NCPA - National Center for Policy Analysis

Looking For Scapegoats In California's Power Mess

January 12, 2001

Floundering around for someone to blame for the disaster California officials made of electricity deregulation, Gov. Gray Davis (D) flailed away recently at "out-of-state profiteers," whom he accused of "holding Californians hostage." But experts dismiss such wild charges and lay the blame at the feet of state officials.

It is no secret that California's deregulatory plan was ill-designed from its start four years ago.

  • California managed to turn its power surplus of several years ago into today's power famine, in part because it bowed to environmentalists who blocked construction of new generating plants.
  • At the same time, state pollution-control laws idled some plants and forced producers to buy expensive emission credits for others.
  • Utilities were discouraged from securing future power supplies through long-term contracts.
  • By freezing rates for the utilities' business and residential customers during the early years of deregulation -- in a move to protect consumers -- the state gave those consumers no reason to curtail power use even as wholesale prices rose more than 50-fold at their peak.

California's shortsightedness has presented both challenges and opportunities for maligned out-of-state power suppliers. In Oregon, Portland General Electric withdrew a proposed 16.5 percent rate increase for its 700,000 customers after calculating how much it would make by selling excess power to California and other places.

"California designed the world's most complicated market that people said would not work well and which they've been trying to fix ever since," says Paul Joskow, director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Source: Laura M. Holsen and Richard A. Oppel Jr., "Trying to Follow the Money as Energy System Flounders," New York Times, January 12, 2001.


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