By The Associated Press=
Q: What is happening with California's electricity market?
A: For months, two utilities serving 25 million people have been paying dramatically higher costs for wholesale electricity. Pacific Gas and Electric Co. and Southern California Edison Co. can't recoup those costs: A rate freeze _ part of the state's 1996 deregulation law _ caps what they can charge their customers.
Since June, the utilities have lost about $9 billion. Wall Street has downgraded their credit worthiness, wholesalers are reluctant to deal with them and the utilities are warning of bankruptcy.
Q: What is the state doing about the problems?
A: The Public Utilities Commission has approved rate increases for the utilities. Experts and analysts say the move won't raise enough money. Rates will go up 9 percent for homes, and between 7 percent and 15 percent for businesses. The rate increase is good for 90 days, but can be extended by a year.
Q: Why was deregulation put into effect?
A: Traditionally, California has had higher electricity costs. In the mid-1990s, large customers wanted a break in their energy bills and said competition could lower rates. The utilities also wanted out from under regulation. Consumer groups _ now the most vocal critics of deregulation _ were neutral on the plan, which became effective in 1998.
Q: What was deregulation supposed to do?
A: The idea was to require utilities to buy power on the open market, presumably at lower, competitive costs and pass those savings on to consumers. The rate freeze is to expire in March 2002, once utilities get rid of power-generating assets to boost competition.
Q: What happened?
A: When deregulation was approved, the state enjoyed excess electricity capacity. But the state's grid has become stressed by higher demand, aging power plants and less imported electricity. Wholesale electricity prices have increased roughly fivefold since the summer.
Q: What happens next?
A: One question is whether the Federal Energy Regulatory Commission will curb wholesale electricity prices. Another is whether state regulators will boost rates again and a third is whether Wall Street will downgrade the utilities' credit ratings still further. The utilities say some wholesalers already want to sell only on a cash-and-carry basis, which means the utilities may ration power to millions of customers if they can't buy enough electricity.
(Copyright 2001 by The Associated Press. All Rights Reserved.)
