california's public utility commission (puc) has increased electricity prices by 46 per cent. This hike is the largest increase in the state's history. The prices have been increased in a bid to avert frequent blackouts that are threatening the state's economy and also to save the state's electricity producers from bankruptcy. This decision will allow two of the state's major investor-owned utilities, Pacific Gas & Electric (pg &e) and Southern California Edison (sce), to raise electricity prices by 46 per cent and 42 per cent respectively. puc oversees both these utilities. The two utilities have not paid their bills for many months saying they are penniless because under deregulation of the power industry, wholesalers have been allowed to float prices, while retail rates have been capped.
Under the earlier system, wholesale suppliers could charge utilities whatever the market would bear, but the utilities were banned from putting up retail rates for their customers. Because of this, both pg & e and sce have arrears amounting to over us $14 billion till the beginning of 2001. The price increase is expected to raise us $5 billion each year for the utilities.
The increase will come into effect from May 2001. The authorities say that the hike has been designed in such a way that "the more the consumers use the more they pay and the more they conserve the more they save.' "Under a tiered rate system, major power users would face the greatest increases, while light users would face little or no increases,' said puc president Loretta Lynch. The increase in prices will affect customers whose energy consumption is in large proportions. Around 45 per cent of customers, including households with small electricity bills, will not be affected by the increase, but many businesses will have to share the burden of the new rates.
Consumer groups, however, doubt the claim of the authorities saying that the increase will affect the people indirectly as commercial power customers, from small businesses to supermarkets, will pass on their higher electricity costs through price increase. "This is basically a smoke screen to cover the real deal here, in which the government is going to make the ratepayers bail out the utilities,' said Harvey Rosenfield, president of Santa Monica-based Foundation for Taxpayer and Consumer Rights. Before the price hike, power costs in California were slightly higher than the national average, but lower than the prices paid in New York and other northeastern states.
Analysts say that California's energy crisis is a result of imbalances in supply and demand of electricity. It has worsened over the years with the winter of 2000 seeing the prices of natural gas soaring to their highest level in 15 years. In recent years, electricity demands in the state have grown at an annual rate of four to six per cent. However, no major new power plants have been built in the state because of the complex procedures for finding adequate sites for plants. Apart from this, the state has tight air emissions regulations for traditionally coal-powered power plants. The crisis has grown worse with electricity demand increasing in neighbouring states that had exported power to California.