California power crisis sends shock waves nationwide

Then-Gov. Pete Wilson, a Republican, signs the 1996 bill that deregulated and dismantled California's electric utilities in the name of lower consumer power bills.

(CNN) -- As rolling blackouts swept through parts of California in March, Energy Secretary Spencer Abraham warned the country that it faces its "most serious shortage" since the 1970s.

Soaring utility rates have been the subject of much debate in California as the wholesale prices of electricity have skyrocketed, jumping from an average of $30 per megawatt hour last year to $330 in January.

The Bush administration, warning the crises will spread far beyond California this summer, is scheduled to unveil its long-term energy policy in April or May.

Meanwhile, the Federal Energy Regulatory Commission has ordered some wholesalers to justify $124 million in charges sold to California utilities in January and February or pay refunds. The commission is asking for refunds whenever prices rose above $273 per megawatt hour in January and $430 per megawatt hour in February. The suppliers defended the increases, blaming them on a shortage of power and uncertain finances of the state's two major utilities, Pacific Gas and Electric Co. and Edison International.

Responding to consumer outrage, the California Senate has formed a special committee, scheduled to meet in early April, to investigate soaring prices. The committee's chairman, state Sen. Joe Dunn, recently told the Los Angeles Times that while demand in California has increased 4 percent over the last year, wholesale prices have jumped 266 percent. At the same time, Dunn said, the profits of some wholesale suppliers have soared an average of 508 percent.

The state's lawmakers and energy executives are blaming each other for the energy crisis.

"I think the people that insisted that we get into deregulation in 1996 made a huge miscalculation," California Gov. Gray Davis told CNN. "They did not anticipate the huge [economic] recovery California experienced and the needs of the tech companies here in California. Secondly, there was no effort to build new plants to meet the demand."

But critics of Davis counter that while his Republican predecessor Pete Wilson signed the deregulation bill, Davis, a Democrat, failed to act when early power shortages signaled a looming crisis.

Consumers protest California's power crisis. "Gray" on the signs refers to current Gov. Gray Davis, a Democrat.

California was the first state to deregulate its electricity market in 1996. The move was supposed to lower the bills of consumers by preventing most utilities from passing rising costs on to their customers until at least March 2002.

Under deregulation, the state's investor-owned utilities sold most of their power generating plants. Now they must buy back that power at market prices.

Meanwhile, the neighboring states where California has been buying surplus electricity grew rapidly, boosting the price of wholesale energy.

PG&E and Edison say that this year's higher natural gas prices, dry weather conditions in the Pacific Northwest and an unusual number of plant maintenance outages have also contributed to spikes in wholesale energy prices. They claim that if they keep shelling out more money to buy electric power -- and are prevented from passing on that cost to consumers -- they will go belly up.

Others have argued that there is no energy shortage in California, but an energy cartel of companies that is manipulating the supply to raise prices and profits.

The power industry in California is now the target of six investigations by state and federal agencies.

"The people of this state are being taken to the cleaners and billions of dollars are going to out-of-state [power] generators," said state Sen. John Burton (D-San Francisco).

Gary Ackerman, executive director of the Western Power Trading Forum, representing buyers and suppliers of electricity, countered: "We have been investigated up and down and sideways, and after all these months, nobody has found any evidence that there is any price manipulating or any wrongdoing on the part of the [power] generators here in California or in the Western region."

California's struggle to come up with a long-term solution to its energy crisis has nationwide implications. Increased use of computers and other appliances and the lack of adequate new power plants are the norm across the country.

The 25 other states that are moving toward deregulation are watching the developments in California closely.

The Associated Press and CNN Correspondent Charles Feldman contributed to this report.