California's crisis: keeping the lights on

Shock therapy: Largest state must pay for poor deregulation scheme, but federal price cap needed.

January 11, 2001

CALIFORNIA'S power crisis was not caused by deregulation, Marylanders should understand, but by a series of shortsighted political blunders and energy mismanagement.

The result is a critical electricity shortage, soaring rates, rolling blackouts and potential bankruptcy for major utilities. In what is the world's sixth-largest economy, these financial shock waves threaten the nation.

Californians must take the main responsibility for recovering from this classic failure to acknowledge the basic laws of supply and demand.

So far, the state's response has not been encouraging. There's a $10 billion state surplus available for relief to consumers and utilities caught in this nightmare. Instead, the governor warns of seizing private power plants.

Raising artificially frozen consumer power rates, floating state bonds to help utilities meet their mounting debts, allowing utilities to negotiate long-term supply contracts, accelerating construction of power plants -- and serious individual energy conservation measures. These are among the necessary, difficult steps that California must take.

But the Federal Energy Regulatory Commission must also help by establishing short-term, fixed-price caps on the wholesale cost of electricity in the West Coast region. While no permanent solution, it can bring needed stability to the Western power grid, where price gouging has distorted admittedly short regional supplies.

Energy deregulation has worked better in the 23 other states, including Maryland. Power capacity has been sufficient to meet growth; unrealistic rules were not imposed.

As energy prices rise, however, consumers must pay. Natural gas prices have quadrupled over the past year, and Marylanders are paying much higher heating bills this winter. Deregulation does not assure low prices, but fair prices.

California needs to recognize its folly of discouraging new power plants amid rising demand, freezing consumer rates while forcing utilities to buy power in the unreliable, short-term spot market.

And so should the rest of the nation, as more states move toward a deregulated energy market.

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