california energy crisis california power crisis generated heated debate last several months unfortunately debate generated heat light want know facts crisis please spend minutes reading following overview situation position california energy issues happened california source california current problem straightforward supply demand california economy grew 29 percent since 1998 increased demand electricity 24 percent time regulatory restrictions prevented new generation getting built state demand grew regulations prevented supplies added result predictably shortage summer peak capacity 10 percent shy peak demand leading blackouts state addition supply demand imbalance two related factors led current crisis first state regulations forced sales purchases spot market spot market power extraordinarily volatile way firms behave free market faced volatility construct portfolio purchases long term medium term short term reduce exposure volatility california state regulation prevented strategy would equivalent putting entire state adjustable rate mortgage volatile interest rate environment imaginable everything fine power surplus persisted shortages ensued every megawatt purchased sky rocketing spot price second retail markets deregulated regulated retail rates remained effect stranded cost recovery charges structured keep competition meant utilities forced pay high wholesale prices spot market able recover costs regulated retail rate nearly bankrupt short california problems caused regulation deregulation regulations prevented competitors entering market prevented new generation built prevented prudent hedging volatile spot prices time california developing restructuring plan enron warned state policy makers risks proposed alternatives adopted would averted current crisis enron role many political leaders state elected fix blame rather fix problem power sellers including enron vilified politicians media facts small amount wind power enron generator state california every megawatt sold california bought market available california purchasers market maker generator biased toward high prices interested market works package products customers seller end use markets state provided protection problems states utilities customers face protected still protect customers price volatility may read ees recently elected utilities supply power directly customers california instead procuring power open market early reports mischaracterized enron continues sign customers state enron continues actively manage risks capture opportunities western power markets enron primary business managing risk customers solutions customized meet needs never demand products services solution solution california crisis also straightforward summary state must increase supply reduce demand reduce reliance spot market shore financial stability state utilities increasing supply california process siting permitting new generation nothing short byzantine enron built plants elsewhere country less year california often takes 5 7 years california simply must streamline process ironically many regulations generators must overcome aimed improving environmental quality regulations preventing new clean technology coming online displacing current plants emit 40 times much nox california abundant power cleaner air expediting permitting new facilities reducing demand customers california today incentive reduce shift demand pay rate matter market price open retail market would trigger demand responses would balance supply demand lower prices today california fully open retail market reducing reliance spot market truly deregulated market customers would protect volatile spot prices purchasing requirements longer term fixed price basis state instead left procurement hands utilities forced buy exclusively spot market opening market retail level give customers control price risk restoring financial integrity state institutions utilities california paying bills led greater uncertainty market higher costs reduced flexibility arrive lasting solutions california must permit utilities recover costs pay bills invest transmission distribution assets necessary get power needed important things state must avoid policies politically attractive fix problem even make matters worse price caps proposed work never worked work price caps succeed creating shortages allocated among competing users imagine ineffectively government would determining example whether better make limited power supplies available imperial valley silicon valley price caps surefire way make current shortage worse state also proposed take generation transmission california reason believe every reason doubt state effective free markets investing constructing operating maintaining assets also result california tax revenues spent power transmission power generation private sector instead education roads public goods private sector approached people outside company learning crisis media important know enron continue serve customers continue propose real solutions state