Energy Markets: Results of Studies Assessing High Electricity Prices in California Page: 2 of 18
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&GAO
Accountability * Integrity * Reliability
United States General Accounting Office
Washington, DC 20548
June 29, 2001
The Honorable Jay Inslee
The Honorable Peter A. DeFazio
House of Representatives
Wholesale electricity prices in California rose sharply in May 2000 and
have remained high. In addition, there were disruptions in service-
blackouts-this winter and spring. The California Independent System
Operator, the state agency in charge of balancing electricity supply with
demand, expects high prices and service disruptions to continue and
perhaps worsen this summer. Some other western states, including
Oregon and Washington, have also experienced increases in their
wholesale electricity prices since the summer of 2000.
A number of factors have likely contributed to these high wholesale
electricity prices and service disruptions, including rapid demand growth
since 1995 accompanied by slow growth in supply, higher-than-normal
natural gas prices, and flaws in the design and structure of California's
electricity market. In addition to these factors, state officials and others
have attributed the problems, at least in part, to market power, exercised
by individual electricity-generating companies. Some have argued that
generating companies have staged outages of generating units to reduce
supply and drive up prices. As evidence, they point to a higher-than-normal
level of such outages since the summer of 2000.
In response to concerns about high prices and generator outages in
California, the Federal Energy Regulatory Commission (FERC) undertook
a study, released in February 2001, to determine whether outages were
being used to physically withhold power and drive up prices of electricity
in California. Other studies of the electricity market in California have
been conducted by economists and industry experts. One study,
conducted by three economists from Stanford University, the University of
California at Berkeley, and the University of California Energy Institute
examined whether market prices of electricity in California in 1998 and
1999 were higher than competitive levels. A second, similar study by two
economists-one from the Massachusetts Institute of Technology and one
from a private consulting firm-examined the California market during
2000.
Concerned about the potential use of market power to drive up electricity
prices, you asked us to evaluate the FERC study, as well as the two studiesGAO-01-857 FERC Study of Electricity Outages
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United States. General Accounting Office. Energy Markets: Results of Studies Assessing High Electricity Prices in California, report, June 29, 2001; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc293580/m1/2/: accessed March 28, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.