Energy Crisis in California

14 Pages 3558 Words

ENERGY CRISIS IN CALIFORNIA

If we try to explain what happened in California,In the simplest terms, the companies supplying electricity to California failed to provide enough affordable power to the state's utilities to meet the demands of customers. The reason for this is hotly disputed. One thing is certain: Unscheduled outages at power plants supplying California's electricity increased 461 percent since deregulation. Owners of the plants now face allegations that they intentionally engineered shutdowns in order to squeeze the supply and drive up wholesale prices.

State regulation of utilities has been in place since the early 20th century to protect consumers from the capital-intensive monopolies that owned power plants and transmission lines. Under the old system, still in effect in most states, regulation means guaranteed profits for utilities but also stable prices for consumers and a reliable supply of electricity. In exchange for allowing utilities to operate as monopolies, states set the price they can charge consumers.

Beginning in the early 1990s, large industrial users of electricity began clamoring for deregulation so they could shop for cheaper prices outside their own utility's coverage area. Because some utilities had made wiser investments - not relying heavily on expensive nuclear power, for example - they were able to offer better rates. Utilities came to the conclusion it was better to join the movement than fight it. They were able to control the debate and persuade lawmakers in most states to bail them out for so-called "stranded costs" - mostly for nuclear plants. This bailout, borne by ratepayers, will cost an estimated $200 billion nationwide. With deregulation the law of supply and demand comes into play, and consumers become vulnerable to wild price swings and supply shortages. In California, as under most schemes, utilities were forced to sell their power plants to third parties. They became, in ef...