Andersen Report Diagnoses California Flu.(California electric utilities virus)(Brief Article)

The power problems affecting California are a "virus" that threatens to spread to other parts of the country. Combating the virus will require power companies, regulators, and policymakers to develop new strategies or risk the spread and worsening of the problem, according to Anderson Consulting's national utility practice head Matthew D. Smith and colleagues David Jermain and Mark Moskovitz. The three were describing conclusions contained in Energy Crisis in the Western United States. Lessons for Navigating Regulatory and Market Minefields, a report released on April 24.

"The implications for the development of competitive energy markets go far beyond the Western United States," Smith told the briefing. "Unfortunately, California has taught the nation that regulatory and political barriers can create and sustain an energy crisis."

An Andersen survey of senior utility executives outside California, also released at the briefing, indicates most utility companies believe they inoculated themselves against the California virus so that it is unlikely to affect their operations beyond slowing the pace of deregulation and increasing investor scrutiny. However, based on the potential implications it sees in the California situation, Andersen believes more action is advisable for power companies and regulators. "To deliver reliable service at a predictable cost in today's environment, companies must focus on market integration by developing new and innovative relationships between suppliers, customers, employees, and investors--while working with government officials and regulators to chart a smoother transition to a deregulated power market," Smith said.

Eight Implications

The Andersen report identified eight overriding implications emanating from the Western energy crisis that are shaping the longer-term operations of the Western grid, the regional and national economy, domestic energy policy, and the industry's evolution: