WARNING LIGHT
The solution developed for San Diego ratepayers was a short-term transitional patch whereby rates
In 1996, an elaborate electricity plan for California
would rise more gradually through a borrowing
was adopted with bipartisan support in the legislature
arrangement. It did not include a re-evaluation of the
as well as support by Governor Wilson. The theory
entire deregulation plan to see if other problems lay
was that competition in electricity supply could bring
ahead. Various issues competed for Davis’ attention
down the costs of power. Generation (power supply)
in summer 2000 such as creating a César Chavez
would be separated from distribution. Customers,
holiday for the state and deciding how the state would
both residential and commercial, would buy from the
celebrate the 150th anniversary of statehood. There
cheapest source. Retail prices would be controlled
were pressures to enlarge the Cal Grant funds for
and capped until the former generating/distribution
college tuition and controversy over a possible state
regulated monopoly firms divested themselves of their
law to resolve labor disputes for police and firefighters
generation capacity. Despite the appealing theory,
through an arbitration process.
there are many practical issues in any deregulation scheme, once the plan moves from general concept to
Also competing for the governor ’s attention was the
specific details.
aftermath of a scandal that had led to resignation of Insurance Commissioner Charles Quackenbush, a bill
Unlike other markets, electricity demand and supply
related to racial profiling by police, reduction of fees
must match exactly, moment by moment. Insufficient
at state parks, political jockeying surrounding various
supply can cause equipment failures at both the sup-
ballot measures destined for the November election,
ply and demand ends. So there must always be enough
and nursing home regulation. One of these measures
power, something that can only be ensured either by
would be the ballot proposition that would reduce
having excess capacity or by quickly cutting off power
the voter approval hurdle for school bonds from
(blackouts) to some customers. The electricity market
two thirds to 55 percent. 2 3 In short, it was easy for
can be subject to manipulation unless the deregulation
the warning light flashed in San Diego on electricity
plan includes a new version of regulation to prevent
deregulation to be ignored, especially if all important
artificial withholding of power and ensure sufficient
and not-so-important decisions ended up in the
supply and capacity. As it turned out, California’s de-
governor ’s office.
regulation plan was flawed and was famously manipulated on the supply side.
And there was so much good news to announce, including a reduction in the sales tax beginning on
Governor Davis was not responsible for the original de-
January 1, 2001, triggered by the state’s revenue boom
regulation plan, since it was signed into law by his pre-
and extra payments to schools for education of the
decessor. However, Davis’ tendency to micro-manage
disabled, a matter that had been in litigation for years.
and his aversion to delegation meant that his adminis-
The projections for 2001-02 also were rosy, according
tration could overload in a crisis situation. San Diego
to the legislative analyst and the Department of
Gas and Electric was the first major utility to divest
Finance. “Extra revenue in the billions,” was how the
itself of its generating capacity and so was free to raise
forecast as of November 2000 was characterized by the
its rates. San Diegans saw their electric bills soar in July
Department of Finance spokesperson.2 4
2000, leading to a public outcry. That outcry should have been a warning sign that there were problems with
However, there also were suggestions that maybe
the larger deregulation scheme outside of San Diego.
some of the revenue should be spent to shore up the
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