TURN Backgrounder:
California's Failed Experiment With Deregulation

Why have electric prices in San Diego skyrocketed?

San Diego's soaring electric prices are a result of the way California's electric market was deregulated. Under AB 1890, unanimously passed by the legislature four years ago, a "transition period" was established to assure the utilities of continued profits in the deregulated era. Rates were frozen at an artificially high level, but consumers were promised they would be 20% less at the end of the transition period. Although most of the state is still under that legislated rate freeze, SDG&E has finished collecting its transition costs. Its customers are now paying market rates, making them the first guinea pigs in the state's failed experiment in deregulation. Rising demand coupled with limited supplies allowed wholesale prices to skyrocket out of control. Electric bills have more than doubled. No restraints on prices insulate consumers from the most outrageous and unfair electric rates in history.

Who benefits from rising electric bills?

• Power marketers and generators, whose profits have increased dramatically. Absent price controls, they are able to take advantage of low supplies, especially during the warm summer months when demand is high. This market structure unfortunately allows gaming and price manipulation by greedy suppliers.
• SDG&E, which, although compensated for the risks of competition through the CTC charge, bears none of its risks. The company passes on the market price to consumers, so price hikes don't cut into their profits. SDG&E's affiliates also trade energy in the unregulated market, and are directly benefiting from high wholesale prices.
• The legislator that dreamed up this scheme. State Senator Steve Peace, the "architect" of deregulation, has been rewarded handsomely for his efforts- in the first half of 2000 alone, Peace received over $125,000 in campaign donations from power companies.

Who Pays?

Consumers are footing the bill for deregulation's failure. First, the CTC charge was tacked onto their bills to reward the utilities for their previous unprofitable investments. Soon after consumers finished paying that, the average residential bill in San Diego more than doubled, and is now over $100. Not only has deregulation failed to fulfill the promise of lower rates, it has rewarded every participant in the system except blameless customers, who bore all the risks of the experiment, and are now the victims of its failure.