As record-breaking temperatures swept the state last week, the sudden loss of a key Southern California power plant plunged electricity reserves to their lowest level in a year, triggering a Stage 2 power alert.
With state officials calling on the public to conserve, and California’s electricity managers asking businesses statewide to cut power use, California again finds itself plagued by its unresolved electricity problems.
Amid this crisis, James L. Sweeney’s timely new book, The California Electricity Crisis (Hoover Institution Press, 2002), offers solutions to the state’s energy dilemma.
Deregulation, which afforded an opportunity for California to restructure its electricity system, making it more flexible and responsive to changing economic conditions, ended up—through flawed implementation and failed political leadership—in the electricity crisis and the financial crisis of 2001. These dual crises continue to trouble the state.
"Since mid-year 2000, California's electricity problems have been a central concern in the state," writes James L. Sweeney.
"Californians have faced blackouts, seen the state budgetary surplus decimated, and listened to state official point fingers at myriad organization and individuals for causing the crisis."
Could these dual crises have been avoided or, at least, anticipated? Did state and federal officials react appropriately? What realistic policies can help solve the blight California may now face?
The California Electricity Crisis answers these questions and offers some policy recommendations for the future, including
Improving regional integration through
- Publicly available supply/demand information
- Regional transmission organization
Improving California electricity markets by
- Redesigning wholesale markets for electricity
- Ensuring competition in wholesale markets
- Promoting retail competition by restoring direct access
- Improving pricing in retail markets
- Allowing real-time retail pricing
Improving risk management by
- Reducing infrastructure-related risks
- Improving system response to adverse events
- Distributing financial risks appropriately
Managing California's financial obligations by
- Renegotiating long-term electricity contracts
- Considering realistic options to pay for California's long-term financial obligations
"California's political leadership failed in 2000 to respond effectively to the challenge of tight electricity markets, mismanaged the electricity crisis in 2001, and thereby saddled the state with heavy long-term, electricity-related financial obligations," writes Sweeney.
The governor and the California legislature responded to the short-term crisis by enacting a group of long-term measures that seemed "designed to turn California into a public power state rather than one characterized by a free market system for electricity.
"As a result of the fundamental policy mistakes made by the state's governor and other political leaders, the saga continues," writes Sweeney, "with California facing an electricity blight as it struggles to recover from its self-imposed wounds."
About the Author
James L. Sweeney, a senior fellow at the Hoover Institution and the Stanford Institute for Economic Policy Research (SIEPR), is a professor of management science and engineering at Stanford University. He is known for his work on energy economics and energy policy.
Sweeney recently served on the review panel for the State of California Public Interest Energy Research Program, the National Research Council's Committee on Benefits of DOE R&D in Energy Efficiency and Fossil Energy, and the National Research Council's Committee on Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards.
He is a fellow of the California Council on Science and Technology and a senior fellow of the U.S. Association for Energy Economics.
The Hoover Institution, founded at Stanford University in 1919 by Herbert Hoover, who went on to become the 31st president of the United States, is an interdisciplinary research center for advanced study on domestic public policy and international affairs, with an internationally renowned archive.
The Stanford Institute for Economic Policy Research (SIEPR) is a non-partisan economic policy research organization. Academics at SIEPR conduct studies on important economic policy issues in the United States and other countries. SIEPR's goal is to inform and advise policymakers and the public to guide their decisions with sound policy analysis. In the course of their research, SIEPR faculty train Ph.D. students as future economic policy analysts.
