In California, particulary here in the Bay Area, we’ve been subjected to the threat of power outages. We’ve also been asked to turn off our XMas lights during peak periods. During the summer, the San Diego Area was subject to price spikes, driving some consumers rates up as much as 3 times over the previous year. They have indicated that this is a result in higher wholesale prices. PG&E has also requested that they be allowed to pass through their cost for higher wholesale prices on to their customers as well. They indicate that they’re borrowing heavily to pay higher wholesale cost.
California system is deregulated, supposedly to introduce market forces which will drive down prices.
It’s system is set up thusly.
Consumers purchase their energy through a provider like PG&E
Providers purchase their electricity through the Cal PX (a wholesale distribution center, not a public entity btw)
The Cal PX sets pricing by accepting bids for power from generators (power plant owners), a day in advance and must also maintain bids for a same day reserve. Power for that day is determined by the highest bidder. (I underlined that because it’s not a misprint, and on the surface seems backwards, but maybe one of you Dopers will clue me in) When power is higher than anticipated, they then get more from the same day bidders.
In 2000, wholesale prices were 7 times higher than the previous year.
So what say you all?
FTR, some information on this post was obtained through this report, by the California PUC. Very interesting reading.
Ahha something I know about. I work in the Electric Utility industry in the Midwest. I have watched California carefully for several years because deregulation was enforced there a few years ahead of the midwest. As I see it, there are three main reasons why the California customer has had to may more instead of less for power. (This is partially stolen from an latimes.com article from a few days back that I can’t find anymore.)
Local power companies severely underestimated future demand for power and so failed to build sufficient local power plants.
Local power marketers failed to see this mistake and so did not make long term contracts for power from elsewhere leaving the possibility for remote power marketers to ask whatever price the market could bear.
Power plants are long term projects and so, though local power utilities are aware of the problem, they cannot build new plants quickly.
There are some additional problems resulting from laws restricting the construction of high volume power lines due to concerns about magnetic fields and cancer.
Let me point out to you that, though I don’t think the Federal government can be blamed for your problems because I think deregulation is a good thing, your local government CAN be blamed because it was largely in charge of predicting the future power needs of the area. Those in the northern midwest (not including wisconsin which has another whole set of problems) should not have these problems because there is currently more power production here than is being used. For backup, we can easily import cheap Canadian Hydro power. We already have some pretty good agreements with Saskatchewan and Manitoba Hydro. It is to their benefit to keep on good terms with Minnesota and North Dakota utilities because they need to go through them to sell power to the rest of the USA. So, MAPP, the Mid-Continent Area Power Pool, should be able to avoid these pitfalls. I’m sure new problems can be found.
Thanks VileOrb, but that doesn’t go all the way in addressing why prices have risen so much. Though I do agree that’s part of the problem. Since deregulation forced the power companies to auction off their generation units to third parties. I don’t see how this would make much of a difference. Basically I’m saying that even with more plants, because of the way California set up its power network, they in effect created a sellers market, where generators can charge as much as they like.
It’s politics, which is a fancy name for gouging- wanting more than your rightful share of the pie. With Gov. Davis taking about tightening the power company’s collar, though, they may have reached the end of that tether.
I wonder, how long has this deregulation been in effect? Markets like this may take time to stabilize. Remember, they just had the rug pulled out from under them, and now once-safe government endorsed “monopolies” are in a much different position.
Here in the greater Boston area there were rent-control measures taken. Those were repealed 5 years ago (IIRC) and the apartment rates FLEW up. They are, IMO, artificially high now. I remember several news stories on these high costs recently, and many real estate agents were telling a similar story: the market, no longer srtificial, needs to stabilize. Everyone is predicting prices to settle down a bit, but not down to where they were when controlled. The truth be told, high prices aren’t always a sign of people ripping you off “because they can.” That may just be the market value of power in your area. Of course, they might be robbing you, too. Hard to say. The deregulation may have been premature, as well, without significant safety measures set up.
aynrandlover Deregulation began in 1996, but it’s phased through out the state for example: SDG&E regulated rates were phased out in 1998, but PG&Es rate is frozen till 2002. That’s why SDG&E prices went up, but ours (power) only got unreliable, TILL NOW. PG&E has sent notices letting customers know that due to deregulation and higher wholesale cost we would see higher bills.
Here’s a couple of blurbs form the report I thought telling:
and
and
Btw, I agree that some measures would have prevented the run up on proces.
One of the problems contributing to California’s problem is just how difficult it is for natural gas companies to construct pipelines and compressor stations to deliver the gas that powers the electric companies. The specific reason I’m referring to is the environmental regulations that are restricting much of the natural gas industry in California.
Not only are there the Federal statutes (NEPA and the ESA), but California has developed its own Endangered Species Act (CESA), which in many ways is more restrictive than the Federal one. Companies just can’t build there anymore. The ones that want to right now are looking at years before any construction could commence.
Just last month, a pipeline company filed an application that would service natural gas to southern California. The compressor station would be located just over the border in Arizona, and the pipeline would run south into Mexico; then west to a delivery point in Baja. Then, the gas would be sold to the company’s Mexican contracts, as well as back over the border to utility companies in Southern California. Mainly, to avoid the restrictive environmental regulations that would prevent such a pipeline in SoCal.
My perspective on what is going on in SoCal is pretty much limited to the environmental aspects. I wish I knew more about the markets, rates, and tariffs part of all this, but that is not my field.