Promise of Deregulated Market Reduced to Discordant Debate.(California's energy misfortunes)(Industry Overview)

California's energy misfortunes multiplied almost daily as the year 2000 drew to a close. Utilities said they were running out of credit; at least one major supplier with-drew from the market; and the U.S. Department of Energy (DOE) invoked emergency powers. California lawmakers met in special session, where they drafted a flurry of bills to reform the state's distressed power market.

California Governor Gray Davis (D.) huddled in Washington, DC, with Federal Reserve Chairman Alan Greenspan and U.S. Treasury Secretary Lawrence Summers, a move that suggested that the energy crisis might be putting the state's economy at risk as well. Details of the meeting were not immediately released, nor were particulars of a conference with President Bill Clinton made public.

The California Public Utilities Commission (PUC) convened hearings to consider requests from the state's two largest utilities to raise rates by up to 30% in order to pay the approximately $8 billion they say they have been forced to pay for wholesale electricity but have been unable to collect from end users. Consumer advocates were livid at the suggestion. Eventually, the PUC approved rate increases from 7 to 15% while voting to escrow the funds until an audit revealed whether the rate increase was warranted. Predictably, the outcome satisfied no one.

A Lot at Stake

Clearly, there is a lot at stake, including the future course of deregulation and the economy of the region. California's energy crisis could become the first big test for President George W. Bush, say some observers.

Davis branded the deregulation experiment a "colossal" failure. "If deregulation fails in California, it is dead in America," he added.

Davis, normally mild-mannered by most accounts, also criticized federal regulators for dragging their feet. He charged that the Federal Energy Regulatory Commission (FERC) had "chosen to ensure unconscionable profits for the pirate generators and power brokers who are gouging California consumers and businesses." He also complained that those in charge of the state's power grid were not doing their job.