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California's Electricity Crisis

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  • Paul L. Joskow

Abstract

The paper examines the economic and regulatory factors that led to an explosion in wholesale power prices, supply shortages, and utility insolvencies in California's electricity sector from May 2000 to June 2001. The structure of California's restructured electricity sector and its early performance are discussed. The effects on wholesale market prices of rising natural gas prices, increasing demand, reduced power imports, rising pollution credit prices, and market power, beginning in the summer of 2000, are analysed, The regulatory responses leading to utility credit problems and supply shortages are identified. The effects of falling natural gas prices, reduced demand, state power-procurement initiatives, and price-mitigation programmes on prices beginning in June 2001 are discussed. A set of lessons learned from the California experience concludes the paper. Copyright 2001, Oxford University Press.

Suggested Citation

  • Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(3), pages 365-388.
    • Handle: RePEc:oup:oxford:v:17:y:2001:i:3:p:365-388
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    1. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    2. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
    3. Borenstein, Severin & Bushnell, James & Wolak, Frank, 1999. "Diagnosing Market Power in California's Deregulated Wholesale Electricity Market," Competition Policy Center, Working Paper Series qt3rx965d5, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    4. Paul L. Joskow, 1989. "Regulatory Failure, Regulatory Reform, and Structural Change in the Electrical Power Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 125-208.
    5. David M. Newbery & Michael G. Pollitt, 1997. "The Restructuring and Privatisation of Britain's CEGB—Was It Worth It?," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 269-303, September.
    6. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236.
    7. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    8. William W. Hogan, 1993. "Markets in Real Electric Networks Require Reactive Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 171-200.
    9. Joskow, Paul L, 1996. "Introducing Competition into Regulated Network Industries: From Hierarchies to Markets in Electricity," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 5(2), pages 341-382.
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    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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