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California's Warning by Editors Seattle Times - August 14, 2000

Washington ratepayers can look at the doubling and tripling of electricity bills in California and marvel at what might have been. As that state and others plunged ahead with deregulation, legislators in Olympia wisely pulled back in 1998.

California Gov. Gray Davis has ordered his state's attorney general to investigate possible manipulation of the wholesale power market.

Hard lessons and regulatory loopholes exposed in California deserve close study by the 2001 Washington Legislature.

This state stopped short of deregulation because of fundamental differences in a low-cost, public-power state and the prescient warnings from the state Utilities and Transportation Commission.

Southern California was hit this summer by scorching weather and mechanical failures at two power plants. The state's new market-based rates came on line first in San Diego. For residential consumers, the pain was immediate.

California has seen steady increases in power demand and slow growth of supply through new generating facilities. The state also suffered when its reliable sources of surplus power, such as the Pacific Northwest, needed or charged more for electricity they used to export.

In the not-so-old days, the generation, transmission and distribution of electricity were regulated for stability, reliability and consumer fairness. Utility rates were set to cover costs and allow a profit.

The political push to deregulate electricity was a British import that got a boost from changes in technology and a slick marketing campaign that promised consumer choice and savings. A new category of power broker was created to move electricity around and sell it to the highest bidder.

This new free-market approach assumes all the players have equal access to timely information and customers, promoting the competition that is supposed to lower costs.

An influential September 1997 report from the state's UTC commissioners warned legislators about potential flaws and raised red flags about the risks for consumers.

Many of the issues are the ones precisely in play in California. No one may be breaking the law, but the laws are not serving the public. Open access to transmission lines has been stifled to undercut competition, and key information is too old to be useful by potential business competitors, consumers or the skeletal remains of state regulation.

California faces conflicts of interest when new electricity brokers stand to make money when the supply is squeezed on a basic commodity for which there is no substitute. They have no incentive to expand supply or avoid shortages. Businesses are making a bundle off the spikes in natural-gas prices and the short supply of electricity.

San Diego utility customers are paying the tuition to teach our state about the pitfalls of deregulation.