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Trading and Power Market Deregulation – The California Story

Return to Risk Limited Website at www.RiskLimited.com. Trading and Power Market Deregulation – The California Story. October 2004. California Power Market. California Power Deregulation Cost Utilities About $20 Billion During 1999/2000 Crisis Total Cost Is Some Multiple Of That

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Trading and Power Market Deregulation – The California Story

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  1. Return to Risk LimitedWebsite atwww.RiskLimited.com Trading and Power Market Deregulation – The California Story October 2004

  2. California Power Market • California Power Deregulation Cost Utilities About $20 Billion During 1999/2000 Crisis • Total Cost Is Some Multiple Of That • The California Deregulation Approach Was Probably Doomed From The Start • Damped Enthusiasm for Deregulation In Other States

  3. Any Lessons From California’s Deregulation? • Partial Deregulation Does Not Work • The California Crisis Does NOT Prove That Deregulation Does Not Work • Supply And Demand Will Prevail As The Drivers In The Market • No One Is Too Big To Fail

  4. Underlying Phenomena That Created The Flawed California Deregulation Strategy • Powerful Political Forces Designed The California Deregulation Strategy • To Appease A Number Of Participants • With Provisions That Were Thought To Be Favorable To The 3 Big Utilities

  5. A Recap Of The California Situation • Lots Of Debate Over Why The Situation Occurred, But The Facts Of What Occurred Are These • Electric Power Prices In California Skyrocketed • Power Supply Shortages Resulted In Rolling Blackouts • The 2 Largest California Utilities Lost About $20 Billion, One Went Into Bankruptcy (PG&E), And The California Power Exchange (CalPX) Failed

  6. Collateral Damage From The California Situation • The State Economy Was Hurt • Lost Production During Repeated Blackouts • Loss Of Confidence In The Reliability Of The Grid • Businesses Considering Locating In California Reconsidered • Some Industry There Moved Production Elsewhere • Still A Factor That New Gov. Will Have To Address

  7. Collateral Damage From The California Situation • First Big Political Hit To Former Governor Davis, Who Was Then Considered A Presidential Contender • Political Factions Still Trying To Assign And Avoid Blame For The Debacle • Increased Reluctance In Congress Of Addressing National Electric Power Issues That Are Still Pending, Even After 8/03 Blackouts

  8. Questionable Trading Practices • Enron Collapse and Subsequent Investigations Revealed Market Manipulation • Results Are Increased Market Oversight • What Were the Basic Trading Practices that Were Exposed? • Did Trading Caused the California Debacle?

  9. What Was Needed? • Change Of The Deregulation Plan • More California-Sited Generation Supply • Price Signals To Users, So That Consumers Will Respond • Motivate Conservation • Encourage Energy Efficiency Projects • Investments In Transmission Upgrades

  10. Energy Policy • US Energy Policy May Finally Change • Due To New Concerns About Excessive Reliance On Oil Imports • The California Debacle • The 2003 Northeast Blackout • This Will Have Global Implications • In Oil & Gas, And In Power (e.g. Possible Repeal of PUHCA)

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