The Golden State, after all, represents 14.6 percent of the U.S. gross domestic product. If an energy crisis pulls the Western giant into recession, the entire country will stumble. That's why last month, as the crisis deepened, California Gov. Gray Davis flew to Washington to confer with Federal Reserve Chairman Alan Greenspan and President Clinton. Indeed, fears of a debacle that could ripple through financial markets and shred consumer confidence may have helped propel the Fed to suddenly cut interest rates last week. On Wednesday, Davis ordered a special legislative session to deal with looming power outages.
Deregulation is undoubtedly at fault.
The 1996 California measure, which set off a national wave of electricity deregulation, replaced the old monopoly utilities with a free market that was supposed to benefit consumers. The utilities used to generate their own power and sell it at predetermined rates. Deregulation forced them to sell their power plants and become middlemen, buying electricity wholesale from generators and power exchanges. The generators can effectively name their price, and those prices have soared since last summer as supplies dwindled. Since the summer, power supplies have become less reliable.