Energy Crisis in California

14 Pages 3558 Words

fect, retailers who purchase electricity on the wholesale market and sell it to their customers. Lawmakers assumed that new electricity retailers would spring up to compete with the established utilities, and that this competition in the open market would keep prices down.

But the new owners of the power plants were left unregulated, so California lost control over both the wholesale prices new owners charge and the amount of electricity they produce. Because only a few corporations are purchasing plants in newly deregulated markets, those corporations have the power to manipulate supplies and charge artificially high prices. They also no longer must sell electricity to buyers within a defined geographic area. The new electricity market has brought windfall profits to power plant owners. The nine largest suppliers of power to California saw their after-tax profits soar 54 percent last year to more than $7.7 billion, according to company financial disclosures analyzed by Public Citizen.
Only the Federal Energy Regulatory Commission has the power to regulate California's wholesale prices, but FERC has mostly taken a hands-off approach to California's crisis. One of the power producers, energy giant Enron, is one of President Bush's major financial backers. Most states that are implementing deregulation plans assumed there would be some price volatility. To protect consumers, these states temporarily capped the price utilities could charge. California's rate caps have temporarily shielded most residents from price increases. When the caps are removed - as they are scheduled to be in every state that has deregulated - utilities will be able to pass exorbitant wholesale prices on to consumers.
States that don't require utilities to sell their power plants are, in the short term, saved from California's fate of losing control over electricity producers. When states do not require plant divestiture but impose retail rate caps - as Penn...