Q: What is happening with California's power market?
A: For months, two utilities serving 25 million people have been paying dramatically higher costs for wholesale electricity. Pacific Gas and Electric Co. and Southern California Edison Co. couldn't recoup those costs. A rate freeze that was part of the state's 1996 deregulation law capped what they could charge their customers.
The utilities say they have lost more than $10 billion since June. Wall Street has downgraded their credit worthiness, wholesalers are reluctant to deal with them and the utilities say they are close to bankruptcy.
Q: Why are prices so high?
A: There are several factors. Among them, the price of natural gas, used to generate electricity, has risen; the Pacific Northwest and Northern California, heavily dependent on hydroelectric power, have had little rain and snow; and supplies have been tight in the rest of the country.
Some state officials accuse wholesale power suppliers of artificially inflating prices, an allegation wholesalers vehemently deny.
Q: What has happened so far this week?
A: PG&E Corp., parent of the utility, received approval from the Federal Energy Regulatory Commission to restructure itself to protect the bulk of its assets in the event PG&E slips into bankruptcy.
Q: How does all this affect homes and businesses?
A: The state Public Utilities Commission has let SoCal Edison and PG&E temporarily raise rates about 9 percent for homes and up to 15 percent for businesses. The utilities say this increase isn't enough to cover costs.
Q: Why was deregulation put into effect?
A: Traditionally, California has had higher electricity costs than the rest of the nation. In the mid-1990s, large customers wanted a break in their energy bills and said competition could lower rates. The utilities also wanted out from under regulation. Consumer groups, now the most vocal critics of deregulation, were neutral on the plan, which became effective in 1998.
Q: What was deregulation supposed to do?
A: The idea was to require utilities to buy power on the open market, presumably at lower, competitive costs and pass those savings on to consumers. The rate freeze is to expire in March 2002, once utilities get rid of power-generating assets to boost competition.
Q: What happened?
A: When deregulation was approved, the state had plenty of electricity. But the state's grid has since become stressed by higher demand, aging power plants and less imported electricity. Wholesale prices have increased roughly fivefold since summer.
Q: What happens next?
A: The California Assembly approved Tuesday night a lan under which the state would buy electricity from wholesalers and sell it to utilities at a reduced rate. The measure now goes to the Senate. The PUC may consider new rate changes for consumers Thursday.