California Thriller

As the California electricity deregulation fiasco continues to unravel, it is comforting to hear that Utah legislators have placed deregulation in this state on the back burner, at least for now.

Nevertheless, Utahns, like all Americans, have a big stake in California's problems. Not only is California's economy the sixth-largest in the world, but the Golden State, like the Beehive State, is part of the Western Power Grid, so electricity market conditions there affect Utahns directly.

In addition, Utah will have to address the question of electric utility deregulation eventually -- about half of the states are in the process now. So, Utah must keep track of developing conditions, not only to learn from others' mistakes but to prepare to decide whether to take the plunge into deregulation, if or when the time is ripe.

By all accounts, California botched deregulation. Now it is trying to untangle a complex, expensive mess. Among the many problems, the Golden State caused investor-owned utilities to sell their power plants to other companies. These producers, together with new ones, were supposed to compete to sell electricity to the utilities, which would distribute it. Supplies would grow and competition among producers would keep wholesale prices down. But it didn't work out that way. New producers have been slow to materialize because of the uncertainties of deregulation. In the meantime, power demand has quickly outraced supplies as the California economy recovered from a long recession. California now must import 20 percent of its power.

It's a seller's market, and there are no restrictions on what producers can charge. In addition, the price of natural gas, the fuel for some California generating plants, has soared. Wholesale electric prices on the state's spot market have spiked by factors of 10 or more.

But caps on retail rates remain in place for two of the state's largest investor-owned utilities, which serve 24 million people. These two utilities have run up combined debts to producers of $11 billion since last summer, and now face imminent insolvency. An emergency 9 percent retail rate increase (15 percent for commercial customers) allowed by regulators in late December is too little too late, the utilities say. A plan is in the works to allow the utilities to sign nine-year contracts with producers. That would bring some wholesale price stability to the utilities, though it also could lock them and their customers into relatively high prices even after new supplies begin to come on line and wholesale prices fall in coming years. Producers also have offered to give a few months' grace to the utilities on their debts.

But the threat of utility bankruptcy caused by $11 billion in operating deficits still hangs over the system. Politicians are loath to bail out the utilities with state funds or remove retail rate freezes because voters, who were promised lower rates from deregulation, will take vengeance at the polls. Californians rightly hold politicians and the utilities responsible for the deregulation fiasco.

Stay tuned. This is one Hollywood thriller that Utahns can't afford to ignore.

http://www.sltrib.com/01132001/opinion/opinion.htm

-- Martin Thompson (mthom1927@aol.com), January 13, 2001