Power To The People

The question, of course, is how. Initially, California's hastily implemented deregulation wouldn't even permit utilities to hedge their bets with long-term fixed contracts--a key ingredient of successful deregulation efforts in states such as Pennsylvania and Maryland. The fear, ironically, was that they would lock in a high sale price today at the risk of missing out on a lower one tomorrow. Instead, they've had to pay top dollar on the daily spot market.

Consumers aren't helping much either. Shielded from the vagaries of the free market by an artificially low rate, they have had no financial incentive to conserve. "It would be unfortunate, but probably healthy, to have a few blackouts so people would appreciate that this is a real problem," says Peter Cartwright, chairman of Calpine, a California-based generator.

Many blame California's woes on the profit-mongering generators themselves, for colluding to drive up the price of electricity, a charge they vehemently deny. The Federal Government, which recently forced generators to keep selling power to the utilities despite their precarious balance sheet, could impose a wholesale-price cap. But that might discourage much-needed investment in new plants and transmission lines. California might allow the utilities to raise cash by issuing bonds that customers would pay for over time, or form its own power authority to build new plants.

Sadly, America's energy crises won't be resolved until more capacity becomes available. Even at their lowest point, natural-gas providers stopped drilling for only about a year. But over the past decade, no major electric plant has been built in California, owing in part to intense environmental and community opposition. So Californians of all stripes--regulators, politicians, utility and power executives alike--are feeling more than enough heat, and deservedly. If they can't sort out their deregulation mess, other programs across the U.S. could easily short-circuit.