Other states anticipating deregulation look warily toward California. In this view, the recent problems should subside as companies adjust to the deregulated environment, adding new generators to increase capacity and purchasing additional wholesale power. Indeed, the approach to managing risks in the past has been to amass large margins of standby power. But the problem lies not just in adding enough capacity for a sunny day. The problem is complicated both by the inefficiencies of some utility operations and by the uncertainties inherent in electricity demand, uncertainties such as a sudden shift in the weather and various social factors.
Public utilities can sacrifice efficiency for reliability by holding large reserves.
Private utilities, on the other hand, will be able to sacrifice neither efficiency nor reliability. To remain viable, competitive utilities will need to locate and eliminate inefficiencies. To remain reliable, the utilities will need tools to manage the underlying risks of uncertain demand. By reducing unnecessary costs, the utilities can avoid sending huge bills to customers. And by managing unavoidable risks, private utilities can serve the public interest by decreasing the chances of power outages.