Wild Prices Out West: What Can Be Done?

 

The problems stem from a lack of incentives for long-term, fixed-price contracts.

The end of summer found energy regulators working overtime in California to appease an angry public that had seen electric bills double and triple in some parts of the state.

Gov. Gray Davis had asked for federal support for poor families. President Clinton obliged with funds in late August, and asked Congress to focus on federal restructuring legislation. The California Republicans had asked for a special session of the state Legislature, but Gov. Davis was not giving in. The California PUC had introduced rate caps for some users, but the interest groups were not yet satisfied. Then, on Sept. 12, the commissioners from the Federal Energy Regulatory Commission traveled to San Diego to investigate whether the rules of the California Independent System Operator (ISO) actually facilitate price manipulation.

With so much political heat, chances are that any quick fix to the California power market—one that attempts to ease the pain without diagnosing or treating the illness—will only make matters worse. Indeed, at the core of this mess is the politically motivated interference with markets that was embedded in California's electric restructuring program before the state's 1998 launch of retail choice.

Californians are well advised not to repeat those mistakes. Instead, regulators must forge ahead with further market liberalization if they ever hope to achieve the lower prices and attractive options sought from the beginning for California consumers.