BUSINESSWEEK ONLINE : JANUARY 8, 2001 ISSUE
INDUSTRY OUTLOOK 2001 -- MANUFACTURING California Deregulated Its Way into Trouble California was the first state to open its electric industry to competition, but when it comes to deregulation, first is not always best. Instead of lower prices and better service, California's consumers have experienced soaring electricity rates and rolling blackouts. Even the extra drain from Christmas lights threatened to bring down the grid. It will easily be a year before enough new power generating plants come on line to ease the state's electricity shortage. As deregulation continues, is the rest of the country in for a replay of California? Probably not. ''In commodity markets, you will have price spikes from time to time,'' says Kemm C. Farney, an electricity analyst at consultant Wefa Inc., based in Eddystone, Pa. ''But California policy has caused many of California's problems.'' Among the most striking differences between California's model and those of other states was the creation of the state-sanctioned California Power Exchange. To limit the potential for market control by a few large players, state legislators forced all power buyers and sellers to do business through the exchange, which focused on short-term purchases. Other states allow utilities to enter into long-term contracts in order to reduce price volatility and support the construction of new generating plants. Producers argue that frequent changes in policy have discouraged investment. Since 1998, when deregulation began, California has changed the maximum wholesale price for power five times. Power producers say that price caps discourage capital investment and provide an incentive for local companies to sell their power to more profitable markets elsewhere. Legislators have tried to speed up the state's notoriously slow approval process, but the not-in-my-backyard syndrome against new power-plant construction is still going strong. Last fall, the San Jose (Calif.) city council voted down a new plant for that fast-growing Silicon Valley city. Yet unless Californians see the light--and soon--the Golden State may be in for a cold, dark, and pricey deregulated future. By Christopher Palmeri _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					CONTENTS RELATED ITEMS Energy CHART: Spotlight: Oil Prices and Oil Industry Revenues California Deregulated Its Way into Trouble INTERACT E-Mail to Business Week Online

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