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The State, the Market, and the Expanding Energy Crisis

© Carey Goodman

A rather sad but true joke now told among customers of Pacific Gas and Electric Co. (PG&E) asks: "Q: How are PG&E and the Titanic different? A: The Titanic went under with the lights on". But the cold and hard fact of the current California energy crisis is that the same situation could occur anywhere else no matter what OPEC says is the price of oil or how many barrels the Bush administration may be able to drill and pump from their future wells in the Alaska Arctic Preserve.

It started in 1996 with a series of legislative meetings. Supported by then-Governor Pete Wilson, the state Assembly intended to establish a process to end the state's control of energy resources such as electricity and natural gas. An elaborate set of rules was devised that required energy providers to phase in purchasing electricity at market prices while maintaining the rates paid by consumers. In June 2000 the criteria to purchase electricity at market value were implemented, but the consumer rates cap remained in effect. As the market price to purchase a megawatt of energy (the amount of electricity to operate 1000 homes for one hour) increased, electricity providers accumulated billions of dollars of new debts which they could not pass along to their customers. In December 2000 the consumer rates cap was lifted. Electricity bills for many California residents more than quadrupled. The increase for businesses was more than ten times their previous fees. Some businesses closed; others sold their electricity to other users. Conservation seemed a vain effort if the power companies filed bankruptcy. But the full scope of the problem cannot be laid at the gate of deregulation.

One often suggested cause of California's problems is the state's failure to build more electricity producing facilities. Funds to construct nine new power plants were included as part of the deregulation process, but these facilities are very expensive to build, require co-operation from the Federal Energy Regulatory Commission, and are subject to many levels of state and federal safety and environmental rules. Five of the nine power plants have been completed, but population growth in the state has exceeded this added capacity. The "we need more power plants" argument therefore would not solve or prevent the crisis.

'Blame it on the Rain''

This energy crisis is no longer simply a California problem. It has not been a purely California problem since at least December 2000. The monthly utility bills of customers of non-California based power companies have increased by as much as 50%. With the 7%-15% limit on rate increase California authorized PG&E and other providers to impose upon their customers, it is actually residents of Arizona, Nevada, Oregon, and particularly Washington who are paying for California's problems.

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