California’s electric power crisis is due to a poorly constructed electrical industry deregulation or restructuring plan, and also to the failure of the state to build new power plants, notes Newsweek’s Robert J. Samuelson.
But that doesn’t explain why the crisis has come in the middle of winter, which is the off-peak season for power consumption and thus the time of the year when wholesale prices usually decline. For instance, the record high in California’s summer-peak demand (45,844 megawatts on July 12, 1999) was a third larger than that in its winter-peak demand (34,432 megawatts on Dec. 13,1999).
Samuelson notes that in March 1999 Southern California Edison asked the California Public Utility Commission (CPUC) for permission to make long-term purchase contracts for electricity. This would have provided a stable source of power at fairly stable prices. It would have relaxed pressure on the spot market. The CPUC refused.
Without long term contracts, California utilities have been forced to buy wholesale power at the short term, spot market price while the retail rates they charge consumers are frozen. As a result, they have been forced to borrow heavily to purchase electricity, and now face bankruptcy.
Source: Robert J. Samuelson, The American Energy Fantasy, Newsweek, January 29, 2001.
For text http://www.msnbc.com/news/519122.asp#BODY
For more on Electrical Power http://www.ncpa.org/pd/regulat/reg-4.html
FMF Policy Bulletin / 19 January 2010
