California Energy crisis: Version 3.0 Same solution, same mistake

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California Energy crisis Version 3.0Same
solution, same mistake

• Robert J. Michaels
• Professor of Economics
• California State University, Fullerton
• rmichaels_at_fullerton.edu
• 
  Institute for
• March 9, 2001
  Infrastructure
  Finance
• 
  Coral
  Gables, Florida

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California down for the third time

• 1970s planning production and conservation
• 1990s planning ideal markets
• 2000s planning to undo the 1990s markets
• The common mistakes
• Assuming complexity can be planned
• Assuming knowledge resides in government

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The 1970s running out of everything

• International dislocations, environment
• Small is beautiful, except for plans
• Forecasts and planning, big time
• Independent power contracts
• Nuclear plants, unorthodox energy sources
• The inter-utility markets grow
• Encouraged by federal regulators
• The state misses the point

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The 1990s designing perfect markets

• The choice in 1994-96
• Let consumers make deals like utilities do?
• Or create a perfect market they cant use?
• Determining the choice
• Utility recovery of uneconomic costs
• Maintaining retail and regulatory monopolies
• Textbook visions of competition, unlike reality
• Utilities gambling their future on price forecasts

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2001 trying to fix the unfixable

• Bankruptcy the judge or the legislature?
• Rates Increases by any other name
• Hope for litigated or federal relief
• The plan this time
• State enters potentially uneconomic contracts
• State-owned (or pawned) transmission grid
• Centralized conservation / production initiatives
• Plan California apart from western markets

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Different crises, same response

• Three centralizations
• 1970s Integrated resource planning
• 1990s Mandatory unhedged short-term trade
• 2001 State as bargainer, backer, grid manager
• Decentralizing and experimentation
• Nobody has all the facts
• Specialists predict specialties, often wrong
• Easier to end small mistakes than global ones

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Californias new policies

• Maximize scope for consumer choice
• California abolishes it in the fine print
• A core / non-core separation
• Do not separate state from markets
• Any point to the transmission takeover?
• What logic for long-term contracts
• Create electricity, not uncertainty
• Plant announcements -- the real news

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