Declaring that California  will regain control over the electrical power system, Gov. Grey Davis, in his State of the State speech, Monday January 8, said: "Never again can we allow out-of-state profiteers to hold California hostage. Never again will we allow out-of-state generators to threaten to turn off our lights  with the flip of their switch."

California's power crisis surged through the political and financial worlds in late December as a sharp jump in the profit outlook of major electricity generators supplying California renewed controversy over alleged price gouging on the eve of public hearings to hike consumer bills.

The forecast of higher profits, which helped trigger a stock market rally in the key energy sector, came while Gov. Gray Davis met with Federal Reserve Chairman, Alan Greenspan in Washington.

Searching for solutions Davis, speaking on Monday January 8, gave up any pretense of supporting the free market concept. He offered a wide-ranging prescription that would greatly expand state involvement in the power system.

"California's deregulation scheme is a colossal and dangerous failure," Davis said. "It has not lowered consumer prices, and it has not increased supply. In fact it has resulted in skyrocketing prices, price gouging and a unreliable supply of electricity. In short an energy nightmare."

Wholesale electricity in the state has risen from an average of 3 cents per kilowatt-hour in the first  four months of 2000 to 18 cents in August. By December 2000, long after the summer peak in demand, the average price was more than 25 cents for the same amount of electricity. Most of the electricity generators and traders that sell into California's lucrative market, are expecting strong profit growth.

"I am not going to let these electricity generators, making eight and nine hundred percent [profits] ... unduly drive California to its knees," Gov. Davis said.

Davis suggested California with the state's 30 municipal utilities, such as the Los Angeles Department of Water and Power, to build power plants. If that won't work, the state should establish its own power authority to buy and build new plants.

In a message directed at utilities and Wall Street, Davis said the state must prevent Southern California Edison, PG&E, and San Diego Gas & Electric from going bankrupt. While acknowledging there is no easy solution to the utilities' debt, estimated at as much as $11 billion, Davis threatened to use the power of eminent domain to buy power plants to ensure wholesale electricity prices would become stable.      Emphasizing conservation, Davis called for a

power reduction by all Californians. To help that happen, he said he would offer $250 million worth of cash incentives to people who replaced old refrigerators. washers and air conditioners, and built what he called "energy-smart" homes, schools and businesses.

Additionally, he plans to set aside $1 billion   "to help stabilize the power supply and price of         electricity...and help provide new power generation to meet the demands of the future.

Davis called for several short-term fixes, urging the legislature to approve measures that would:  

• Prevent California's three largest utilities from selling their remaining power plants. Edison, PG&E and SDG&E control 15% of California's power generation  capabilities.  They owned 55% of the power generation before the 1996 law deregulating the electrical system.

• Overhaul the board that oversees the power grid making the members government appointees rather that energy company representatives.

• Revamp the bidding process for electricity, so utilities can buy electricity at lower prices.        

•  Expand  the  governor's emergency powers in electrical power emergencies, and make it a crime for power generators to withhold power from utilities. He also called for $4 million to help the Department of Justice investigate the energy crisis.

For the long term, Davis said, the state should:

•  Provide low-interest loans for construction of power plants and refurbishing of old ones. Owners would have to agree to sell power within California.

• Require local utility districts to sell excess power to Californians.

• Increase the California Department of Water

Resources' power generating capacity.

• Use co-generation and other techniques to make campuses of the University of California,  state university and community college systems energy independent.

The governor continued his attack on out-of-state power producers that own much of the power sold in California, and on federal energy regulators  who have "shirked [their] responsibilities to protect ratepayers from this legalized highway robbery."And "there's evidence that some generators may be purposely withholding electricity from the California grid to create artificial scarcity, which in turn drives up the price astronomically" the  governor said.

The Los Angeles Department of Water and Power retained public ownership of their municipal power plants.  They have been able to supply their own needs and sell surplus power to neighbouring districts.  Instead of increasing their power rates, they have been able to hold the price line and even consider a price reduction. 

Other noteworthy excerpts from

Governor Davis's speech are:

"We have literally lost control over our own power. We have surrendered the decisions about where electricity is sold--and for what price-to private companies with only one objective: maximizing unheard-of profits."

"And make no mistake: We will regain control over the power that's generated in California and commit it to the public good"

Harry Rosenfield, who warned against electricity deregulation, says, "I can tell you that, right now, 'deregulation' has become a dirty word,"

For Rosenfield and the Foundation for Taxpayers and Consumer Rights, the Santa Monica non-profit  group  he  heads, the  energy  crisis, largely brought on by deregulation, could mean a return to winning  seasons  in  the  Legislature  and  ballot initiative campaigns.

Material taken from the Los Angeles Times, January, 2001.    Are there lessons to be learned? Does "deregulation" mainly benefit the investor rather than the consumer?  Does "deregulation"  automatically guarantee "true competition" or is it more likely to result in some form of "pseudo, or false competition?" eg. Oil company competition at the gas pumps.

Are the consumer's best long-term interests better served by a publically owned monopoly or by a privately owned oligopoly?                             

• Require local utility districts to sell excess power to Californians.

• Increase the California Department of Water

Resources' power generating capacity.

• Use co-generation and other techniques to make campuses of the University of California,  state university and community college systems energy independent.

The governor continued his attack on out-of-state power producers that own much of the power sold in California, and on federal energy regulators  who have "shirked [their] responsibilities to protect ratepayers from this legalized highway robbery."

And "there's evidence that some generators may be purposely withholding electricity from the California grid to create artificial scarcity, which in turn drives up the price astronomically" the  governor said.

The Los Angeles Department of Water and Power retained public ownership of their municipal power plants.  They have been able to supply their own needs and sell surplus power to neighbouring districts.  Instead of increasing their power rates, they have been able to hold the price line and even consider a price reduction. 

Other noteworthy excerpts from (Governor