You can forgive Weiser for worrying. Higher prices, power shortages and fears of utility bankruptcies in California have made deregulating power companies sound like a recipe for economic ruin. With two dozen states in the throes of lifting controls on their power systems, government officials and utility executives are facing anxious questions from consumers worried about their power supply. But many experts say that the problem is with how California went about deregulating, not the concept itself, which was spurred by demand for lower energy costs and greater competition among utilities. In most other states, it’s working smoothly. “California did it wrong,’’ says Bill Brier, vice president of the Edison Electric Institute.
Just what went awry in the Golden State? Part of the California disaster is man-made; part of it is bad luck. Deregulating the power companies made sense, at least on paper: break up traditional utilities into two kinds of firms–suppliers that generate power and middlemen who transmit it to customers–and that should lead to a greatly expanded wholesale market and lower prices. The plan was hatched in California in the depths of the 1990s recession, when demand was expected to rise only gradually. But then the economy jumped into high gear and demand spiked, thanks in part to power-hungry dot-coms. Utilities could never catch up. Because of a thicket of state regulations, it takes up to seven years to plan and build a power plant. Finding a place to build one is even tougher in California, where residents freely admit that the NIMBY syndrome has been upgraded to BANANA (Build Absolutely Nothing Anywhere Near Anything). Then the cost of natural gas, which is often used to generate electrical power, soared. Gov. Gray Davis conceded last week that deregulation has been a “colossal and dangerous failure.''
Other states now define their plans by how they are different from California’s. Texas, where less strict regulations make it easier to build new generating plants, has added 5,700 megawatts of generating capacity over the past five years, compared with 672 megawatts for California. Texas has already deregulated its wholesale market and will do the same for the retail power market a year from now. The Lone Star State allows its utilities to own their generating plants, and is also letting them enter into long-term contracts for power, which helps hedge against price swings. By contrast, California prohibited utilities from cutting such deals, forcing the power companies to pay top dollar for electricity at peak times.
Most states are expressing Texas-size optimism. Among the states that have passed deregulation laws, those in New England and the mid-Atlantic states are the most likely to be successful because, among other reasons, they have been steadily building up generating capacity, says Sharon Reishus of Cambridge Energy Research Associates. States that are part of the same power network as California, like Oregon, Montana and Nevada, may run into supply problems because California’s demands force it to import so much energy from out of state. Says Reishus: “The ones that are closest to California geographically are going to be the ones in the biggest trouble if it doesn’t get fixed in the next year or two.’’ With pressure mounting daily, California power executives and politicians don’t have nearly that long to wait.
