The California Energy Crisis (revisited)
The energy crisis now being experienced in California is an example of the problem with deregulation in the electric generation industry. Unlike natural gas which can be piped or shipped intact from one end of the country to the other or oil which also can be trucked from anywhere to anywhere providing there are roads, electric power cannot be easily trasmitted over wires for any great distance because of the power losses that occur the longer the transmission lines.
For example, Mid-west utilities can not competitively sell electricity to the Northeast because the power losses would increase to cost of providing the power so as to not be competitive with power producers already located in the Northeast.
After deregulation, what customers (business and residential) have to choose from are essentially the very same providers they were buying their power from before deregulation, but now without the oversight of a public utility commission to insure the customers are getting a reasonable deal and the producers are making a reasonable profit.
What is happening in California where wholesale prices prices are skyrocketing with no near term end in sight and the statewide Public Utility has set fixed retail prices. The California utilities are buying power on the 'spot' market at high prices and forced to sell to customers at fixed prices. Spending more money than your taking in is a recipe for disaster and the utilities are going broke and power providers are reluctant to sell them electricity if they may not get payed for it. What's needed is a policy whereby utilities can set up long term contracts to cover the electricity needs and not be forced to buy as you go at spot market prices.
This is just another case of what was a well intentioned policy, but one that will continue to backfire every time it is implemented unless some intelligence is built into the process like allowing utilities to recoup their reasonable costs.
1/5/01
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