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Lessons from the California Electricity Crisis

Lessons from the California Electricity Crisis

Chapter:
(p.145) 3 Lessons from the California Electricity Crisis
Source:
Electricity Deregulation
Author(s):
Frank A. Wolak
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226308586.003.0004

This chapter analyzes the possible causes of the electricity crisis in California in 2000. It argues against the belief that the crisis was caused by a combination of rising input costs, poor market design, and the exercise of market power and failed market oversight by state and federal regulators, and suggests that the crisis fundamentally a regulatory crisis rather than an economic crisis. This chapter suggests that the most important lesson from the California crisis relates to how the Federal Energy Regulatory Commission (FERC) carries out its statutory mandate to set just and reasonable wholesale prices in a market regime.

Keywords:   electricity prices, California, rising input costs, poor market design, market power, market oversight, FEC, regulatory crisis

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