-owned utilities, which serve millions of customers, couldn’t pay their energy bills. The key concern was the crisis’s impact on the fifth largest economy in the world. Manufacturers and other commercial interests feared there would be widespread blackouts, costing them billions of dollars. Stories about aging people in hot climates dying because high utility bills would force them to turn off their air conditioners were rampant, as were warnings that all or part of the state would be left without power.

“The Language and Culture of the Energy Beat”
– Elizabeth McCarthy
The vast majority of Californians, including many lawmakers and regulators, were indeed left powerless. They had no information to challenge deals worked out in secret that would affect them for years to come. That includes arrangements with the private utilities and several agreements between the California Department of Water Resources (DWR) and those who generate energy.

Reporting on Secret Deals

During the ongoing crisis, I covered numerous hearings and press conferences each week. Running among legislative hearings—more than 300 energy bills were introduced in early 2001—was par for the course. Because I had a lot of company, I often shared information with reporters from other small media outlets because, try as we might, we couldn’t be two places at once. It was a months-long marathon to report these stories, but the most challenging part was dealing with the information blackouts.

Governor Davis cut to a trickle the flow of information from his office and energy agencies about efforts to reduce the disfigured market’s damage. He met in secret with investor-owned utilities about ways to pay off their multibillion dollar debt. The state also took the unprecedented step of entering into the power business to ensure that juice kept flowing into the grid. DWR signed $42 billion in long-term contracts at breakneck speed.

Neither consumer nor environmental representatives were included in the negotiations. A large part of reporting on the crisis involved raising unanswered questions for our readers and highlighting potential conflicts of interest. Some of the key players in the governor’s inner circle, for example, had ties to utilities sitting on the other side of the negotiating table. I discovered—and reported—that renewable power suppliers had been virtually shut out of the market. Nearly all the state’s long-term energy contracts were for fossil-fuel power.

Although few knew the size of the deregulation tab being discussed behind closed doors, everyone knew it would be picked up by small ratepayers who had no say in the matter. It wasn’t until deals were done and several news agencies forced their public release via the Freedom of Information Act that the actual numbers involved in the bad news could be reported. Many of the contracts were overpriced, often for unneeded power, and there were virtually no alternative power supplies in the mix. The state is still fighting, too, to recover nine billion dollars in refunds from generators for claimed excess power prices.

Californians are still paying for deregulation’s aftermath and will be for some time. But the lesson to emerge from that crisis—the benefit of open decision-making—just hasn’t stuck. While energy has not been front-page news during the two years following the crisis, it is still a big story. The state still lacks a long-term energy blueprint and another energy disaster might be on the horizon. In spite of that, secret dealmaking is alive and well. Consequently, covering the beat in a meaningful way continues to require digging for basic facts to reveal details of the shady arrangements—whether it is about price, risks and/or environmental impacts. For reporters, determination, resourcefulness and persistence are the equivalent of a flashlight.

There are several examples of closed-door government decisions. The most notorious is Vice President Dick Cheney’s pro-industry secret energy task force that developed the administration’s energy policy. A court case in which plaintiffs are seeking to learn the identity of those who served on this task force is now before the Supreme Court. Less well-known are secrecy issues involving several liquefied natural gas (LNG) plants now being proposed on the shores of California and in other U.S. areas and Mexico. Many people are concerned about the safety of these facilities that are used to reconstitute frozen imported natural gas to fuel homes, schools, business and power plants. This fear has intensified since a recent explosion at an LNG terminal in Algeria that killed 30 people and injured more than 70.

Read “Terrorism Fears Thwart Journalists’ Reporting” for more on the impact of FERC’s regulations »While investigating the matter, my fellow reporters at California Energy Circuit, an independent weekly publication about energy issues, and I learned that the U.S. government, which plays a large role in the gas market, has no intention of shedding light on this issue. Instead of fully informing local and state officials and the public, federal regulators are hiding safety studies. The Federal Energy Regulatory Commission (FERC) was expected to release LNG risk studies on proposed terminals, but Energy Circuit discovered that new rules under the USA Patriot Act placed those documents out of reach. While awaiting release of the California Energy Commission’s risk assessments, we subsequently learned they were stamped “confidential” because of the federal rules. Our reports, therefore, have focused on the denial of information and how what you don’t know about an LNG plant—be it consequences from an earthquake, accident or terrorist attacks—could hurt you.

Other questions I have explored include ones about comparative risks and possible alternative sources of energy. If LNG projects supplied by foreign gas are restricted, what fuel sources will fill that supply gap? Will it be dirty domestic coal or more nuclear energy and/or wind, solar or other renewable sources? What will be the health, environmental and financial impact of the chosen supplies, near and far?

There are also many unanswered questions about energy policy at the state level. The last few months, a number of costly, secret power agreements have been approved by the California Public Utilities Commission (CPUC), including the eight billion dollar ratepayer bailout to bring an end to the bankruptcy of Pacific Gas & Electric (PG&E), which was the largest private utility bankruptcy in U.S. history. When PG&E and the CPUC reached a closed-door deal to settle the bankruptcy, only those involved in the negotiations knew the specifics. Questions by reporters, and those of some CPUC members who were required to vote on the multibillion dollar deal, were left unresolved.

Consequently, I focused my stories on the few known costs, including the professional fees of those involved in the struggle. The total cost was $400 million, with some attorneys and accountants reaping $700 an hour. My reporting also has highlighted issues the dissenting CPUC members raised. The minority members challenged the agreement in court, claiming they were denied access to essential facts, which interfered with their constitutional duties by keeping them from being able to judge the justness of the bankruptcy costs and reasonableness of alternative scenarios.

Another area of my investigation involved the deal’s potential costs. I have looked at what the real vs. the purported savings to ratepayers would be if legislators approved a refinancing deal after the settlement. This arrangement was touted as shaving one billion off the ratepayers’ bankruptcy costs. Early this year the refinancing measure was introduced, but neither PG&E nor lawmakers seemed in a hurry to pass it. My reporting revealed that each day’s delay in passing this measure cost PG&E customers an additional $300,000.

Other examples of closed-door deals include a handful of agreements between investor-owned utilities and some generators given the green light by the CPUC. One involved a questionable power deal between Southern California Edison and an industrial solar energy company that had ties to the CPUC’s president. The terms of these agreements were not aired until after they were signed. Thus it was not possible to report on the negotiations. Nor could the public put them to the test of reasonableness or ask if the agreements were fair and whether there were better and cleaner alternatives out there. Also not debated prior to the decisions has been who pays how much and who reaps the benefits.

Affected community members and public officials are, however, fighting back. An increasing number are insisting that deals be made in the open. In early April, at the Port of Long Beach, California, those in government who are considering an onshore LNG plant announced they would disclose safety information about the project to the public. They pointed to open government requirements under the California Environmental Quality Act and vowed that if FERC tried to slam the door shut, the project would not be approved. While FERC has shut the front door, the local agency has cracked open the back door, allowing reporters to access crucial information. Working with the agency, rather than at odds, allows for more detailed information to be assessed and conveyed and results in a better informed public.

A growing chorus of cries over the CPUC’s hidden dealmaking also resulted in a bill being introduced that would require information that utilities submit to the CPUC—with the exclusion of trade secrets—be made public. This bill supports healthy debate on short and long-term implications of various power arrangements. This is a promising step, but until energy policy is fully lit, reporters—and the public— should keep candles, batteries and flashlights in hand as they work to find ways to cast light on deals being made in the dark.

Elizabeth McCarthy is the editor/ publisher of California Energy Circuit, an independent weekly.

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