NCPA - National Center for Policy Analysis

Will California Consumers Lose Direct Access To Energy?

August 31, 2001

California is turning its back on electric power deregulation through a series of state actions that will create a highly controlled electric power market, according to economist Benjamin Zycher of the Pacific Research Institute.

  • Earlier this year, the state entered into billions of dollars' worth of long-term contracts at the height of the electricity price spike -- and must now sell electricity to consumers at a loss.
  • Gov. Grey Davis (D) and other state officials have threatened prosecution of power suppliers for price gouging and market manipulation -- although municipal utilities have charged more for their excess power on the market than commercial producers.
  • On Wednesday, September 6, the state's Public Utilities Commission (PUC) is expected to suspend the right of consumers to "direct access" to the electricity suppliers of their choice -- instead, consumers will be forced to buy power from the state of California.
  • Futhermore, alternative draft Memoranda of Understanding (MOU) now being considered by the legislature include $2.9 billion in bonds to repay banks and the producers of "alternative" power -- but not major power producers.

If the MOU are adopted, Zycher says other creditors of Southern California Edison, a major utility on the brink of bankruptcy, can be expected to take it to bankruptcy court.

Other proposed provisions of the draft MOU would create a highly inefficient system of regulatory rate setting, increase investment risks and capital costs, and erode consumer choice sharply.

Instead, says Zycher, the state should fix the flawed 1996 electric power restructuring plan (which controlled retail prices) and reverse disasterous regulatory decisions (one of which forbid utilities to enter long-term purchase agreements).

Source: Benjamin Zycher, "Memoranda of Inefficiency: Reflections on the Legislature's Plan for Edison," August 24, 2001, Pacific Research Institute, and "Davis Leaves Edison Up the River Without a Paddle," Los Angeles Times, August 28, 2001.

For text


Browse more articles on Government Issues