Consequences of Wholesale Price Rises On The Retail Market
As a result of the actions of electricity wholesalers, Southern California Edison (SCE) and Pacific Gas & Electric (PG&E) were buying from a spot market at very high prices but were unable to raise retail rates. A product that the IOU's used to produce for about three cents per kilowatt hour of electricity, they were paying eleven cents, twenty cents, fifty cents or more; and, yet, they were capped at 6.7 cents per kilowatt hours in terms of what they could charge their retail customers. As a result, PG&E filed bankruptcy, and Southern California Edison worked diligently on a workout plan with the State of California to save their company from the same fate. PG&E and SCE had racked up US$20 billion in debt by Spring of 2001 and their credit ratings were reduced to junk status. The financial crisis meant that PG&E and SCE were unable to purchase power on behalf of their customers. The state stepped in on January 17, 2001, having the California Department of Water Resources buy power. By February 1, 2001 this stop-gap measure had been extended and would also include SDG&E. It would not be until January 1, 2003 that the utilities would resume procuring power for their customers.
Between 2000 and 2001, the combined California utilities laid off 1,300 workers, from 56,000 to 54,700, in an effort to remain solvent. SDG&E had worked through the stranded asset provision and was in a position to increase prices to reflect the spot market. Small businesses were badly affected.
According to a 2007 study of Department of Energy data by Power in the Public Interest, retail electricity prices rose much more from 1999 to 2007 in states that adopted deregulation than in those that did not.
Read more about this topic: California Electricity Crisis
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