The taxpayer rescue of the California electric industry was due to mis-regulation, not deregulation as claimed. California legislators set a low retail electricity price ceiling and passed environmental regulations leading to a high wholesale price. California utilities had to pay over 25 cents per kilowatt hour for electricity and sale it for 7 cents. The politicians obviously had no background in the electric business. Their decisions led to financial collapse, illustrating the pitfalls of government involvement in business. The lawmakers bankrupted the utility and confiscated its property as collateral for paying the $12 billion debt they created. The California electric industry was never deregulated, and is now owned by the state government.
The first step in regulating the electric industry occurred during the 1930s when the states made monopolies of competing local electric companies. The various electric companies, tired of competition, petitioned state governments for monopoly franchises. State politicians were happy to oblige in return for state tax revenue. The state monopolies are inefficient but with abundant energy sources the price of electricity has remained low. As energy sources become scarcer, energy prices rise and deregulation of the electric industry will become more important.
Lawmakers and local politicians with little concept of the energy industry are in the process of restructuring. Retail competition allows electricity customers to choose suppliers. Customers in high price states such as California, New York, and Florida want to buy from other states. With retail competition, producers are also free to choose customers and prices in the low price states will rise.
The push to restructure the electric industry comes from environmental regulations and increased energy scarcity. Coal remains the fundamental energy source but causes air pollution. Natural gas burns more cleanly and is piped from the Gulf Coast to a new generation of efficient turbine generators. The gas pipeline system is expanding more slowly than demand and price will climb steadily due to increasing demand and scarcity. Hydroelectricity is a reliable energy source but there is no discussion of building new dams due to environmental concerns. Other alternative energy sources cannot provide base load for industry. Nuclear generation will become more important over the coming decades.
Be wary of proposed government solutions to energy issues. Price controls are doomed to fail as did the gasoline price caps of the 1970s. Legislators have little knowledge of the energy industry. The best energy policy is to rely on energy markets. As consumers face higher prices they will economize. Prices ultimately depend on investment and supply as well as demand.