A few comments on the state of power supplies in California from energy land: Texas. While all of the comments made above have some merit. The genesis of the existing power shortages has nothing to do with macro-level economic or energy policy. The State of California and its citizens got into this mess by:
- Making a decision to refuse pemitting of new or expansion of existing power generation capacity, relying on merchant power generation elsewhere to fuel their economy.
-Declining ro make use of existing risk management tools and long term power supply contracts in favor of power purchasing and allocation by a state agency operating in the "spot" market. This makes it infeasible for any private power generator to finance a plant to supply California with power because they have no long term client commitment. Additionally it exposes the power agency to price volatility that no sane business man would accept.
-Implementing price controls on power that limit the price that can be charged by "lines & wires" companies to end users. This has three major effects, first at current market prices exceeding $1000/ megawatt, No one wants to send power to California for the $250/ megawatt maximum cost. Second the lines & wires company lose $750/ megawatt on everything they sell, losing $3 for every 1$ of revenue so that now PG&E and SoCal Edison are insolvent and have negative net worth in the billions. Third, artificially cheap power due to price controls ( users paying 25% of actual cost) increases quantity demanded, which makes the price go up,which makes utilities lose more money, which makes the power generation companies, more reluctant to sell power to them, etc. etc.
The oil business, drilling on public land, etc have very little to do with this problem. Virtually all the generation capacity developed in the U.S in the last 10 years has been in natural gas fired plants. We do not have a shortage of natural gas. However, we cannot radically increase supply, build pipelines to carry it, and build generating plants to turn it into electric power nearly as fast as the idiot politicians and bureaucrats in California can increase demand, restrain supply, and simultaneously attempt to violate the laws of economics and physics.
At the moment major power suppliers are providing the energy in California for free. Neither the utilities or state have funds to pay for it but the bill will come due and the citizens will pay.
This problem is not the result of macroeconomic forces or evil energy companies conspiring against us. Its stupid is as stupid does.
