Lou Neve's family-run nursery in Petaluma, Calif., hasn't exactly been blooming lately. Thanks to soaring natural-gas prices, Neve was going to have to shell out more than $160,000 in December to keep his rose plants warm, at least five times as much as he spent a year ago; instead, he turned off his heaters and watched the temperature in his 360-sq.-ft. greenhouse drop as low as 40[degrees], which has left his roses in as sorry shape as his shrinking bottom line. Then late last week Neve, like so many Californians, got another nasty shock: to help prop up its two largest, ailing utilities, the state gave the go-ahead to raise electricity prices 7% to 15% for a period of 90 days. Neve estimates that only a quarter of his ailing crop will make the cut for Valentine's Day. And "if we don't get a warm spring," he adds, "Mother's Day will be shot too."
Electricity deregulation, of course, wasn't supposed to work this way. When the state's monopoly was broken up in 1998, Californians were told power would become more plentiful. Utilities would sell off their plants to private generators, like Dynegy and Duke Energy, and then act as middlemen, bidding on the open market for electricity and distributing it to their customers. But with the booming high-tech economy sucking up power, barely a week goes by without warnings of rolling blackouts or outages.
Competition was also going to make electricity cheaper, allowing consumers to shop around for the best deal from a range of suppliers. But all those new suppliers never showed up, and for the utilities, there's not a good deal to be found. The wholesale price that they pay has jumped tenfold. Pacific Gas and Electric and Southern California Edison, which aren't allowed to pass on the full market rate to customers until mid-2002, have had their stocks hammered and credit ratings slashed. Now they are $12 billion in the hole and on the verge of bankruptcy; late last week SCE laid off 13% of its work force. "Between three and seven weeks from now," says John Bryson, chairman of Edison International, SCE's parent company, "our cash will be insufficient to keep buying the power necessary to serve our customers."
Last week's emergency increase offers a brief respite, and this week, at the behest of President Clinton, state officials will journey to Washington to try to come up with a more long-term solution. But the rate hike, which was only a third of what the utilities had requested, will probably cost the state's businesses as much as $400 million, pushing up prices across the country for fruit, vegetables and cheese. And many angry consumer advocates, who think they haven't seen the end of the increases, promise nothing less than a rebellion. Charges David Morse, a manager at the state Office of Ratepayer Advocates: "It's like saying there's a blank check to cover the generators' demands."