A California state senator warned people last night at Harvard University’s John F. Kennedy School of Government that it’s going to be a “really bad summer” in the Golden State as far as the power crisis is concerned.
A panel of experts met to answer questions on how the power crisis came about, what is being done about it and the possibilities that a power crisis could happen elsewhere.
The problem started with deregulation, which is the process of giving control of the power supply to the market to allow energy prices to rely on the factors of supply and demand. This allows more incentive for power suppliers to adapt prices to demand, more reason to develop and use technologically advanced equipment and more concern for the customers on part of utilities.
Philip Sharp, an Indiana legislator from 1975-95 and lecturer in Public Policy at Harvard, said deregulation should have worked except for distinct factors which occurred in the Western power supply.
According to Sharp, Californians made more money and used more power after deregulation. However, utility companies did not build additional power plants, creating a tight market. Since the retail price of power was fixed as part of the deregulation process, the wholesale suppliers were given no reason to keep prices low.
Sen. Debra Bowen (D-Los Angeles), who is Chairwoman of the state’s Energy, Utilities and Communications Committee, said while the demand for power has increased only 4 percent in the past year, wholesale prices have increased on an average of 28 percent with one company raising rates approximately 1,100 percent.
Michael Shames, Executive Director of the Utility Consumers’ Action Network, said it is a lack of a “consciousness of the market.”
“At what point is enough money enough?” he said.
Bill Hogan, Littauer Professor of Public Policy at Harvard, said the best solution to the problem is to “raise the prices and try to get the market power working.”
According to Shames, Hogan’s view is a nice economic solution to the problem, but there are political issues that need to be considered.
“The public would not accept a tripling or a quadrupling in their rates,” he said.
Bowen also argued the morality of telling a business it will see a 15 percent increase in its rates when the Federal Regulatory Commission has determined the “wholesale rates are not just and unreasonable.”
Sharp made it clear that what happened in California was preventable and power suppliers across the country should learn from their mistakes.
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