California should return to a regulated power market to bring about needed investments in plants and transmission, Sen. Dianne Feinstein said in a letter to Gov. Arnold Schwarzenegger.
"It is my strong view that the state is in jeopardy because of a lack of sufficient investment in electricity infrastructure and because deregulation has not worked," Feinstein (D-Calif.) wrote in the Jan. 7 letter that was released Monday.
California's investor-owned utilities include companies owned by Edison International, PG&E Corp. and Sempra Energy.
Power demand might exceed supply as early as this summer if a combination of events such as hot weather and reduced hydroelectric production occurs, Feinstein said.
"At a minimum, we need to turn to a system where a vast majority of consumers are protected under a cost-of-service-based system" regulated by the state Public Utilities Commission, she wrote.
The state's utilities sold most of their power plants in the mid- to late-1990s to independent power producers and have been purchasing power from the operators through contracts and spot markets.
The California energy crisis of 2000 and 2001 caused rolling blackouts and sent spot-market prices surging tenfold. The crisis was triggered by a shortfall of generation, and state and federal regulators also have said that generators manipulated markets by withholding supplies.
"Clearly, for consumers, the 1996 deregulation was a failure in California," Feinstein wrote.
Investments in new plants and power lines will require a stable regulatory framework, allowing utilities to earn a return on their costs through rates charged to customers that are approved by regulators, according to her letter.
Legislation should require utilities to meet their customers' highest demand and have an additional cushion of supplies, known as a reserve margin, of 15%, Feinstein said. The state's reserve margin is currently 7%, California Public Utilities Commission spokeswoman Terri Prosper said. New York state requires an 18% margin.
The reserve margin should increase 2 percentage points a year beginning in 2005 until the state meets the 15% target, Feinstein wrote. The state also should mandate investments in new transmission lines, she said.
Neither Feinstein nor representatives from her office were available for comment. Representatives from the governor's office also were not available.