History of the California Power Crisis

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Until the early 1990s, the electricity industry was regulated in the United States. Utility companies under private ownership in California made large profits because of their right to operate under a monopoly for government regulation. Regulation essentially meant that businesses had to buy their electricity from certain companies; in California, the main power distributors are Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. These utility companies were regulated by the California Public Utilities Commission (CPUC) out of San Francisco.

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People rallied for deregulation, which would force utility companies to act only as energy providers, and sell their power generating plants. Deregulation also ensured that energy prices would stay the same until utilities paid off some of the debt that they had acquired and sold their assets. Under deregulation, the prices consumers paid stayed the same, while the amount of money that the utilities paid the power providers fluctuated. This gave utilities a chance to expand and try their luck on the free market. Consumers supported deregulation because it meant that there would now be competition between utility companies, resulting in lower prices.

In December 1995 the CPUC voted unanimously to abolish the energy regulation system, and in 1996 the legislature was passed, which made California the first state to deregulate its energy. At first, everything went well, prices were low and rates were steady, but in early 2000, things began to decline. A heat wave made electricity demands skyrocket and there were few new power plants to supply the demand; also, a drought limited the hydroelectric power that was available. Energy prices shot up because there wasn’t enough power being generated to supply the state.

This meant trouble for the utility companies because even though they had to pay more money to obtain power from the providers, consumers only had to pay fixed rates. Power supplies were shrinking which led to rolling blackouts for two days straight in January 2001. In April, PG&E was forced to file for bankruptcy because of debts. Now consumers are paying nearly twice as much money as they did before deregulation. Who knows when this crazy mess will be resolved?

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