Before entering this class I thought I had some knowledge about California’s Electric Industry. I thought electricity came from the decades-old monopolies, such as: Southern California Edison, SDG&E, PG&E. I thought these powerhouse companies were the prime roots for California’s energy crisis. I figured since they were monopolies, they allowed California to go through an energy crisis because the state was not offering them enough money to turn on the electricity again.
Upon entering this class I thought I had the answers. Then you brought up California’s Electric Utility Industry and Assembly Bill 1890. Quickly, I found out how wrong I was about my electricity theory. The Assembly Bill 1890 was unanimously enacted in late August 1996, which forced California to deregulate. AB 1890 not only allowed competition but also in many respects, mandated the competition by forcing the big three IOU’s to sell their fossil fuel-powered generation facilities to non-regulated private companies. This was the majority of California’s generation facilities. AB 1890 was an attempt to impose “perfect competition” for power generators. Because there can’t be any “vertical integration,” the power utilities couldn’t be allowed to integrate their generation business with their distribution business. So they were forced to sell off many of their power plants. Any power they still generated on their own had to be sold on the open market at prevailing prices — with no special discounts for themselves.
This bill transferred pricing charged by the generator (state) to the federal government, which is now in charge of regulating. At first, the California Power Exchange (private, non-profit organization) which was run by utilities coordinated the sales. They would buy and resell power for the California consumers as mandated by AB 1890. However, the Exchange learned how to manipulated the auction by exploiting increased demand in
California and the other western states. As a result the power prices fluctuated widely. Other factors leading to the widely fluctuating prices on the open market were the largest IOU’s could not enter into long term contracts under the terms of AB1890, the new generators did not have to sell their power to California and no matter at what price a generator bid their power into the power exchange, the highest price that was bid in was the price all bidders were paid. Now the Department of Water Resources coordinates the sales and the prices are set by the Federal Energy Regulatory Commission (FERC).
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