California's electricity crisis gives way to financial meltdown. Can an action hero save the day? [Published in Utility Week]
Total Recall: Will Arnie terminate Davis?
By Quentin Langley
Dateline 01 September 2003
When Total Recall and Terminator star Arnold Schwarzeneggar turned down those who urged him to run for Governor of California last year – because of filming commitments to Terminator 3 – he was not, he assured them, abandoning politics: “I’ll be back,” he promised. With Governor Gray Davis less than a year into his second term no-one anticipated that Arnie would be back quite so soon. But perhaps we should have realised when the trailers for Terminator 3 started running in the spring: the “I’ll be back” slogan has been dropped for “It is time”. For Schwarzeneggar, and perhaps for Davis, it seems it is.
So why is Davis – holder of the second biggest executive job in America – facing dismissal under an arcane procedure introduced in 1911? No other attempt to recall someone elected to state-wide office in California has ever reached a ballot. No governor of any state has been successfully recalled since 1921, and that was in tiny North Dakota, not America’s largest state with a population greater than Texas and Illinois combined, and an economy bigger than that of France.
To Matier and Ross, leading political columnists on the liberal San Francisco Chronicle, Davis’s problems are simple to explain: “Politicians live or die by their defining moment. For George W Bush, it was Sept. 11. For Gov. Gray Davis, it was the energy crisis of ’01 – and in most voters’ eyes he came up short”.
It is certainly true that in the first four months of 2001 the Governor’s approval ratings fell from almost 60% to under 40%. But Davis has been re-elected since then, and his current approval ratings are now little more than half what they were when the state faced frequent power cuts. What has gone wrong for a man once tipped as a future Democrat President?
It is at least arguable that the power crisis revealed exactly the same shortcomings that came to the fore again in the budget crisis this year. “We saw no leadership from Davis,” explained Lawrence McQuillan, director of Business and Economic Studies at the Pacific Research Institute for Public Policy in San Francisco, California. “He seemed to be trapped by circumstances.” To a large degree these circumstances were not of his making. The widely criticised “de-regulation” policy – in fact a policy of highly restrictive regulation – was introduced before Davis became Governor. His Republican predecessor, Pete Wilson, and the Democrat-controlled legislature of the mid-90s can share the blame for that, but Davis’s reaction to crisis fell short of expectations.
The crisis was largely caused by restrictions on the building of new generating plant – mostly at the level of the municipalities – and a consumer price freeze at the state level. Even at the height of the power outages, Davis was insisting that he did not want to see prices rise for consumers. “What we needed,” says McQuillan, “was market pricing. Davis’s supporters assert that there was no demand for higher prices. There never is. It takes leadership to sell an unpopular policy with medium to long-term benefits. We saw none from Davis.”
Instead Davis intervened in the highly volatile wholesale spot market and signed long-term supply contracts. Although the prices he guaranteed suppliers were lower than the extreme spikes seen in 2001 they look very expensive today. “His political problem is that it left him in control of prices. Instead of stepping back and saying that the market will set prices, he left it as a state responsibility, so people blame the Governor for the high prices they are paying today. They remember him saying he didn’t want to see prices rise, but consumer prices have actually risen 40% in two years.”
Despite the criticisms of Davis’s utility policy today, there is no doubt that it played a role in relieving the immediate crisis of 2001 – or at least postponing the problems. He then dived into a highly charged gubernatorial election against a weak Republican opponent and ran on very populist themes. He blamed “out of state profiteers” for “gouging” California’s consumers. From late 2001 onwards the “profiteers” took on a name: Enron. He has been trying to renegotiate the long-term contracts he signed in 2001 and even challenged some of them in submissions to Federal regulators in which he demanded $9 billion in refunds. But so far has had only very limited success and most of the contracts remain in place.
The election in November 2002 proved unexpectedly tight. Bill Simon, a Republican businessman with no political experience and criticised by the Republican National Committee for running the worst campaign in the country, managed 42% of the vote to 47% for Davis. Four years earlier Davis had won almost 60% to defeat Dan Lungren, the state Attorney General.
Just days later Davis announced that the budget figures he had used in the campaign were wrong – the two-year budget was heading to a deficit of $38 billion. This amounts to a shortfall of almost 20% in a state where there is a constitutional requirement that the Governor present a balanced budget to the legislature.
“People see a real parallel between the electricity crisis of 2001 and the budget crisis today. In both cases Davis postponed the problem until after the election instead of trying to find a sustainable solution”.
But even with the Governor’s approval rating hovering just above 20% and a challenge from his Democrat Lieutenant Governor, Cruz Bustamante, it would be unwise to write off Davis completely. He has been a fixture in California politics since the 1970s, when he was Chief of Staff to Governor Jerry Brown. Since then, he has served in the state legislature and won five state-wide elections to three different positions: Secretary of State, Lt. Governor and Governor.
Within a week of the recall campaign beginning, the biggest power outage in the world took place – on North America’s other coast. Davis was quick to comment, eager for everyone to see (or hear, since the Northeast was relying on battery-powered radios) that he was not the only Governor facing a troubled electricity sector. Of course, there is a big difference between a once in a generation overload of the transmission network and a systemic shortfall of supply caused by restrictions on capacity and artificially low prices.
On 07 October Californians will deliver their verdict on Gov. Gray Davis and on his 100+ challengers. The first vote is a simple yes or no question – should Davis be kicked out of office? In the second but simultaneous vote, in which only a plurality is required, they will choose who should replace him if the first vote goes against him.
Davis’s original strategy was to keep high profile Democrats off the ballot and rely on party loyalty – in a strongly Democrat state – to see him through, despite very low personal ratings in opinion polls. That fell apart on the sixth of August, just days before nominations closed, when three things happened.
First, Dianne Feinstein, the state’s most popular politician, whom many Democrats had hoped would save them from having to defend Davis, announced that she would definitely not be running. Almost immediately Cruz Bustamante announced that in that case he would. Late that evening, on the Tonight Show with Jay Leno, Schwarzeneggar surprised even his closest political advisers by joining the fray.
Polls show Davis trailing badly in the first vote and Schwarzeneggar was an early leader in the second. Later polls have shown the actor trailing Lt Gov. Cruz Bustamante. Schwarzeneggar, best known, of course, as a five-time Mr Universe in the 1970s and as Hollywood’s most bankable star in the 1990s, is no political neophyte. A campaigner and fundraiser for the Republicans for over 20 years he successfully pushed through an initiative – a referendum – on out of hours schooling for disadvantaged children last year. He also runs a multi-million dollar business empire with shopping malls and other investments across America. His wife, Maria Shriver, is a nationally known broadcaster and niece of President Kennedy.
But Schwarzeneggar will not have an easy ride. While the Democrats are divided between the Governor and his deputy these two are at least competing in different votes. Only if Davis loses the first vote will the second vote have any relevance. So Democrat voters – and Al Gore carried the state by more than 11% - can happily vote for both Davis and Bustamante. Schwarzeneggar must pull in a great many outsiders to the political process or Bustamante will have the Democrat majority to himself while Schwarzeneggar battles other leading Republicans to split the minority vote.
His rivals initially included Bill Simon, who throughout his campaign last year accused Davis of lying about the budget and correctly predicted there would be a crisis this year. He feels robbed of an election, which his supporters say he should have won and his opponents claim any other candidate would have won. Simon will be listed on the ballot, but has withdrawn from the election. Also on the ballot will be State Senator Tom McClintock, a career politician of considerable integrity and the only Republican endorsed for state office last year by the liberal San Francisco Chronicle. He won more votes than Simon, but still lost his bid for state Controller. Simon’s withdrawal potentially boosts McClintock – he and Schwarzeneggar will both be seeking the businessman’s endorsement. Also competing for Republican votes will be former baseball commissioner Peter Ueberroth, a registered Republican running as an independent.
From the left, Davis and Bustamante will face competition from Peter Camejo of the Green Party – polls show him ahead of the 6% vote he got last year; Arianna Huffington – ex-movie actress, ex-Republican, current political commentator, running as an independent; and Audie Bock – ex-Green, ex-state legislator, running as a Democrat.
But the race is likely to become a battle between Bustamante and Schwarzeneggar. If the battle turns partisan, Bustamante is likely to win. If he continues to play the outsider, running an insurgent campaign that is critical of politicians generally, Schwarzeneggar could pull in enough votes to become the second actor to run America’s most populous state. But that is where the analogy stops. As a naturalised citizen, he can’t follow Reagan to the White House.
Copyright © Quentin Langley 01 September 2003