Utility Companies In California example essay topic

Will the Lights Go Out In California? In today's society, our state and national government doesn't hold much trust from its citizens. From the terrorist attacks on September 11th, we have been fed shoddy information about prior knowledge, instigation's, and about warnings that our government ignored. Now, California is faced with an alarming tragedy caused by its government and political officials.

California's governor, Gray Davis, declared a "stage 3" state of emergency amid an energy crisis termed as being one of "third-world dimensions. (Economist, 2005) This isn't the first energy crisis in our country. Several other states have been on the brink of disaster, but have managed to pull themselves out with minor injuries. How is the problem in California different than in other states? The deregulation of the state's utilities is the answer. Upon signing the deregulation policies, California allowed for wholesale electricity and put a freeze on retail rates.

(The Economist, 2001) In an article titled, "A state of gloom", a publication called "The Economist" states that this "Catastrophe has been looming for some time now. The residents of California have been experiencing "brown outs" since being declared a state of emergency in January. Not only is this a nuisance to the residents, it can prove to be quite costly as well. Each time the power is shut off and turned back on, it causes a surge. These surges have been known for "frying" appliances, computers, as well as starting fires. Because of the way the deregulation policies were written, California was unable to raise rates to its electrical consumers.

The residents of California were not conserving energy because it was not costing them any more money to do so. The utilities claimed that they needed a 30% rate increase in order to survive the despair. What they got, was less than anticipated. A 10% temporary rate increase was approved by the legislature, however that was only in affect for three months. The utility companies in California are forced to pay more for the electricity than they are allowed to collect from their consumers. In turn, they are building up debts to banks and electrical suppliers which they are unable to repay.

The supply of electricity has fallen, the demand has risen, yet the consumers are still paying the same prices due to the price freeze enacted by the government. This is a perfect example of a system destined to fail. Because of the rising costs of electricity throughout the nation, California might want to rethink its position of a price freeze all together. If the price does not increase, the supply continues to be short, and the demand continues to rise; California could be in the dark for quite some time. The state has made no attempt to attract other electrical suppliers.

In fact, because of the stringent environmental laws in California, suppliers do not want to do more business there. The states utilities have not built a new power generation plant in over a decade due to the unattractiveness of the state. (The Economist, 2001) California's demand had skyrocketed during the 1990's. The table below was taken from The Economist article, "A state of gloom" and depicts the 25% increase in electrical consumption during that time. The table clearly shows that the demand for electricity has continued to rise during the 10 year span and the capacity to provide the electricity has staggered. Even with the slight increases in capacity, the table shows that the majority of the time, the capacity was declining.

One suggestion on how to solve this crisis was to allow the utilities to file bankruptcy. This idea may sound reasonable; however it does not provide solutions for the future. The reality is that there are still deregulation laws that are halting the growth and stability of the state's utility companies. In order to resolve the current crisis, the state government must find solutions on how to deal with the past, present and future power debts. As of the date that The Economist published this article, the past debt was around $12 billion dollars owed by the utilities to banks, power suppliers, and creditors. The state of California needs to intervene for the well being of the state and its residents.

Providing a guarantee to pay the past debts slowly and finding long-term contracts with more reasonable prices would be the only logical way out of this mess that they have created. California also must reform its laws so that the power companies will be attracted to new power generation. This will mean upsetting the environmentalists as the state would have to allow for some relief to the environmental regulations that it currently holds. Texas found itself in a similar crisis and fought hard to pull them selves out without having to resort to drastic measures. With a little bit of innovation and help from the government, California will find that the United States is a bright and cool place again.

Resources The Economist, (2001, Jan.) A state of gloom. Retrieved from web id = 478833 on February 10, 2005 via the UOP Library..