In 1994, California was emerging from a deep recession and electricity prices were among the highest in the country. In 1996, the California legislature tried to relieve prices and stimulate the economy by deregulating the electric utility industry. Deregulation laws, signed in 1996 and implemented in 1998, allowed customers to purchase electricity from a third-party supplier or an energy service provider (ESP).
Deregulation laws froze utility rates until April 2002, or until the utilities recovered “stranded” costs incurred by deregulation. The California Power Exchange was also established as a clearinghouse for utility companies and ESPs to buy and sell power. After monitoring California Power Exchange prices for the first few months, and after unsuccessful attempts to purchase electricity through an ESP, Edwards Air Force Base (AFB) decided to continue buying power from the local utility company, Southern California Edison (SCE), at its frozen tariff rate.