Deregulation led to utilities' free fall

By MICHAEL COIT
THE PRESS DEMOCRAT

California's experiment with deregulation set up a system to create competition and lower prices that instead led to tight supplies, high prices and blackouts.

Deregulation eased the private utilities' control of power generation and transmission. They were required to sell some generating facilities, and independent energy companies gained a market foothold.

Retail prices remained regulated, and the rates customers paid to the private utilities were capped. At the same time, utilities couldn't negotiate long-term contracts for power purchases.

When wholesale costs soared past retail prices, utilities were forced to purchase power at mounting losses by the summer of 2000.

The system collapsed because of several factors. Rising wholesale natural gas prices drove up costs for generating electricity. Demand grew in a strong economy. Out-of-state power supplies were reduced. And independent energy companies manipulated the market to reduce energy supplies.

Left on shaky financial footing at the beginning of 2001, PG&E sought a 26 percent rate increase and Southern California Edison a 30 percent hike. The PUC approved a 9 percent rate increase for the utilities' residential customers.

That wasn't enough to reassure Wall Street. PG&E stock was in free fall.

The energy crisis deepened and regulators of the state's power grid ordered rolling blackouts Jan. 17 - the first widespread outages since World War II. Rolling blackouts would be ordered on five more days, the last May 8.

The state was forced to buy power for the ailing utilities under costly long-term contracts.

Not even another PUC-approved electricity rate hike of up to 46 percent for PG&E and Southern California Edison in March would keep PG&E from bankruptcy.