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Press Release · January 17, 2007

California’s Electricity Market: Are We Making Progress?

In the nearly six years since California endured skyrocketing electricity prices and almost daily rolling blackouts, the state’s efforts to resolve its electricity market woes remain very much a work in progress, according to a study released today by the Public Policy Institute of California (PPIC). Moreover, there is currently no transparent, user-friendly way for policymakers or citizens to monitor the state’s post-crisis strategies – a problem, the report says needs to be addressed by the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC).

Since the 2000-2001 electricity debacle, California has taken an active and aggressive role in balancing customer needs and environmental concerns by using a hybrid of market and regulatory tools, according to the report. While the first, flawed deregulation plan relied solely on the market, the current strategy is a mix of measures that seek to benefit from the best that both competition and regulation can provide. However, this approach has tilted more heavily toward developing regulations, leaving important questions about the ultimate role electricity markets will play in California’s future unresolved. Failure to use competitive markets could reduce efficiency and increase customers’ costs.

“The state ventured into deregulation the first time in order to meet customers’ needs more efficiently, a goal that obviously failed,” says the report’s author, economist Carl Pechman. “Competition can help meet customer needs if properly designed – but to succeed, the state will have to determine the role that markets will play in meeting, for example, greenhouse gas reductions, and commit itself to developing those markets despite its initial experience.”

One important step the state’s energy leaders should take is to make information available in a concise form about the on-going progress to meet the state’s policy objectives. The study, California’s Electricity Market: A Post-Crisis Progress Report, suggests that the CPUC and CEC explicitly invite comments that address uncertainties and difficulties in meeting objectives.

Please call Victoria Pike Bond at 415-291-4412 for further information.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.