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Sorry,
This is why I
no longer value the NYTs. The cause is fairly obvious. Californian
lawmakers thought that they could outlaw supply and demand. In affect the
lawmakers were reminiscent of the myriad apocryphal stories of kings who
commanded the waves to stop. California lawmakers prohibited any purchases
except on the spot market. At the time energy prices were low and long-term
contracts were a full 50% higher (although still lower than current prices).
Secondly they mandated that energy MUST, under penalty of law, be
purchased and used for listed entities (government agencies, etc...) The
result was that as things went up companies were FORCED to buy on the spot
market. Months before the problem the potential was discussed.
Free-market journals throughout the country was ridiculing the State of
California.
--
glm
Another point of view of the reasons for the past
crisis in California.
Steve
February 26,
2002
The Power Perplex
By PAUL KRUGMAN
...The key fact about California's crisis is that it peaked not in
summer, when air-conditioners gobble electricity, but in the cooler months.
Supplies should have been ample. Instead, there were severe shortages, because
for some reason a third of the state's capacity stayed off line.
The power companies say that generators were shut down for maintenance
after being worked hard the previous summer. But the mysterious shutdowns went
on for about six months, and continued despite sky- high prices for
electricity. Surely there was time and incentive enough to carry out some
expedited repairs.
A more likely explanation — widely accepted by energy economists — is that
power companies found that they could make more money by shutting down some of
their plants, and hence creating shortages that sent prices into the
stratosphere, than they could by actually meeting demand.
If conventional wisdom was right, the crisis should have gotten even worse
last summer. Instead, electricity suddenly became abundant, and prices
plunged. Frank Wolak, the Stanford professor who heads California's
electricity market surveillance committee, has explained why: by June, thanks
in part to energetic conservation, most of the state's power needs were being
supplied under those long-term contracts. The spot market, which was so easy
to manipulate, had become relatively small; so the incentive for power
companies to drive up spot prices by taking generators off line had largely
vanished. Lo and behold, idle capacity came back on line, and the crisis was
over...
...But at least the post-Enron change in climate makes it possible to
revisit California's crisis, a crisis that should have provoked a rethinking
of our economic ideology, before the ideologues flush it down the memory
hole.
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