Prior to this bill a single utility provided each customer with the generation, transmission, distribution, metering, and billing of electricity. Customers were forced to buy their electricity from local companies. Under the new bill, the electric industry was deregulated and consumers were provided with choices of where to shop for their electricity .

In California, energy was produced and distributed by three large IOUs (investor-owned utilities): Pacific Gas & Electric (PGE), Southern California Edison (SCE), and San Diego Gas & Electric. AB 1890 created two entities, the ISO and the PX to take some of the power out of the IOUs’ hands.

The purpose of the ISO (Independent System Operator) is “to increase reliability and provide new power producers equal opportunity and ability to deliver their supplies”. The IOUs still owned their transmission facilities but control

The Power Exchange (PX) was created to shoulder the responsibility for buying and selling electricity. The “Big Three” were required to buy and sell their power through the exchange. In a sense, the Power Exchange functioned as a middle man between the ISO and electricity users and retailers.

San Diego Gas & Electric completed the necessary steps set forth under the deregulation law and in July 1999 the freeze was lifted. Everything seemed to be working well until a heat wave hit California in the summer of 2000. Demand for electricity soared, exceeding expectation, and wholesale energy prices skyrocketed. This time there was no price cap and the increase in wholesale prices was reflected in customers’ energy bills. Some 1.2 million customers saw their bills rise as much as 200% from the previous month.

The electric companies were forced to purchase their electricity at wholesale prices which are set by the highest bidder. The problem with this is that the energy companies couldn’t pass on the high prices to the consumers. One of the provisions of AB 1890 was that the electric companies had to freeze their rates and a price cap was put into effect. The utility companies were forced to bear the financial burden.

The PX creates a ‘pool’ or ‘spot market�

Some topics in this essay:
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