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Edison official tells business leaders deregulation failed in California

Edison official tells business leaders deregulation failed in California

(January 11, 2001)

The electricity market is broken and it's bankrupting the utilities, according to Southern California Edison Regional Director Bob Jensen, who spoke to a group of business leaders at The Management Forum sponsored by The A. Gary Anderson Graduate School of Management at the Mission Inn Thursday, Jan. 11.

If nothing is done to solve the problem, Edison, the states second largest utility will have about several weeks before it runs out of cash, Jensen said. "After that, we'll be bankrupt," he added.

Some, but not all, of the price increases for utilities can be blamed on increasing demand in a state with a burgeoning economy and rapidly growing population.

"Some of the things you've heard about gouging have to be true," he said of the soaring electricity prices that have racked up $4.9 billion of debt for the Southern California-based utility.

Trouble for Edison and other California utilities that are required to purchase energy on the open market, known as the spot market, began this summer when demand grew rapidly. Deregulation of the industry, enacted in 1996, laid the groundwork for dramatic price spikes and the threat of rolling outages.

By December, electricity rates for Edison had risen by 267 percent over pre-summer prices. And provisions of the state's deregulation law prohibited utilities from raising their rates to recover those costs.

Edison and San Francisco-based Pacific Gas & Electric have since asked Gov. Gray Davis, the California Public Utilities Commission, and the Federal Energy Regulatory Commission to step in and stabilize prices until more power plants could be brought on line.

The federal regulators have refused to act, the governor has threatened state takeovers of power plants, and a recent rate hike approved by the California Public Utilities Commission to alleviate utilities' mounting debts was too modest to do that, Jensen told the group. They met at the Mission Inn as part of the Management Forum put on monthly by the A. Gary Anderson Graduate School of Management at UCR to discuss current topics affecting business.

"The rate increases, really temporary surcharges, amount to about a penny of about 30 cents we're are paying for electricity (per kilowatt hour), he added.

A decade of population and economic growth without a likewise increase in power plant construction has contributed to the current problem, he said. Since 1996, when deregulation was enacted, demand for electricity has grown by more than 5,500 megawatts per day while new plants accounted for 672 megawatts daily. The state uses about 40,000 megawatts a day, he added.

Losses for Edison amount to about $30 million per day. The utility has laid off 1,800 employees from a workforce of about 16,000 to save about $468 million.

If power generators refuse to sell to the utilities, 40 percent of its more than 3 million customers could see blackouts of more than 2 hours in a 24-hour period, he said.

Jensen called for a return to pre-deregulation when Edison owned and operated power plants or, barring that, the drafting of long-term contracts for power. He also called for determining power prices under a stable framework to protect customers and utilities from violent price fluctuations.

Helpful web sites:

Southern California Edison:
California Independent System Operator:
California Power Exchange:
California Public Utility Commission:
California Energy Commission:

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