Absolutely right there. It was an off balance sheet thing. But 2 year contracts would not have cut the prices, at least in the short term. And I think it fair to say, the collapse in spot prices took everyone by surprise. There does appear to have been some price fixing and withholding of supply. Quite how all that has played out, I am not sure.
Government should not be involved period
I know this up-close - I am an investor in Calpine Corp.
And I think it fair to say, the collapse in spot prices took everyone by surprise. No, that is NOT fair to say! Analysts were predicting that would happen, once you fixed the pricing mechanisms. Econ 101 says that increasing retail price would make the demand fall. In fact, Davis knew that and admitted it (i guess he does have a few neurons in working order). the thing is, he dithered for months on imposing it, and waited until too late, after there were billions in racked up bills, and the utilities were insolvent. the CPUC should have done it in June 2000, not in 2001!
Now Cali did get a lucky break in 2001 with the weather being cool in the summer. that was unexpected.
There does appear to have been some price fixing and withholding of supply. Hollow and false rhetoric. The only price fixing for real is by the regulators. I can tell you, it is beyond absurd to think that competitive energy companies were turning down $100+/mwh prices just for heck of it or just to squeeze consumers. this is lame-brain conspiracy nonsense. these companies wanted to sell as much as possible, but they needed to have a buyer who would pay with good credit. the witholding of supply, if any, was from suppliers who didnt trust the fact that they would get paid. Why was this? because PSE&G was going bankrupt and the state wouldnt back them up, NOR would they let them raise rates (see above). so the solution to BOTH supply AND demand was actually retail rate hikes.
guranteeing payments via DWR was one positive aspect of energy mitigation, because they were a buyer who could pay, but imho it should have only been temporary solution (ie it should have been 1/2 year, not 10 year). I think the contracts were a good part of the solution, if they were done right. unfortunately, they were done wrong. IMHO, they should have let the utils negotiate, and DWR could have guaranteed payment, in exchange for getting the rates necessary to cover the bill from the CPUC. the utils would have more incentive to get a better deal, and would have been more creative than the state was. (water under bridge).
The other part of supply is the actual plants and transmission. On this i cannot fault Davis, it is a long-term problem in Cali. I can fault his advisors, many of whom are these 'we dont need supply' gurus who sell energy/environmental policy snake oil. like wasteful alternative energy schemes that dont generate power in an economical way. cali spending millions on renewable energy subsisides that a simplay a fraud and a waste of money.
Quite how all that has played out, I am not sure. It is the ignorance of energy markets by most people that have kept Grey Davis' story plausible. Davis paid more attention to polls than to Econ 101, and it made a concern into a crisis, and a crisis now into a $40 billion liability for California. He surely doesnt deserve all the blame for this, but Hoover didnt deserve the blame for the Great Depression, and he got booted from office anyway. Davis deserves the same!