Questioning the Conventional Wisdom

Abstract

There is little dispute that the California energy crisis began with demand severely outstripping supply in the western United States in the summer of 2000. But tellers of the California tale have embellished that story with a number of additional claims, such as the following:

- The state should have deregulated more broadly.

- Generators "gamed" the California wholesale-retail auction.

- The lack of real-time or other market-based pricing removed consumers' incentive to conserve.

- Long-term contracts would have insured against high wholesale prices.

- Generators used market power to further drive up prices.

- Temporary price caps would have lessened the crisis significantly.

- But for California's mistakes, electricity markets will work. Those assertions may have some merit. But, the author argues, that merit is not without qualification.