California Nightmares

This summer San Diego saw one possible future of electricity, and it wasn’t pretty.

  Two years after California became one of the first states to deregulate
its electric utilities, customers in San Diego watched their electric bills
double from May to June as summer heat drove up demand.

  All heck broke loose, as you might expect, in a blizzard of blame.

A utility watchdog group called for a rate freeze. San Diego Gas and Electric,
the city utility, started fielding 12,000 calls a day from unhappy consumers.
One of the authors of California’s deregulation legislation called for people
to protest by paying only half their bill. SDG&E officials said they had
been warning that deregulation carries risks. A state senator called for an
investigation of the California Electricity Oversight Board, criticized SDG&E
for not anticipating the price spikes and buying cheaper power in advance, and
threatened reregulation. A congressman has promised to hold a hearing.

  “We are the ghost of summers future,” said a San Diego consumer activist.

  The root of this San Diego summer goes back several years. Just as in
the rest of the country, it’s been a long time since anyone has built a power
plant. They’re very expensive, and few people want one as their neighbor. The
same is true of electric transmission lines. Despite energy conservation, electricity
consumption continues to increase.

  In short, California’s running out of electricity. A summer power blackout
in the state’s Silicon Valley showed what a heat wave can do when demand overcomes
the supply.

  Deregulation translates the problem of power outages into dollars and
cents. SDG&E has been a deregulation pioneer, even in California. The utility
moved quickly to pay off debt, divest itself of power plants, and pass price
fluctuations directly to consumers. 

During the heat waves of the past three summers, electricity prices that utilities
charge each other have been increasingly volatile, since the federal government
opened up wholesale electric competition in 1992.

  Now that nearly half the states in the nation have restructured their
electric utility industry in some form, that wholesale price volatility will
start showing up at the retail level, in the bills paid by business and residential
consumers. Ratepayers in San Diego are among the first in the nation to experience
this electricity sticker shock. Consumer advocates there warn that the same
thing could soon happen in Los Angeles and San Francisco.

Or anyplace else where states have allowed retail electric utility competition
without safeguards and very careful planning.

Kentucky has not restructured its electric utility industry. A two-year special
Kentucky task force study recommended late last year that the legislature continue
the study for two more years. Utility restructuring is so complicated, suggested
the task force, the wisest course would be to see how deregulation works out
in other states before Kentucky takes the plunge and possibly threatens what
are among the lowest electric rates in the nation.

The Kentucky Legislature agreed with the task force, and continued the study
until 2001. With our stable electric rates, that’s looking like a pretty good
decision, especially in light of this summer’s fiasco in San Diego.

     -Paul Wesslund