Working Paper: NBER ID: w8442
Authors: Paul L. Joskow
Abstract: This paper discusses the political, regulatory and economic factors that led to California's electricity crisis in 2000 and 2001. It begins with a discussion of the origins of California's electricity restructuring and competition programs. It then discusses the structure of the wholesale and retail markets and associated transition institutions created in 1996-98 and the performance of these institutions during their first two years of operation. The discussion of the electricity crisis is then conveniently broken down into three phases: (a) May 2000 through September 2000, (b) October 2000 through December 2000, January 2001 to the June 2001. Each phase is discussed in turn. The paper concludes with a discussion of lessons about electricity market liberalization gained from the recent experience in California.
Keywords: electricity; restructuring; California; market dynamics
JEL Codes: L94; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Restructuring of the electricity market initiated by CPUC (L94) | Dramatic increase in wholesale prices (D49) |
| Fixed retail prices remained unchanged until early 2001 (P22) | Exacerbated financial distress of major utilities (L94) |
| Exacerbated financial distress of major utilities (L94) | Caused them to become insolvent (G33) |
| Regulatory decisions (G18) | Market failures (D52) |
| Failure of transition institutions to manage supply effectively (P39) | Significant factor in the crisis (H12) |