California often serves as a model for the nation in matters of government policy, and its experience in deregulating public utilities is no exception. California, which boasts the world's seventh largest economy, is currently attempting to privatize its electricity industry. In 1994, the California Public Utilities Commission (PUC) released a plan to deregulate electric utilities in much the same way that it had deregulated natural gas and telecommunications during the past decade. This concept, known as retail wheeling, has met with opposition from many economists because of the natural monopoly characteristics of the electricity industry.
California's electricity rates are about 50 percent higher than the national average. When the PUC deregulated long-distance telephone calling during the 1980s, rates dropped over 60 percent. Natural gas deregulation during the 1980s brought savings of over $80 billion dollars to consumers (Parrish, 1994, p. A16). The PUC's goal in making the electricity industry more competitive is to cut costs and improve delivery of service: "Rather than continue micro-managing utility companies' business decisions--and risk dictating bad policy--the five members of the PUC prefer to let the marketplace have its way with the states power and telecommunciations industries" (p. A16).
The PUC's current regulatory environment is based on the troubled economic conditions that existed during the period between 1966-1981. This period was plagued by economic volatility and unpredictability. Interest rates, inflation, and oil prices soared dramatically. The 1973 Arab Oil Embargo created an energy crisis. Recognition of the environmental consequences of electricity generation initiated a movement to "green" public utilities. Utilities also became concerned about the existence of adequate electrical supply because of major utility shortages, most notably the 1965 Northeast blackout. In light of fina...