The California Electricity Crisis: What, Why, And What's Next (Vienna Circle Collection)

This book attempts to explain what went wrong in California's restructured energy markets and what must be done to restore California's economy and build new electricity systems. The intention here is to reconcile the principles of competition and regulation. California had a severe electricity crisis for about thirteen months beginning in May of 2000. The economic consequences that arose from this crisis persist. California's economy suffers and the state's treasury is deeply in debt. The state's three IOUs were nearly financially decimated. The problems and consequences arising from California's ill-fated foray into electricity market restructuring could damage the state for years to come Challenges of this nature are not new to the Golden State. In the past, pragmatic, not entrenched, approaches have worked best in California. If California is to relatively quickly restore its previous enviable economic vitality and recover from the damage done to tarnish its luster, pragmatic approaches must again be used. This book attempts to explain what went wrong in California's restructured energy markets and what must be done to restore California's economy and build new electricity systems. The intention here is to reconcile the principles of competition and regulation. California had a severe electricity crisis for about thirteen months beginning in May of 2000. The economic consequences and political fallout that arose from this crisis persist. California's economy continues to suffer and the state's treasury is deeply in debt. The state's three investor-owned utilities were nearly financially decimated. San Diego Gas et Electric has recovered to a greater degree than the other two only because its retail prices are about three times the national average and, for a time, well above the other two IOUs in California. Southern California Edison has recently been restored to investment grade and was granted a rate increase. Pacific Gas et Electric is emerging from bankruptcy. This book discusses all of this in greater detail. The problems and consequences arising from California's ill-fated foray into electricity market restructuring could damage the state for years to come. Challenges of this nature are not new to the Golden State. In the past, as we explain here, pragmatic, not entrenched, approaches have worked best in California. If California is to relatively quickly restore its previous enviable economic vitality and recover from the damage done to tarnish its luster, pragmatic approaches must again be used Preliminaries......Page 1 Contents......Page 8 List of Tables and Figures......Page 10 List of Terms......Page 14 Preface......Page 18 1. Introduction......Page 20 2. Power Production Economics......Page 24 3. Principles of Traditional Regulation......Page 34 4. Reconciling Marginal Cost and Revenue Requirements......Page 44 5. Competitive Wholesale Markets for Electricity......Page 66 6. California’s Market Design: an Initial Success Followed by a “Perfect Storm”......Page 72 7. Design Flaws and a Worsening Crisis......Page 82 8. Testable Hypothesis......Page 90 9. Survey of Electricity Models for California......Page 94 10. An Economic Analysis of Natural Gas Price Movements During the Crisis......Page 104 11. An Econometric Analysis of Electricity Prices in California......Page 122 12. Market Manipulation......Page 146 13. Gaming and Cheating......Page 156 14. Market Monitoring and Initial Regulatory Response......Page 166 15. Refunds and Mitigation......Page 178 16. California Responds......Page 192 17. Handicapping the Winners......Page 204 18. Conclusion: Wrapping Up and Lessons Learned......Page 214 Index......Page 222 About the Authors......Page 226 "This book attempts to explain what went wrong in California's restructured energy markets and what must be done to restore California's economy and build new electricity systems."--BOOK JACKET.