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Copyright 2008-10,
CaliforniaPHOTON.com
V 1.06
site last updated: 6/26/2010

C a l i f o r n i a   P H O T O N

The California Electricity Crisis

The "California Elecctricity Crisis of 2000 and 2001", "Western Energy Crisis", or "energy meltdown" cost the state, consumers, and businesses tens of billions of dollars in energy overpayments and bailout money. 1   The crisis, which included Stage Three emergencies with rolling blackouts and a doubling of consumer electricity rates, was made possible by the implementation of a complex regulatory formula called deregulation, that fixed the retail prices the utilities could charge while allowing power wholesalers to game the deregulation-mandated spot market and gouge the utilities for billions of dollars.

Data from California Independent System Operator source

The "electricity crisis" of 2000, which has been blamed in part on the utilities' lack of electricitiy generation assets -- assets that deregulation had forced them to sell -- enabled speculators like Enron Corporation to hold the state hostage, forcing it to buy electricity at spot market prices, inflated, at times, several thousand percent. Duke and Reliant Energy admitted to charging $3,900 and $1,900 per megawatt-hour, respectively, where wholesale rates had previously been around $20 per megawatt-hour. 2   3   On March 16, 2001, the FERC cited over 11,000 sales transactions that exceeded a threshold of $430 per megawatt-hour. 4  

The crisis came to a head in January of 2001, as the state's largest utilities defaulted on loans and struggled to secure electricity supplies to meet demands. On January 17 and 18, 675,000 Northern Californians experienced blackouts. 5   On January 17, Governor Gray Davis declared a state of emergency and bought long-term contracts on the open market at highly unfavorable terms, wiping out the state surplus and creating a massive debt. By then, the utilities were in backruptcy and had no buying power. The prices of electricity that the long-term contracts locked in reportedly averaged $69 per megawatt-hour, compared to September 2002 prices of $30 per megawatt-hour. 6  

Taken on by the state's Department of Water Resources, the long term contracts numbered 52 and had a face value (nominal value) of $42.9 billion. In addition the department spent approximately $10.7 billion to purchase electricity to meet the state's daily power needs through the first nine months of 2001. 7  

Following the crisis, evidence produced in court cases clearly showed that Enron and other energy providers had conspired to create artifical energy shortates. 8   Recorded phone conversations show traders conspiried to create shortages in order to profit. 9  

[We] started out Monday losing $3 million... So, then we decided as a group that we were going to make it back up, so we turned like about almost every power plant off. It worked. Prices went back up. Made back about $4 million, actually more than that, $5 million, ... 10  

Ultimately, FERC upheld contracts signed in the state of emergency, despite citing "numerous market manipulation schemes." 11   12  


References

1. Energy deregulation: Is it friend or enemy, 05/16/2002 [cached]
2. Power kingpins rake in millions in stock deals, SFGate.com, 6/13/2001 [cached]
3. California, AmericanHistory.si.edu, [cached]
4. California Timeline, PBS.org, [cached]
5. Legislature OKs PG&E Bailout $400 million rescue plan buys time, SF Chronicle, 1/19/2001 [cached]
6. California News and Analysis, neaap.ncat.org, 9/2003 [cached]
7. California Energy Markets: ... Legal Challenges Continue, bsa.ca.gov, 04/2003 [cached]
8. Tapes Show Enron Arranged Plant Shutdown, NYTimes.com, 02/04/2005 [cached]
9. Reliant Indicted for Manufacturing California Energy Crisis, ens-newswire.com, [cached]
10. Cheney Suppressed Evidence in California Energy Crisis, 07/29/2007 [cached]
11. Federal Regulators Uphold California Energy Contracts, nytimes.com, [cached]
12. California electricity crisis, en.wikipedia.org, [cached]