Earlier this month Governor Gray Davis signed AB265 and AB970, the culmination of weeks of scrambling by lawmakers to provide relief from skyrocketing utility bills in San Diego. These measures, however, provide only temporary relief.

Rate freezes for utilities were established as part of the 1996 electricity deregulation bill; they held residential and small commercial customer rates at the levels in effect on June 10, 1996. The rate was frozen through the end of 2001 or until capital costs were recovered. San Diego Gas and Electric (SDG&E) was able to do just that in June of 1999 and, as a result, local rates have soared.

Lawmakers responded with AB265, establishing a ceiling of 6.5 cents per kilowatt-hour for residential, small commercial, and lighting customers of SDG&E. That is .2 cents under the national average. Although this new law promises to provide some relief now, it does not address the real problem that has the potential to play out all over California.

While California’s demand continues to increase, lawmakers have chosen to place government control once again on the electricity industry. Their decision will provide little incentive for new electricity generators to enter the market and increase the supply.

New investors in the energy field must contend with a complex and uncertain regulatory future. And while the other new law, AB970, may shorten the paperwork, it does not erase the complex steps required to obtain permits. This regulatory “streamlining” will only give California a few hundred additional megawatts of electricity by June 2001. However, during times of heavy demand, California falls several thousand megawatts short.

The legislation provides for a “Green Team” to help energy producers meet the environmental requirements of the state. But Energy Commission Deputy Director Bob Therkelsen admits that not every power plant will qualify for the fast-track process. The best candidates will be those who hold existing power plant sites that do not threaten endangered species or require massive amounts of water for cooling.

New energy producers still face the strong opposition of environmental groups to new power plants and a complex permitting and siting process. A report released by the California Public Utilities Commission (CPUC) blames the high prices and outages on the state’s failure to take advantage of opportunities to add power generation facilities. The report notes that between 1996 and 1999 California added only two percent to its generating capacity, despite demand increasing at a rate of four to six percent a year, surpassing the national average of 2.4 percent annually.

Since investors are provided with little or no incentive, it should come as no surprise that California has had no new plant construction in the last 10 years. The uneven supply and demand, not the malevolence of any single company, has thrown this scale out of balance. Attempts to scapegoat individual companies will do nothing to solve the problem. And the recent measures signed by the governor take a shortsighted view.

Policymakers missed this chance to launch broad reforms that would achieve lasting solutions. California’s future electricity needs will not be met until legislators pass measures that will entice new energy providers to invest their capital in creating additional sources of supply.