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UC Berkeley professor warns of continued power crises under deregulated system
18 September 2002

By Kathleen Maclay, Media Relations

Berkeley - California residents may think the electricity crisis of 2000-2001 is behind them, but a University of California, Berkeley, professor warns of more rolling blackouts and price spikes within a few years unless state and federal policymakers address fundamental causes of the crisis.

"We may not face it immediately due to dampened demand and increased capacity," says Timothy P. Duane in the latest Yale Journal on Regulation, "but demand will continue to press supply capacity in future years until generators and traders can again take advantage of relative scarcity to exercise market power."

Duane, an associate professor of energy and resources, city and regional planning, and landscape architecture and environmental planning at UC Berkeley, will share his analysis of California's deregulated energy scene and his recommendations with state legislative and agency staff in Sacramento on Friday (Sept. 20).

He will discuss his article in the Yale Law School publication ("Regulation's Rationale: Learning from the California Energy Crisis") from noon-2 p.m. with the California Research Bureau and Senate Office of Research. The session is sponsored by UC Berkeley's Institute of Governmental Studies and is open to reporters.

"Regulation ... has an important role to play for electricity, and it may still be preferable to 'put the genie back in the bottle' by re-establishing a regulated system...," Duane writes. "It is certainly worth considering again along with the public power option - rather than assuming that markets are the answer."

While on leave from UC Berkeley, he worked from July 2000 to July 2001 as a senior policy consultant to the California Public Utilities Commission on electricity restructuring issues, including environmental assessment of proposed divestiture of Pacific Gas & Electric Co.'s hydroelectric generating portfolio. Duane's leave continued through spring 2002.

His just-released summer analysis presents a scathing assessment of where energy deregulation in California went wrong and what should be done to resolve the problem he says could easily spread beyond the state's borders.

In early 2001, Gov. Gray Davis should have seized in-state power plants owned by out-of-state companies under his emergency powers to stop price gouging and stabilize the system while long-term institutional reform was worked out, Duane says.

But legislators and other political leaders, administrators and commissioners for regulatory agencies at both the state and federal level, erroneous economists' models, and corporate utility giants all come under fire by Duane for contributing to California's energy crisis and for prescribing inadequate remedies for it.

"The problem ... lies as much in the national political culture as in the specifics of California's ill-fated (deregulation) experiment," writes Duane.

While blackouts have ceased, for now, Duane says, state and federal policymakers have addressed superficial problems rather than underlying structural flaws.

"The result of this misdirected focus on the supply-and-demand balance has been the transfer of billions of dollars of wealth from electricity consumers and taxpayers to utility shareholders, power brokers, and independent generators," Duane says in his article.

Duane notes that California spent $7 billion for electricity in 1999, then paid $27 billion for it in both 2000 and 2001, while the state's entire budget for 2001-2002 was just under $80 billion.

"California's experience offers some sober lessons for both policymakers and the broader public in light of Enron's subsequent collapse," Duane says in the Yale Journal. "Together, they should bring pause to the deregulation project..."

Yet, he is cautious that positive change will result from his research.

"There is likely to be a lot of resistance to what I say - because I don't pull any punches about the remarkable series of mistakes made along the way and implicating political leaders from both parties at both the state and federal level," Duane says.

"I'm sure that if my article has any impact that it will generate some serious pushback by a wide range of interests such as utilities, generators, traders, regulators and legislators who have supported the existing system and would like to avoid responsibility for the mess."