energy deregulation, California, and Enron

Okay, let's get this straight. Pete Wilson, a Republican, deregulated the energy markets with the help or against the wishes of the Dems in congress? I'm in a debate about this, and basically I'm being told that, since California is supposedly so dominated by Dems, it's our own fault. Since I just moved here this past year, I don't really know the history of it.

Help?

...here's a detailed article in the Sacto Bee:

http://www.sacbee.com/static/archive/news/special/power/050601california.html

: State lawmakers began taking up deregulation in summer 1996, and a bright, ambitious and abrasive Democratic senator from El Cajon named Steve Peace found himself at the forefront. Peace announced plans to scrap the PUC plan in favor of something better and cheaper.

Then Wilson stepped in.

In a letter, the governor made it clear that no tinkering would be tolerated, saying he would "oppose any legislation which seeks to alter the decision's basic framework or timeline."

The lawmakers backed off.

For months they labored over deregulation in a series of late-night negotiating sessions that became known as "the Steve Peace death march" -- focused almost exclusively on side issues of deregulation.

Thank you.

The actual facts are everybody deregulated the electricity market. AB1890 was the bill that did it, and guess what? It passed with 100% of all legislators voting for it. Democrats AND Republicans voted for it. It was then signed into law by Wilson.

The main proponent of AB1890 was Steve Peace, a DEMOCRAT.

So there is more than enough blame to go around on this one.

So Davis did not deregulate anything. However, he did sit around with his head firmly ensonced in his colon for most of the crisis. He claims that lots of new power plants were built under his watch. Its true, but they are almost all high cost peaker plants (i.e., combustion turbines--jet engines basically--and not base load units--combined cycle natural gas fired plants).

A demand response from consumers was desperately needed, but he refused raise rates or allow them to fluctuate with market conditions (thereby getting the demand response). This last one meant that the retail customers saw a low price, and had no incentive to cut back usage. Thus, the demand curve is perfectly inelastic and gave the generators a great deal of market power (i.e., power to set the price). In some hours the price got as high as $1600/MW.

One thing that Davis came up with that was fairly clever was the 20/20 discount plan. Cut your usage by 20% and you can get 20% off your bill. The clever part is that for most residential users cutting usage by 20% is rather difficult, so what happened is lots of people cut 10%, 15% and 18% and so you got a drop in usage and no refund. The problem is that it was more than a few months too late and several billion dollars too short. It was essentially like putting a speed bump in front of runaway semi and pretending that would be sufficient to stop the truck.

Davis was also a dolt for signing long term contracts at the height of the scare. There is an old adage for investing, do not buy high and sell low. That is precisely what Davis did. Now the contracts he entered into are tremendously over priced.

Also, FERC under Clinton did nothing. Initially FERC under Bush did nothing, and then around March of 2001 implemented soft price caps. Remember the crisis became really noticable late in the summer of 2000 (August). However, there were problems earlier. There were studies out there indicating that the generators had market power and were driving prices up.

This mess was a mess that a great many can share blame in. The utilities are also partially to blame for not fighting harder against the silly market structure. For fighting harder for the right to enter long term contracts from day one. For agreeing to the forzen retail rate. For not seeing the problems associated with a constrained transmission system would pose for market power.

A staffer hurried up to ISO chief executive Jeffrey Tranen with a note. The $1 price tag, set by the power generators, had shot up to $2,500. Then, just as suddenly, it spiked again to $5,000, where it stayed for three hours.

After that, it mysteriously dropped again, all the way back to $1.

Four days later it happened again, but this time the price went to $9,999 and stayed there for four hours. Then it dropped to a penny.


I don't recall which one, but this was in one of the ancillary services markets. Such things as spining reserves, non-spining reserves, regulation, etc. This is what prompted the price cap. The problem was that the price cap itself was quite high, $250/MW. Then as the crisis worsened it was moved up to $500/MW then to $760/MW. The price followed the cap (i.e., when the cap went up, so did the price). Then in December, IIRC the cap was removed entirely and the price skyrocketed, in some hours going well over $1,000/MW. This wasn't for the small ancillary services market, but the general market with tens of thousand of MW.

Oh yeah, nobody could bit infinity, the bid field was a 16 digit field. Thus, the max bid could have been

$9,999,999,999,999,999.

Of course since that is more than the U.S. GDP for an entire year it might as well be infinity.

<i>Faced with this assault, the utilities set their own ground rules. They would break up their monopolies if the state let them charge customers for "stranded costs" -- debts from nuclear power projects and other costs they believed they'd eat in a competitive market. Wilson, who'd collected $120,000 in campaign contributions from the utilities, agreed that the utilities should collect $16 billion in stranded costs from ratepayers.</i>

This is misleading. The utilities were already allowed to recover their stranded costs. The proposed deregulation plan simply accelerated the collection of the stranded costs.

Its also worth remembering that some of those stranded costs were incurred at the direction of the state. Filed rate doctrine holds that when the state orders a utility to make an investment that later turns out bad, then the utility can recover that money.

You have already been admonished before on this issue. And yet you persist. So let me again call your "facts" into line with reality.

So Davis did not deregulate anything. However, he did sit around with his head firmly ensonced in his colon for most of the crisis. He claims that lots of new power plants were built under his watch. Its true, but they are almost all high cost peaker plants (i.e., combustion turbines--jet engines basically--and not base load units--combined cycle natural gas fired plants).

False. Problems with deregulation started under Peat Wilson's watch. Including the first bail out of an utility that took place in March, 1998. The day rates were frozen at 40% above the national average. And the three biggest utilities started to gouge consumers to pay off debts incurred mismanagement.

Also false. The idea that power production had "peeked." It hadn't.

January 2000: Peek power production reached 32500Mega Watts on the 10th. But the black outs took place on the 17th and 18thm at about 29500 Mega watts.

March: Peek power production reach 29600 Mega watts on the 5th. But black outs accrued not on the 5th, but on the 19th and 20th, at 29250 Mega watts and 29400 Mega watts respectively

May: Blackouts took place on the 7th and 8th at 32500 Mega watts and 34000 Mega watts respectively. But the last day of the month, the grid produced 37000 Mega watts.

Also false: The idea that no power plants have been brought on line. In the 90's, 170 new facilities were brought on line, for a total of 3,369 mega watts, and had the capacity to produce (including imported power) 47,000 Mega watts.


"Each series of blackouts coincided with critical energy related actions by state officials in Sacramento."

This is all taken from a report published by the Foundation For Taxpayers and Consumer Rights. Posted January 17th, 2002. (PDF Format.)
Link at: http://www.consumerwatchdog.org/utilities/pr/pr002170.php3

For nearly a year, the energy industry, state officials and President Bush claimed there was a shortage of energy in California. But the crisis suddenly disappeared late last spring after Governor Gray Davis committed the state to spending at least $43 billion for energy over the next twenty years. The report shows that the power industry manufactured blackouts and threatened more of them as tools to gain unprecedented profits and overpriced, long-term contracts during the crisis. The report also warns that unless the state of California regains control of its electricity supply, and makes it publicly accountable, additional artificially-created crises will occur in the immediate future.

The charts in this report must be seen to be believed. They are extremely damming

Even more information can be found here.
http://www.consumerwatchdog.org/utilities/
Including the recent Edison bail outs that were affirmed by the courts, as per the de-regulation law.



On edit: Oh, oh, looky what I found here.
Meltdown May Have Generated a Political Power Failure

(snip)

As chief executive of the nation's richest state, Gray Davis has borne the brunt of the blame for the California energy crisis that caused power costs to quadruple from the summer of 2000 to the summer of 2001. The crisis drained $40 billion from consumers and businesses and triggered blackouts up and down the state. The erosion of public support that began with his handling of the energy meltdown has grown into the recall referendum that threatens to throw Davis out of office.

Of all the central players in the drama, the one with the least direct legal authority to resolve the crisis turns out to have been Davis himself. "Really, a peripheral player," said Christopher Weare, who analyzed the crisis for the Public Policy Institute of California. But Davis was the state's leader with the ultimate political responsibility for handling the crisis.

From the start of the crisis in the summer of 2000 Davis pinned the blame on outsiders -- greedy energy suppliers based in Texas and other states and myopic federal regulators who refused to clamp price caps on the state's soaring electricity costs. He also would hurry new power projects through to completion and urge consumers to conserve power.

His role was primarily defined, however, by a futile battle with the Federal Energy Regulatory Commission, a Washington agency whose commissioners regulate wholesale power prices.

When power shortages began in the summer of 2000 and wholesale power prices tripled, Davis immediately accused generators of gouging electricity customers. State regulators cited indications of price manipulation and deliberate withholding of power supplies by generators. In response, the governor demanded that FERC impose price ceilings on generators' prices.

more…
http://www.washingtonpost.com/wp-dyn/articles/A37482-2003Aug23.html
Thanks to kskiska from the Latest news.
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=102&topic_id=80651