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Assuring Enough Generation: Whose Job and How to Do It

A California failed to fashion proper incentives. Now others may repeat that mistake.
Fortnightly Magazine - April 15 2001

1 "Load-serving entities" are firms that serve retail electricity customers. These firms include utilities and power marketers.

2 See L.D. Kirsch, "ISO Economics: How California Flubbed It on Transmission Pricing", Public Utilities Fortnightly, Oct. 15, 1998, p. 24.

3 See J.E. Bowring and R.E. Gramlich, "The Role of Capacity Obligations in a Restructured Pennsylvania-New Jersey-Maryland Electricity Market", Electricity Journal, November 2000, pp. 57-67.

4 Federal Energy Regulatory Commission, Order Directing Remedies For California Wholesale Electric Markets, 93 FERC _ 61,294, Docket Nos. EL00-95-000 et al, Dec. 15, 2000.

5 For an excellent discussion of this point and of the causes and remedies of the California fiasco, see J.D. Chandley, S.M. Harvey, and W.W. Hogan, Electricity Market Reform in California, http://ksghome.harvard.edu/ ~.whogan.cbg.ksg/, November 22, 2000.

6 The Federal emergency orders of January and February 2001, which required generators outside of California to send power to California, are one example of this. Another example is that California's current rotating blackouts are being imposed not only on the retail customers of LSEs without adequate resources but also on the customers of LSEs with adequate resources, which means that power is being confiscated from the latter LSEs and their customers.

7 On the other hand, the state itself is now in the process of securing long-term power contracts for up to 10 to 20 years.