Neighboring western states have also experienced increased demand, making them less willing to sell to California distributors. The basic problem is an imbalance in demand and supply. Since supply responds slowly, the only possibility in the short run is to manage demand more effectively. This means that prices will have to rise, probably on the order of 20 percent. A price increase will be economically and politically painful, but letting the utilities go bankrupt would be even more painful and accomplish little.
Higher prices are an effective tool for matching demand and supply.
Last summer, when rates in San Diego more than doubled, power consumption dropped 5 percent within a few weeks. Anything that helps users accelerate their adjustment to higher prices would be helpful. California utilities now offer to sell electricity at reduced rates to businesses that allow service to be interrupted when necessary. This program could be expanded and made more financially attractive. This would make consumers face the full price of incremental consumption of electricity, yet still keep bills relatively low for those who conserve.