Political forces and physical problems are at the root of theconstrained California energy market, and because of it, otherstates have slowed their pace toward deregulation and may evendecide to forego it for a while, according to an energy expert whohas helped guide companies through regulatory hearings.

Charles Cicchetti, co-founder of the Pacific Economics Group andauthor of several books and papers on the energy marketplace,shared a panel this week with other experts at the Arthur AndersonEnergy Symposium in Houston. Cicchetti noted that California’sdilemma is seen by other states as a sure sign to slow down. Andit’s also discouraged others from even considering coming into thestate.

The state’s “home-town rules,” which favor resident utilities,discouraged outside independent power producers from coming in andimproving the gas and electricity market. An economist himself,Cicchetti noted that the state’s power market actually was designedby economists who thought the law of supply and demand wouldencourage more involvement when prices spiked.

However, a plethora of unpredictable problems hit the GoldenState all at once: high temperatures and soaring natural gasprices. In Southern California, low hydroelectric generation alsoslammed residents there, which sent power prices through the roof.

“The price,” said Cicchetti, “exceeded the normal summer surge.

Bruce Williamson, CEO of Duke Energy International also sharedthe panel. He said the high California prices were the result offewer interstate pipelines.

“The Gulf of Mexico supply reaches Chicago, Canada reachesChicago.all of the Mid-continent supply reaches Chicago easily,” hesaid. “There are clearly more pathways into and out of Chicago andmore developed infrastructure than there is on the West Coast.”

Williamson also blamed the electricity price hikes and shortagessquarely on the shoulders of the state’s officials, and a failureby industry to build adequate capacity. Now, with the problemsdetailed in press reports on an almost daily basis, potentialinvestors are turning away from building in the state. “Now you’rederegulating into a capacity-constrained market.”

UtiliCorp United CEO Richard Green said he thought the pricespikes resulted from deregulation slowing down in the rest of thecountry. “What we have is one foot in a regulated market and onefoot in an unregulated market and that’s not the right way to be,”said Green. He said the country needs to be fully deregulated tobetter define markets. With a full deregulation, he predictedprices would act “rationally.”

Green said that the high prices now are a signal to invest insupply and infrastructure. UtiliCorp subsidiary Aquila Energy isthe third largest gas wholesaler in the United States.

“We have a worse time with power,” said Green. He noted thatwholesale power prices skyrocketed to as high as $8,000 MWh in thepast three years in some parts of the country. And even though hiscompany tried to “prepare” consumers for the higher gas prices, headmitted that “no matter what you do there will be concern over gasprices.”

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