California Energy Crisis Case Study

Many factors went into the issues that affected the California energy market and power gird in the late 1990’s and early 2000’s. Things like a drought in the Pacific Northwest, lack of adequate natural gas supply, companies and individuals attempting to “game” the system in order to maximize profits, and an unusually hot summer all contributed to the energy crisis in California. Several people called all these factors that combined a “perfect storm” that made electricity prices sky rocket. (Chappell, 2003) Looking at the first factor listed above the drought that hit the region severely impacted the amount of hydroelectric generation available. The lack of spring and summer run off from snow in the mountains, along with the lack of rain …show more content…
Many of these players such as, marketers, investors, utility or Generation Company’s, and some sole individuals were looking for ways to make as much money as possible off of this new “freer market” system. Greed from merchant generator operators and some utilities forced supplies to be purposely tight thus forcing prices up and creating an abusive market. Some other things that compounded the greed were the mismanagement and lack of oversight from state and federal regulators. The mismanagement came on the part of state regulators who did not fully understand how the market would work, and ultimately did not really create a true completive environment. Furthermore, federal regulators did an extremely poor job of policing and preventing abuse in the brand new electricity market; consequently this sent the signal that there would be little to no repercussions from abusive or unethical behavior. (Cooper, 2001) The actions of these players led to a loss of trust by the consumer and government officials. This loss of trust and abuse forced the government to step in to regain control of the electricity market, essentially ending