California's Power Gamble: Long-Term Contracts, Locked-In Risk

Deck: 
High profit potential will attract new power plants, forcing prices down and stranding the state's long-term electricity purchases.
Fortnightly Magazine - May 15 2001
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High profit potential will attract new power plants, forcing prices down and stranding the state's long-term electricity purchases.

Let's consider three questions crucial to California's energy crisis and its plans for solution.

First, what is the likely long-term wholesale power price in California, and how does that price compare with the current cost to the state of signing long-term contracts to buy electricity at prices, terms and conditions common to today's overheated market?

Second, despite the many risks (retail price caps, political interference, environmental restrictions, etc.), are the current rewards great enough to entice power producers to build more power plants - enough to bring prices way down in two or three years?

Third, could it be that, given the current market, long-term power contracts are not in the best interests of the state's electricity consumers?

Overall, many factors appear at work to increase the risks of investing in new generating capacity in California, including:

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