NIGHTLY BUSINESS REPORT

YASTINE: Well, Paul, federal energy regulators OK’d new rules to prevent power shortages in California as that state deals with sharp spikes in electricity prices. California was once considered a model for utility deregulation, but as Pat Anson reports from Los Angeles, there’s now talk of re-regulating the industry.

 

PAT ANSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Faced with skyrocketing energy prices and an almost daily threat of blackouts, Californians are dimming their Christmas lights to conserve electricity. Many are saying the plugs should also be pulled on the state’s three-year experiment with deregulation.

 

DOUG CHRISTOPHER, SENIOR ANALYST, CROWELL, WEEDON & COMPANY: It’s very clear that from what we’ve seen is that it is a disaster and the reason that it’s a disaster is because it’s not really true deregulation.

 

ANSON: In exchange for the free market system they lobbied hard to get, California utilities sold many of their power plants and agreed to keep rates frozen until the year 2002. That rate cap is now threatening the financial health of the state’s two biggest two companies. Southern California Edison (EIX) and Pacific Gas & Electric (PCG) can pass onto consumers only a small fraction of what they pay for electricity on the wholesale market. Faced with billions of dollars in losses, there is even talk of bankruptcy, although consumer activists see that as nothing more than a ploy to get that rate cap lifted.

 

HARVEY ROSENFIELD, FOUNDATION FOR TAXPAYER & CONSUMER RIGHTS: It’s not the rate payer’s responsibility to bail out companies that make stupid mistakes.

 

ANSON: Harvey Rosenfield says bankruptcy would teach the utilities a much needed lesson.

 

ROSENFIELD: And what’s happened here in California to the rate payers of this state, this whole rate deregulation debacle is a crime and people need to be punished for engaging in it. And these utilities, especially Edison, were paramount in perpetrating the crime and a little punishment would serve as a good message around the nation.

 

ANSON: Deregulation was supposed to keep energy costs down through competitive bidding and a free market system, but critics say the system is being manipulated by power producers, driving the cost of electricity higher and higher. Because of all the problems, Edison has started lobbying in Sacramento for a return to regulation. Analysts say the threat of bankruptcy carries a lot of weight.

 

CHRISTOPHER: To even consider having these electric utilities go bankrupt would be political suicide. I think this is an industry that is truly one of the industries that is better off regulated and that should be run as a monopoly.

 

ANSON: Recreating that monopoly would be very expensive. Utilities would have to buy back the power plants they sold a few years ago.

 

GEORGE SLADOJE, PRES., CALIFORNIA POWER EXCHANGE: We can’t go back. It’s totally impractical. The investor owned utilities sold these plants and they sold them at handsome profits. And to purchase them, I’ve heard estimates would cost anywhere from $10 billion to $20 billion to purchase these plants back.

 

ANSON: But the alternative could be even more costly. Analysts say if energy prices don’t come down soon, they could trigger a recession in California. Pat Anson, NIGHTLY BUSINESS REPORT, Los Angeles.