California’s Public Utilities Commission has voted 3-2 for the immediate suspension of consumers’ “direct access” to independent power retailers. The move effectively marks the death of competition in the state. The decision to further dismantle the 1996 law to introduce competition among power generators and drive down electricity prices will inevitably raise concerns for other states that are deep in the process of deregulating their own markets.
The move to return retail customers to utility suppliers will ease concerns that the state would be hard pressed to find the revenue required to fund a forthcoming bond issue used to repay the state Department of Water Resources (DWR) for its emergency power purchases. The DWR was forced to secure electricity for most of California’s 34 million residents after soaring wholesale power prices drained utilities of cash and credit. The two largest utilities in the state, Pacific Gas & Electric and Southern California Edison, were forced to absorb around $13 billion losses over the crisis and both are still in deep trouble.
The collapse of the competition experiment has largely been blamed on the 1996 law’s retail rate cap, which blocked investor-owned utilities from passing wholesale power costs on to consumers, a flaw built on the assumption that prices in the wholesale market would fall as a result of competition. In the event, with restricted energy supply and burgeoning demand, wholesale prices leapt to undreamt of heights.
Despite the loss of retail choice, the CPUC has estimated that around 10 000 businesses that signed new deals this summer when wholesale power prices dropped will be able to keep their existing contracts.
