california brink cera alert cera alert december 13 2000 title california brink cera knowledge areas western energy n american power n american gas california brink california stalemate california moved closer brink outage today concerns credit worthiness buyers brought possibility generators would avoid selling california market numerous factors contributed high cost power incurred california utilities root cause current crisis lack new generation current credit crisis threat supplies could spark state action address situation collective efforts market participants focused increasing generation capacity quickly possible western power prices skyrocketed well beyond record levels set summer perhaps frozen rates insulate majority california consumers companies tangible effects market crisis regulators able postpone meaningful market reforms significant rate increases california public utilities commission denied requests pacific gas electric southern california edison end rate freezes forcing utilities least temporarily finance costs higher wholesale energy created unsustainable accumulation costs loss faith california market current credit crisis potential blackouts may become galvanizing events provide state regulators public mandate address underlying structural problems industry however guarantee regulatory actions expedite effective solution customers industry whole wholesale retail markets emerge regulatory intervention likely remain muddled necessarily political process follow possible largely case far steps taken fail move california power market toward enduring solution instead continue mask underlying structural flaws six months since california supply shortfall began plaguing western markets regulators done little address underlying problem rather addressing cause supply shortage establishing market environment encourages timely additions new generating capacity demand side responses efforts instead directed trying lay blame crisis lessen immediate financial impact customers indeed several actions taken thus far served compound problem discouraging new power plant additions include price caps repeated changes market rules attempts seize generator profits challenging siting permitting process medicine worse illness several years electricity demand growth low prices california accompanied additions supply base regulators pay adequate attention looming supply shortfall void consensus cause current crisis instead replaced series bandaid remedies address symptoms cause california electric market woes challenging siting permitting despite state action better coordinate siting permitting process new power plants power plant developers still face high hurdles local community opposition alone struck key proposed facilities price caps discourage investment state federal proposals cap prices limit attractiveness california wholesale power market especially developers option channeling scarce capital equipment stable attractive markets outside state repeated rule changes frequent rule changes iso markets including price caps confound attempts developers estimate profits new plant development calls refunds despite reports power exchange iso ferc pattern abuse could found examination california markets state officials continue accuse power providers gaming market calls state officials refunds generator profits threat new plant development facility inspections recent inspections power plants state officials verify operators honestly reporting operational status generating units accentuates atmosphere mistrust cera recent analysis suggests merchant plant developers west guaranteed make profit prospects new plant profitability affected timing quantity new plants decommissioning older units demand growth numerous difficult forecast factors california regulatory actions cloud assessment financial viability degrade political environment developers considering entering state despite efforts california iso stimulate new capacity additions state special limited term capacity payment cera estimates demand growth continue outstrip supply additions west 2001 addition existing siting permitting process prevent sufficient quantity capacity entering market 2003 earliest therefore three years remain sufficient quantity capacity enters service significantly dampen prices decrease risk outage road recovery number actions taken help relieve capacity shortfall encourage new build supply must part answer requires series steps help facilitate new supply build principal taken new fast track approval success actions measured build still enough new supply coming 2003 relieve supply tightness stabilize investment climate utilities must assurance ultimately allowed recover market costs power provides credit worthiness needed sellers produce energy stimulate new build move toward balanced utility supply portfolios one reasons pressure customers intense california absence even discouragement diverse supply portfolios among utilities state particularly residential small commercial customers market peak however one sense sub optimal time move toward term contracting yet contracts provide foundation series actions including new supply build demand side investments end market least achieved desired effect knocking prices fact provide sufficient justification recovering cost commitments encourage market mechanisms elicit demand response although originally feature california market design consumers insulated price spikes capped frozen retail rates exposing customers least market price signals would encourage demand response encourage market mechanisms dampen boom bust characteristic market whether form capacity payment reserve requirement minimum term portfolio requirement california power market needs move structure encourages investment new capacity market balance rather waiting shortage price shock elicit new investment structure help dampen eliminate future price volatility avoid continuously tinkering market market need restructured described also needs stable reliable encourage development new supply well robust long term contractual market power california continually tinkering market structure three times price cap shifted since july serves undermine confidence market california needs best develop long term solution let market run course allow greater environmental flexibility state explore balanced solution emissions restrictions face supply shortfall exacerbated generators operate due emissions restrictions free purpa power plants generate relief granted purpa power plants operational restricted contract operating generate power end cera alert available pdf format within 24 hours electronic message attachments contain information cambridge energy research associates inc cera confidential may privileged unauthorized disclosure copying distribution use contents message attachments whole part strictly prohibited terms use http www cera com tos html questions comments 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