fw new report lessons california fyi kim original message gold amy mailto agold coral energy com sent wednesday august 01 2001 11 25 watson kimberly subject fw new report lessons california got thought might find interesting well amy inline attachment follows eric ehirst com date wednesday august 1 2001 12 16 55 gmt subject dear colleague edison electric institute published paper california electricity crisis lessons states wrote paper available publications page website www ehirst com please let know comments paper summary paper california supposed show rest nation brighter electricity future future outlined california public utilities commission 1994 envisioned electricity industry featuring competitive markets markets intended produce lower costs choices consumers ensuring profits efficient energy suppliers encouraging retirement old inefficient power plants although first two years restructuring beginning april 1998 seemed bear promises last year disaster california electricity consumers taxpayers electric utilities part fallout california electricity crisis considerable concern even opposition states restructuring electricity industry although states decided based california experience restructure believe wrong outcome instead primary lessons states learn california competitive markets work competition blame california problems basic economic principles supply demand prices affect market outcomes section 2 paper briefly reviews history electricity regulation restructuring california problems occurred beginning may 2000 section 3 heart paper offers guidance states key ingredients competitive electricity industry section makes several points maintain favorable investment regulatory climate new generation ensure enough generation capacity online planned meet growing loads ensure enough infrastructure transmission capacity natural gas pipeline capacity place planned meet growing loads maintain reliability connect new generators grid support large regional markets provide fuel power plants encourage retail customers participate dynamic pricing voluntary load reduction programs e couple retail wholesale markets create honest retail competition avoid standard offer rates artificial discounts create conditions encourage many companies offer retail services without favoring individual competitors encourage electricity suppliers manage diversify supply price risks create efficient integrated wholesale markets energy ancillary services transmission congestion monitor minimize horizontal market power generation vertical market power combined ownership operation generation transmission ultimately competitive markets electricity lower costs prices better align consumer prices producer costs improve producer efficiency investment operation maintain improve reliability yield greater innovation customer services pricing options transition one industry structure another turning long complicated complicated electricity important modern high tech society electricity flexible fuel providing light heat motive power energy operate electronic equipment also electricity truly real time product production consumption must occur time although problems occurred california substantial worrisome regulators legislators states focus long term benefits competitive electricity markets accept possible short term problems may occur also need recognize wholesale markets regional scope extend far beyond boundaries single state finally competition retail wholesale markets must coordinated particular possible competitive wholesale markets unless least retail load faces time varying prices states restructure properly create competitive markets wholesale energy retail services benefit consumers enjoy lower prices many choices energy services price risk tradeoffs reliability improved reliability services obtained markets instead engineering edict financial risks associated building operating power plants assigned properly investors rather consumers eric eric hirst consulting electric industry restructuring 106 capital circle oak ridge tn 37830 865 482 5470 phone fax eric ehirst com http www ehirst com