California Screamin’
by Richard G. Johnstone Jr., Editor

Richard Johnstone
Richard Johnstone

With apologies to The Mamas & The Papas, who were "California dreamin’ on a winter’s day" some 35 years ago, most of the dreaming done nowadays about California is of the nightmare variety. A nightmare wrought specifically by legislators and utility executives who, in retrospect, made the wrong decision at seemingly every turn in deregulating that state’s power industry in the mid-’90s. And when you add in some bad luck on the weather front — a hotter than usual summer in ’00 and a colder than usual winter in ’01 — you’ve got a state undergoing the nation’s most serious energy crisis since the two OPEC-induced oil crises in 1973 and ’79.

It’s a crisis that saw San Diego-area residents pay electric bills last summer that were two to three times what they had previously paid.

It’s a crisis that has two huge utilities teetering on the edge of bankruptcy as of press time (and either Southern California Edison or Pacific Gas and Electric, or both, may well have filed for bankruptcy protection by the time you read this).

It’s a crisis that has seen rating agencies downgrade the financial ratings of both utilities, to the point where the bonds of both are rated below investment grade, and fall into the status of junk bonds.

It’s a crisis that resulted in rolling blackouts in mid-January, cutting off power to everything from ATMs to traffic signals to homes and businesses.

It’s a crisis that has seen the unprecedented action of the governor and legislature declaring the need to step in and purchase wholesale electricity for the state’s residents and deliver it to them through existing utilities.

And it’s a crisis that results, in large measure, from the state’s failure to address the supply end of the equation, even as demand was growing aggressively over the last few years due to a booming economy that included power-hungry dot-com companies. According to the January 16, 2001, edition of The Wall Street Journal, over the past eight years demand for electricity in the state has grown by 25 percent, while supply has grown by only 6 percent. Clearly, it’s a case of near-stagnant supply meeting rapidly growing demand, and in any competitive market situation where that happens, prices go up. Compounding this problem have been increases in natural gas prices, and the previously mentioned weather extremes and ill-planned deregulation policies by the legislature and the state’s utilities.

So will California’s unfortunate experience be replayed in other states, particularly Virginia? In a word, no. There are other states having varying degrees of success with electric utility deregulation, and certainly no problems of the sort, much less the magnitude, of those being experienced in California. In those states — including Pennsylvania, Wisconsin and Texas — a lot of attention was paid to increasing the supply of electricity, in order to avoid the kinds of problems going on in California.

And in the Old Dominion, Virginia’s lawmakers wisely built in protections, both for consumers (rate caps) and utilities (recovery of stranded costs incurred in building existing power plants), and also built in a long timeframe that will see competition begin in 2002, be complete by 2004, yet have the rate caps in place until as late as 2007. Because of the prudent, conservative nature of Virginia’s lawmakers — and the strong voice that Virginia’s electric cooperatives exercised in pushing for protections for the proverbial "little guy" as the legislation was being considered and passed in 1999 — the California experience with electric deregulation will not be repeated in Virginia.

And on the subject of supply, the cooperative that supplies most of Virginia’s local cooperatives with all their power needs — Old Dominion Electric Cooperative — hopes to build two natural gas-fired power stations, one in Louisa County and one in Fauquier County, in order to meet the growing demand for power among electric cooperative consumer-owners. These plants would run on the hottest and coldest days of the year, when demand for electricity typically goes up. Such planning is part of your cooperative’s ongoing effort to supply you with the most reliable, environmentally responsible power at the lowest price possible.

After all, this has been your cooperative’s central focus for 65 years. And please be assured that it will be your cooperative’s abiding commitment to you as competition among electric suppliers comes to the Commonwealth beginning next year.


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