Customer Reviews

The California Electricity Crisis

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This book is the most complete and detailed account of the crisis in print, combining historical data of what happened with economic analysis of what it meant. For example, Sweeney describes the low rainfall in the northwest and what the lack of hydropower in Washington meant quantitatively in terms of increased needs for power generation from natural gas plants in California. He shows that power plant construction took off after deregulation was passed but that these plants were still under construction when the crisis occurred. He shows how the creation of two power markets and other flaws in the deregulation law created perverse incentives for power companies to buy power seconds before it was needed so as to trigger price controls. He also describes the failure of the political system to respond effectively to the crisis, such as by letting consumer power prices rise to bring demand back in line with supply.

This book would be most enjoyable & accessible if the reader has some basic understanding of economic principles (eg. supply and demand) and is comfortable reading graphs.

This is one of the best books on the California energy crisis of 2000-01, but misses the point about what caused it. Yes, it is true California was paying more for power than other states because the old system created incentives for overcapacity and thus high prices. Yes, it is true Enron and others, including municipal utilities, gamed the system during the crisis as deregulation provided. Yes, there was a perfect storm of a draught in the northwest resulting in less available cheap backup hydropower, causing high natural gas prices as hydropower competes with natural gas. But the reason that energy supplies were thin in 2000-01 was that the EPA mandated mothballing of old polluting power plants to clean the air of smog, or Federal highway and school funds would be withheld. This left the old power plants with unpaid mortgages on them, called "stranded debts" to the tune of $8 billion. The former governor, legislature and the investor-owned utilities played hot potato for two years trying to get someone else to pick up the tab for cleaning the air. Finally, a State Power Authority was created to roll the stranded debt into a general obligation bond rather than raise electricity prices which would have thrown politicians out of office. The domino effect of rolling this debt into a bond was the state deficit crisis of 2003 resulting in recall of the governor. James Sweeney discusses many of these aspects but focused on the details of the electrons rather than the big picture behind the crisis. Nonetheless, you can't find a better book than this one. It is chock full of tables and color charts and data. One shortcoming of this book is that it isn't for the average person even though it is understandable. It would have been helpful to include an explanation in the beginning of how the energy system in California works (peak/off peak, etc.). There were two schemes to clean the air and lower electricity rates at the same time in 2000-01 - one was Republican, the other Democratic. Both were gambling schemes. The Republican wishful scheme hoped that buying energy in markets could lower customer prices and pay off the debt on old power plants. The Democratic scheme crated a new layer to the energy system called the ISO to mask the true price so that the system could be gamed to reduce customer prices and pay off stranded debts. Both failed miserably because they relied on gambling and failed to reveal to the public what was really going on. Nonetheless I recommend the book which contains a wealth of data and is reasonably priced.