Placing the blame on the California
power crisis solely on the shoulders of deregulation
and the free market
because it oversimplifies a very complex
California experienced immense economic growth in the 1990's. Most significant was the technology industries, which require immense amounts of electricity to power their high-tech manufacturing plants and network infrastructures. Power demands in California increased 25% in the past decade. Under normal circumstances, California should build new power plants to accomodate this increased demand, in order to prevent power shortages. But no! Under both Republican Pete Wilson and Democrat Gray Davis, hardly any new power plants have been built. Power supply increased only 6% in the same time frame. The California blackouts would have occurred even if the pro-regulation forces prevailed and no deregulation was enforced in California, by the simple logic that when demand outweighs supply, some people will get left out.
Pete Wilson could not have predicted the surge in power demands; even if he could see the future he would have been handcuffed by the large environmental presence in California, which is responsible for the absence of new power sources. Gray Davis still refuses to adopt a long-term solution, instead, he spent government money to hire two Clinton politicos to smear President Bush and his energy expansion policy! Davis and his cohorts believe that the key to the problem is to reduce demand while maintaining the current supply. Unless there is a major scientific breakthrough in either power efficiency or alternate power sources, there is no way that the "environment-friendly" solution could solve California's power woes, it is an ideological fantasy at best. California falsely assumed that neighboring states would sell them power during rainy days; but those states were in the middle of their own economic booms and were busy building new power plants themselves. The power shortages have little to do with deregulation or regulation; a lack of domestic supply is much more relevant to the power shortages than difference in distribution methods.
Deregulation is a two-step process. First, the industries in question must be placed into private ownership, then, the market in which the industry conducts business in must be transformed into a free market. Californian lawmakers grudgingly accepted the first step of the process, they balked at the second. They insisted that price controls must stay in order to "protect" the consumers. What they really showed was their ignorance of basic economic theory. They allowed wholesale prices to vary according to market conditions but insisted that retail prices be kept frozen at artificially low rates, hence, not a free market. When prices started to rise the utilities were unable to pass the bill to the consumers, leaving them in a huge hole of debt. Both PG&E and SoCalEd were unable to pay their power bills by 2000, with their cut credit ratings.
Then, the same regulators who had caused the mess in the first place tried to rescue the "greedy corporations" by raising the price cap from $0.25 kWH to $0.75 kWH, and then removing it entirely. The utilities, freed from their constraints, immediately raised prices to try to patch their debts. Facing immense political hostility, Davis asked the federal government to help and Bill Richardson, Clinton's SOE, complied by enforcing old price caps and ordering power wholesalers to sell electricity to Californian utilities even though they could not pay for their purchases.
The California utilities were also to blame, because in 1996 wholesale power prices were at an all-time low and the utilities gladly accepted a price cap that still allowed profits. Their short-term thinking did not allow wholesale prices to rise. And the wholesale power market is no monopoly, it is a fiercely competitive market with more sellers than buyers.
Deregulation did not cause price gouging, the price cap caused it by forcing the utilities into debt. Deregulation had little to do with low supply of power, it resulted from a long-term neglect of rising demands with a stagnant supply pool. If the Californian power industry remained in public ownership and the government forced prices to remain low, then it would have forced the government to drastically raise taxes to compensate for the increased wholesale prices. Most Californians would rather know what they are paying for instead of sending extra tax money to Gray Davis, who could well be spending that money on pork barrel spending instead of solving the power crisis, something which he has yet to attempt to this very day.