The California Electricity Crisis (HOOVER INST PRESS PUBLICATION)

228 Pages·2002·6.11 MB·English

by  James L. Sweeney

THE CALIFORNIA ELECTRICITY CRISIS:
WHAT, WHY, AND WHAT’S NEXT
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THE CALIFORNIA ELECTRICITY CRISIS:
WHAT, WHY, AND WHAT’S NEXT
Charles J. Cicchetti
School of Policy, Planning, and Development
University of Southern California
Los Angeles, California
Jeffrey A. Dubin
Division of Humanitiies and Social Sciences
California Institute of Technology
Pasadena, California
Colin M. Long
Pacific Economics Group, L.L.C.
KLUWER ACADEMIC PUBLISHERS
NEW YORK,BOSTON, DORDRECHT, LONDON, MOSCOW
eBook ISBN: 1-4020-8032-8
Print ISBN: 1-4020-7692-4
©2004 Springer Science + Business Media, Inc.
Print ©2004 Kluwer Academic Publishers
Boston
All rights reserved
No part of this eBook maybe reproducedor transmitted inanyform or byanymeans,electronic,
mechanical, recording, or otherwise, without written consent from the Publisher
Created in the United States of America
Visit Springer's eBookstore at: http://www.ebooks.kluweronline.com
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Dedication
This book is dedicated to
Sally, Jackie, and Molly.
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Contents
List of Tables and Figures ix
List of Terms xiii
Preface xvii
1. Introduction 1
2. Power Production Economics 5
3. Principles of Traditional Regulation 15
4. Reconciling Marginal Cost and Revenue Requirements 25
5. Competitive Wholesale Markets for Electricity 47
6. California’s Market Design: an Initial Success Followed by a
“Perfect Storm” 53
7. Design Flaws and a Worsening Crisis 63
viii The California Electricity Crisis: What, Why, and What’s Next
8. Testable Hypothesis 71
9. Survey of Electricity Models for California 75
10. An Economic Analysis of Natural Gas Price Movements
During the Crisis 85
11. An Econometric Analysis of Electricity Prices in California 103
12. Market Manipulation 127
13. Gaming and Cheating 137
14. Market Monitoring and Initial Regulatory Response 147
15. Refunds and Mitigation 159
16. California Responds 173
17. Handicapping the Winners 185
18. Conclusion: Wrapping Up and Lessons Learned 195
Index 203
About the Authors 207
List of Tables and Figures
Tables
Table 5-1. Economic Actions of Sellers
Table 5-2. Economic Actions of Buyers
Table 5-3. Economic Choices of the Power Exchange
Table 5-4. Transactions that Result in this Competitive Market
Table 7-1. Market Hedges Compared to the Spot Market in Other
Deregulated Electricity Markets
Table 7-2. Volume of Megawatts Purchased Out of Market, June –
December 2000
Table 9-1. Quantitative Analyses Relevant to the California Energy Crisis
Table 10-1. Interstate Deliveries to California
Table 10-2. California Interstate Pipeline System
Table 10-3. List of Variables
Table 10-4. DailyNatural Gas Price Regressions
Table 10-5. Daily Natural Gas Price Regressions for Simulations
Table 10-6. Average Monthly Actual and Predicted Southern California
Natural Gas Prices
Table 10-7. AverageMonthlyActual and Predicted Northern California
Natural Gas Prices