California's Calamity

Alaa Uldeen Aziz(left) and soundman Saif Laith Yousuf (right)
ABC News
Duty for David Freeman is about power. Fifty years in the electricity businesses and now he's been named the energy czar by California's governor.

"We need a wily, tough minded negotiator on our side of the table," said Governor Gray Davis.

The state needs someone like that to save it from an energy disaster triggered by deregulation.

"We just took a swan dive off of a high board. We thought the water was going to be 12 feet deep. It turned out to be about three feet deep and we got our heads bashed," said Freeman.

Twenty-four states have also passed laws to deregulate their electric industries and 18 more are looking into it.

"Deregulation is a disaster when there's a shortage. It's not that California did it wrong. It's just that this is the oxygen of life. And when there is a shortage the prices go through the ceiling," Freeman said in a congressional hearing.

Much of California's energy problems stem from prosperity. The population grew, the electricity gobbling technology sector exploded, then a hot summer and cold winter — all increased demand.

In spite of that demand, no major power plants were built in California for 12 years. Now crews are scrambling to bring four new plants on line by the end of the summer, but it will be years before enough can be built to meet demand.

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  • When asked why the rest of the country should pay attention to the struggle that's been going on in California, Freeman said, "They should pay attention to us because they could make the same mistakes if they don't. I would hope that they'd have enough brain cells to see what happened to us out here and stop."

    Some say California legislators, who voted unanimously for deregulation, should have seen this coming. They assumed when utilities sold off their power plants to outside buyer, competition would drive wholesale electricity prices down.

    Instead, prices soared — driving utilities toward bankruptcy and the state toward a summer of rolling blackouts.

    In secret negotiations, California's new energy czar is trying to talk the power plants into long term reasonable rates. He's done it before, running some of the biggest public utilities in the nation: New York, Tennessee, and until a few days ago, Los Angeles, where some say he worked a miracle.

    Deregulation Q&A
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    Does it work?
    What about California?

    Click here to get these questions answered.

    Always with his signature cowboy hat, the plain-talking southerner saved the city by keeping it out of deregulation. L.A. has plenty of power, stable prices and no blackouts.

    "It's probably the luckiest or smartest thing I've ever done," admitted Freeman.

    For now he says the only way California will make it through the summer is by conserving. And he is fighting, watt by watt, ready for a showdown with anyone who gets in his way.

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