Jul 17 - Nieman Reports
For a reporter, covering California's recent yearlong energy crisis was not
without its guilty pleasures. The story was exciting, fast moving, and a ticket
to Page One. It was a bare-knuckled brawl with billions of dollars at stake.
What the story lacked in colorful characters it more than made up for in bizarre
twists and hidden clues of gross financial abuses and market manipulation.
But how well did we, as journalists, serve our readers? Writing in a recent
New Yorker, Nicholas Lemann, dean of the Columbia University Graduate School of
Journalism, noted that society has "given journalists what we think is a
critical task: amassing, digesting and getting across important material that
isn't readily accessible to ordinary citizens." Journalists, he wrote, act
as "intermediaries between the public and realms that are otherwise moated
by power, distance and complexity."
During the California crisis, reporters faced especially daunting challenges
in moving information across this moat. A slowly evolving system of monopoly
utility regulation, with carefully documented costs and profits, had been
replaced by a complex network of markets in which electricity and risk-contracts
for future delivery of power and arcane securities such as "weather
derivatives"-were traded like pork bellies. We headed out to cover a bank
robbery and discovered that the place had been turned into a casino.
Adjusting to Cover the Electric Story
On energy beats, the question usually asked first by reporters is, "How
will this event or proposal affect the rates paid by consumers?." When
utilities operated as government-sanctioned monopolies, being a vigilant
reporter mainly required looking over the shoulder of regulators whose job it
was to make sure that utilities kept the lights on and costs down. Higher rates
were bad, and lower rates were good. The challenge was to extract readable
stories from the regulators' quasi-judicial proceedings, in which agendas read
like invoices from auto parts dealers and policy choices were buried inside of
300-page alternate rulings. A former newspaper editor who now works as a public
relations advisor to an energy company told me the phrase he and his colleagues
used to describe this kind of process-encrusted beat-MEGO, for my eyes glaze
over.
But with the opening of the electricity industry to competition, the role of
reporters began to change. Rates were freed to move up and down. As a means to
judge the health of a market, price fluctuations became almost meaningless. More
complex criteria, a broader view, and a longer time frame are needed. In
reporting on a competitive electricity industry, the soundness of many business,
economic and engineering decisions need to be assessed. With competition, sleepy
utility companies with low-risk, dividend- paying stocks got pushed aside by new
merchant energy companies promising rapid growth and rising stock prices. That
drew the interest of business reporters, like myself, who are always looking for
stories about hot stocks and booming industries.
Many newspapers, including mine-the Contra Costa Times-normally give only
limited coverage to the electricity industry. When the energy crisis hit, we
responded by assigning three reporters-one from the environment beat, one from
the state government bureau, and me, from the business section. To keep up with
the explosion of news and provide context to our readers, each of us had to
depend on and value the knowledge of our colleagues and figure out ways to
smoothly hancloff reporting and writing duties, even while resolving any
disagreements we had respectfully.
One big challenge for us was dealing with energy experts. None of us had been
on the energy or utility beat regularly while deregulation's law and regulations
were taking shape. Now we had to learn quickly, while relying on and trusting
our instincts and also mixing skepticism with open-minded gathering of
information.
Framing the energy story was also difficult. Most Americans embrace the idea
of free markets and competition, but they do so selectively, depending on
results. When the price of a gallon of gasoline or a kilowatt hour of
electricity soars, so does populist outrage. But when the market value of one's
house or stock portfolio climbs at the same time, well, that's called living the
American Dream.
Beginning in the 1980's, deregulation proposals blossomed across the country.
In the early to mid-1990's, a little-known Houston company called Enron acted as
a sort of Johnny Appleseed, planting and financially nurturing seeds of change
in the electricity industry in states from California to New Hampshire.
Economists predicted that electricity markets would work magic, sparing
consumers from costs passed on by bloated monopolies. Rising rates, it was
argued, would induce consumers to conserve and investors to build power plants.
Low rates would squeeze out inefficient and polluting producers and boost demand
when power was available.
Some economists rooted their predictions in an understanding of previous
deregulation experiments, including airlines and telecommunications and
knowledge of the electricity system. Others- like the one who explained to me
the workings of a national power market, an impossibility due to limitations of
the current transmission grid-were just reiterating their faith in the inherent
superiority of markets. What drew more limited attention were critical issues
such as electricity's unusual characteristic as a commodity that can't be
stored. Also the difficulty of setting up new billion-dollar commodity markets
received little attention. Sometimes, warnings of deregulation's pitfalls dealt
only with minor issues, such as the undesired prospect of annoying ciinnertime
calls from retail marketers.
California's Electricity Crash
In 1998, California launched its aggressive move to competition. At first,
things went pretty smoothly. Then, in the late spring of 2000, a sudden jump in
wholesale power costs jolted electricity customers in the San Diego area, where
market competition had gotten to the point at which regulators no longer set the
retail electricity rates. This exposed the customers to the pain of rising
costs, and soon consumer outrage prompted legislators to step in and recap rates
in that area.
That episode caused little stir elsewhere in California, where retail rates
had remained frozen. San Diego's problems were easily dismissed as a local
aberration in a solid energy system that typically made news only when disrupted
by fire, storm or other natural or man-made disasters. With the implication of
changes in the power system not yet clear, few saw San Diego as a warning sign
of possible problems elsewhere. "We were kind of watching curiously,
wondering what the hell this means," recalls Mike Taugher, my colleague on
our paper's energy beat.
Energy hadn't normally been a big story in California. In much of the state,
a temperate climate means that heat and air conditioning aren't big issues.
Energy costs aren't central in the defense, entertainment and technology
industries, which are the main economic engines.
By the fall of 2000, the power shortages that hit San Diego were spreading
throughout the state. Californians faced occasional rolling blackouts that were
made more ominous by the block-by-block pattern in which outages were imposed.
Meanwhile, the utilities hemorrhaged money when it turned out the rate freeze
they had agreed to as compensation for their lost monopolies was much lower than
the cost they were now paying to supply the electricity.
As the state's electricity system crumbled, it was easy for reporters to find
victims and tell their stories. There were residents in unlit and unheated
houses, motorists stuck at malfunctioning traffic signals, and businesses forced
to pay soaring costs and endure mandatory shutdowns. Interest groups nominated
themselves as heroes of the unfolding story. Power sellers welcomed reporters
onto trading floors in their Houston skyscrapers, but back home, California
politicians were pointing to these Texas addresses as being where the villains
in this story worked.
The story was portrayed as a modern-day war between states, with California
at the mercy of ruthless energy giants with cowboy hats and protection from the
federal government. Soon this stoiy line was strengthened when it surfaced that
owners were shutting down power plants to create shortages and slick trading was
raising prices. Prosecution of wrongdoers began as the state sought relief from
overcharges and overpriced contracts.
For us to help readers understand where the crisis came from meant we needed
to explore new dimensions of the energy stoiy. There were complex questions to
be asked about electricity markets and the engineering of power systems and
their answers conveyed in ways nonexperts could understand. We had to go back
and look at why the decision to deregulate electricity had been made and
determine its wisdom. And then we had to report on the flawed transition plan
and how it opened the door to criminal and unethical market manipulation.
Covering these important dimensions of the story taxed the resources and the
abilities of daily papers' newsroom staff, just at a time when economic
slowdowns we\re driving down newspaper revenue. Internally, each of us coped
with pressures (or personal desire) to return to our previous beats.
Watchdog Reporting on Energy
The electricity crisis ended not with a bang but a whimper. During the summer
of 2001, energy usage declined. Politicians credited public-spirited
conservation and touted the market-calming effects of long-term contracts the
state had signed with power sellers. In reality, an economic recession had
driven down consumption. Nevertheless, controversies continued.
The energy story-and those who were reporting it-moved into courtrooms.
PG&E, the state's largest utility, sought shelter in bankruptcy. State
officials and utilities pursued refunds from power sellers. Administrative
actions and criminal prosecutions targeted sellers who had shut down plants,
fabricated data, and gamed the market. Electricity rates remained elevated by
payments on deferred costs and the now-controversial contracts. When the story
moved to the courtrooms, we needed to find ways to draw compelling stories out
of droning proceedings and forests of complicated legal briefs. Even the most
stubborn reporters now faced pressure (alternating with reduced interest) from
editors looking for big headlines from the resources they were devoting to this
story.
Viewed in the rearview mirror, the energy crisis appears smaller than in real
life. The psychological shock of rolling blackouts far exceeded the actual hurt
to public health and safety and the costs incurred by businesses (with the
exception of a few in power- intensive industries). And even though the state's
energy crisis was a big factor in the public's disaffection that led to the
recall of Governor Gray Davis, energy issues barely surfaced in the successful
campaign of Arnold Schwarzenegger.
California newspapers moved on to other crises, even as the structural
problems exposed during the energy crisis remain unsolved. Key interest groups
are still deadlocked over such basic issues as how to attract investment in new
power plants, even as a new chorus of warnings about impending blackouts sounds.
And big questions linger about the wisdom of deregulation in the electricity
markets and the unleashing of competition.
One thing is certain: The deregulation project will continue, and newspapers
will need to figure out how to be consistent and effective watchdogs. What the
California crisis demonstrated is that for us to be the public's watchdogs means
reporters need to spend lots of time wandering around the energy beat's
equivalent of junkyards. And editors-at a time of shrinking newsroom
budgets-will need to devote the necessary resources to enable reporters to do
this-even when the lights are on.
Rick Jurgens reports on business for the Contra Costa Times, where he was
part of the reporting team assigned to cover the state's energy crisis. he now
reports on real estate and energy.
Copyright Harvard University Summer 2004