SACRAMENTO, Calif., March 31, 2003 — The Federal Energy Regulatory Commission’s decision to release documents related to California’s claims of market manipulation should speed the closure of the “blame game” and represent the beginning of an earnest effort to put into place rational policies that will help avoid future shortages, the Western Power Trading Forum announced.
“At last, all the cards are on the table. For two years, we’ve been hearing from California officials that everything that went wrong was the result of a vast conspiracy by energy companies. Now people will be able to see for themselves whether the market problems in California were entirely caused by gaming, or if the market structure itself was fatally flawed,” said Gary Ackerman, executive director of the WPTF.
Ackerman noted that the FERC decision does raise a troubling precedent. Previous filings of this sort were kept confidential, allowing private companies to disclose information that may have included competitive or proprietary data.
Despite this, the public release of the information was welcomed by the WPTF as well as by a number of private power producers and traders. The release of the filings, Ackerman said, should help bring an end to the unproductive practice by California officials of trying to shift blame for the energy crisis.
“Whatever else the documentation shows, it has been well-established that the worst of California’s wounds were self-inflicted,” Ackerman said. “The important point is that the data are now available, and it is clear the crisis had unavoidable physical root causes.”
This view was echoed recently by some 30 economists and professors — many from California universities — who published a report outlining the myriad mistakes California made in addressing what might have been a relatively simple marketplace problem. The economists agreed that the state’s attempt to restructure its electricity market was flawed and doomed from the start. It ignored basic principles of supply and demand and, is always the case, paid a heavy price for doing so. Worse, the initial supply shortage was met with a political response that turned it into a full-blown crisis.
“The first response was complete paralysis,” Ackerman said. “Finally, when there was some reaction by the politicians, it was more political nostrums about solving the problem in twenty minutes — just raise rates. Next, California moved into the blame phase which, unfortunately, continues today.”
That process of blaming everyone else for the state’s electricity woes culminated earlier this month with the state’s filing at FERC of “documentation” that virtually every energy supplier in the marketplace — seventy among the seventy-five sellers — conspired to defraud California.
“The state’s report makes for bizarre reading,” Ackerman said. “One columnist likened it to blaming the ocean for sinking a ship. Rather than admit it drafted flawed rules, the state seems to prefer insisting that absolutely everyone else is at fault.”
The same group of economists that warned California not to take steps to exacerbate the crisis and to take steps to restore order in the market — steps that were uniformly ignored– cautioned that unless the politicization of the energy supply market in California gives way to rational economic principles, California may be destined to go through another crisis.
Unless the state gets serious about looking ahead and addressing the problem of tightening supplies, history will likely repeat itself. A drought in the Pacific Northwest, climbing gas prices and numerous decisions by generators to shelve plans for new construction indicate lean times ahead.
“If current practice continues — if California insists on looking backward instead of forward — we’ll be in the dark possibly by 2005, if not sooner,” Ackerman said.
The Western Power Trading Forum is a broadly based membership organization dedicated to enhancing competition in Western electric markets in order to reduce the long-run cost of electricity to consumers throughout the region while maintaining the current high level of system reliability.
Source: Western Power Trading Forum