The Pew Charitable Trusts

If California's lingering power crisis left any doubt about the future of the state's attempts at utility deregulation, state energy officials have dispelled it.  

"We are voting the epitaph for deregulation in California today. Deregulation is dead," said Public Utilities Commissioner Carl Wood last Thursday, when the board approved a 90-day emergency rate hike to bail out failing utilities.

Just four years after the state plunged into deregulation and ordered power companies to sell their generating plants, unusually cold weather and a shortage of power throughout the West combined spectacularly to ruin the plan's intended customer benefits.

Instead, some 24 million California residential utility customers face an immediate nine percent hike in electric rates, while businesses face rate increases anywhere from seven to 15 percent.

Residents of such cities as Los Angeles and Sacramento have been unaffected by the power crisis, because their municipal power systems have yet to be deregulated.

State lawmakers and Gov. Gray Davis, who faces the first major crisis of his administration, have been holding a special legislative session to find a solution to the energy crisis.

Among the possible fixes are having the state borrow money and loan it to the utilities -- a popular option because the state would earn the interest on the loans -- and creating a new state agency that could generate and transmit energy on its own.

Currently, the state Independent System Operator merely acts as a collection and routing agency for power purchased from private generating companies.

Warm weather in Southern California since the New Year has alleviated some of the pressure on buying and importing energy. In the days before Christmas, state power officials were continually on the brink of ordering rolling blackouts as energy reserves dipped below one percent.

A spokesman for Davis said that negotiations have taken place between lawmakers and the utilities to discuss bailout plans, but would not go into detail.

"The governor said nobody in their right mind would like to see the utilities go out of business," said spokesman Steve Maviglio.

Consumer advocates reacted furiously to the prospect of further help for the utilities.

"If they go ahead with something arrived at in private, then there is going to be some serious backlash," said Medea Benjamin, who organized a group of protestors outside the Public Utilities Commission.

The mess has become so bad that Davis plans a plans to travel to Washington on Tuesday (Jan 9) to meet with federal energy officials utility executives. Davis today is expected to propose a legislative agenda to address electricity costs.

Meanwhile, Wall Street decided that the rate hikes were not enough to guarantee the utilities would not face bankruptcy. Officials from Pacific Gas & Electric and Southern California Edison claim their companies have spent a combined $9 billion in the past year buying energy at inflated open-market prices.

Shortly after the rate hike vote, several bond agencies lowered their ratings on the utilities. The action sent the share prices of PG&E and SCE tumbling..

"This action by the CPUC to raise rates should give us breathing room to allow the Governor and the Legislature to address the problem. Although this decision does not yet solve the problem, it is an important first step," said Robert D. Glynn Jr., CEO and President of PG&E.

The utility had been pushing for a rate hike of as much as 30 percent. But for utility customers, the financial futures of the companies are not their concern.

"I do not see how the financial problems of these companies should become the responsibility of their customers. People like me on a fixed income are not going to have the money to pay for this. Are they going to shut off our power?" said Delores Gladstone, a resident of a senior home in Pacoima, a Los Angeles suburb.

Indeed, officials at Southern California Edison warned that if the 90 day rate hike does not alleviate their financial pressures, they could order consumer rationing of energy use. The Public Utilities Commission has scheduled another meeting for January 18, and it is believed that further rate hikes could be discussed at that time.

Also causing complications during the energy crisis are the political implications of Davis's actions. Earlier this week, California Secretary of State Bill Jones, expected to be a Republican challenger to Davis in 2002, called on the governor to stop taking any campaign contributions from utilities.

According to financial disclosure statements, Davis has accepted just over half a million dollars from utilities since taking office. Jones has accepted $34,000 from the same companies since 1998.