By Kevin Lee
Daily Bruin Contributor
The price of power in California is skyrocketing due to a state
energy deregulation plan gone wrong.
However, the UCLA area is unaffected since it falls under the
jurisdiction of the Los Angeles Department of Water and Power, a
company exempt from deregulation.
Los Angeles, Glendale, Burbank, Riverside, Anaheim and
Sacramento were all unaffected.
Twenty-four million Californians under Pacific Gas and Electric
and Southern California Edison have been affected by the power
crisis.
May Leung, a third-year chemical engineering student, noticed
that her parents, residents of the Bay Area, were complaining about
the power bill.
“My parents said the price of natural gas is going up a
lot,” Leung said.
In 1996, the California legislature instituted a state
deregulation plan for private utility companies, according to the
Los Angeles Times.
The plan opened the private power industry to open-market
competition by freeing PG&E, SCE and San Diego Gas and Electric
from government regulation.
In the past, private utility companies agreed to government
regulation in exchange for maintaining their status as electricity
monopolies. The Public Utilities Commission was the organization
that set the rates.Â
But California electricity rates were among the highest in the
nation, and free-market proponents pushed for an open-market
economy to lower rates. Businesses from other states were reluctant
to move into California unless rates decreased.
Under deregulation, PG&E, SCE and SDG&E agreed to sell
their power plants and purchase power on the market from outside
wholesale power plants. Every day, the utility companies would bid
for different wholesale power producers to see where they would get
their power.
Free-market competition also gave consumers a choice of which
utility company to be under.
“I believe that it is more efficient to have energy be in
a competitive market,” Steve Puller, a graduate student
researching at the University of California Energy Institute, said.
“But the downside is that it is also more
volatile.”
A problem arose in the late ’90s as power demand in
California grossly exceeded what could be supplied by utility
companies. The burgeoning Silicon Valley computer industry greatly
contributed to the rising demand, which was three times greater
than originally anticipated.
The price for natural gas also increased, which directly affects
the price of electricity. Natural gas is needed to run the fans
that produce electricity.
“Most Californians don’t realize how expensive it is
to produce electricity,” Puller said. “People need to
learn to shut off those computers and lights to conserve
electricity.”
During this time, PG&E and SCE were not allowed to raise
their rates to match the overwhelming increase in demand for
power. As a result, PG&E and SCE claim to have spent $11
billion extra to meet power demands.
SDG&E was not under a rate freeze and could therefore pass
some of its rising expenses onto their customers.
Last week, California power officials granted PG&E and SCE a
nine percent increase in residential rates, which translates to a
$5 rate hike on the average household electric bill. The two
companies were granted a 15 percent hike in rates for commercial
users.
State Treasurer Phil Angelides has also released a proposal to
create a $10 billion state authority which would construct more
power plants and take ownership of the transmission system
currently owned by private utility companies, according to the L.A.
Times.
U.S. Secretary of Energy Bill Richardson made a temporary order
for electricity producers in the West to sell their surplus to
California. Richardson’s order also requires California to
find ways to reduce electricity demand 5 percent by Jan. 15.
Some students view the rate hike as a positive thing.
“It’s better to raise prices if there is a power
shortage so that people will be more inclined to conserve
power,” Henry Yei, a third-year electrical engineering
student, said.
Despite the rate hikes, PG&E and SCE still say it is not
enough to get them out of debt.
As a result, the stocks for both companies on Wall Street have
plummeted.
West Hollywood, which is normally serviced by Southern
California Edison, is planning to leave the company for the
Department of Water and Power, a public municipal company.
“The DWP was eventually planning to go under deregulation
in 2002 or 2003,” said Randy Hough, a spokesman for the
Department of Water and Power. “But seeing how things are
now, our residential customers would be perfectly happy sticking
with government-regulated power.”
Other states originally prepped for energy deregulation have
stopped in their tracks. Nevada has recently suspended its plan for
state deregulation. Arkansas is moving to delay deregulation by at
least two years. A total of 25 states have taken such actions in
light of California’s power crisis.
CALIFORNIA POWER DISTRIBUTION
In 1996, PG&E, Southern California Edison, and San Diego
Power and Electric were deregulated.
SOURCE: California Power Exchange, Los Angeles Times
Original by MAGGIE WOO/Daily Bruin Web Adaptation by HERNANE
TABAY/Daily Bruin Senior Staff