Benchmarks

Such attention has been paid recently to California's deregulation debacle and the lessons it should provide to other states considering deregulation. Behind California's high electricity prices, however, has been another crisis: extraordinarily high gas prices. In 1998 and 1999 gas prices in the West typically ranged from $2 to $3 per MMBtu. Late last year, however, gas prices at many locations in the West hovered above $20 per MMBtu, and on a few days, reached as high as $61 per MMBtu.

Resource Data International (RDI) analysis indicates that a multitude of factors led to these high prices. First, hydro generation levels in the West were 30 percent lower than in 1998 and 1999. This low hydro generation, coupled with significant unplanned outages of non-gas fired generation later in the year, caused a surge in demand for gas-fired generation, particularly in November 2000. At the same time that demand from the electric generation sector was surging, a severe cold air outbreak began to move through California. Based on preliminary data, we estimate that demand from local distribution companies and industrial customers rose to as much as 4.5 Bcfd in November of last year. On the days with the highest demand in California, it is likely that the state's total gas demand rose to as much as 9 Bcfd, which is well in excess of the state's normal import capacity of 7.3 Bcfd.