Utilities go shopping for power deals
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"Energy sellers "have just figured out they can make a whole lot of money by bidding high and restricting their output," said Severin Borenstein, director of the University of California Energy Institute, who has studied electricity markets for years.
It doesn't take collusion -- or any illegal action -- for sellers of a scarce product to realize they can demand top dollar, said Borenstein, who is also a PX board member.
Two things make that especially easy in California's electricity market.
One is that there are relatively few sellers.
Only a handful of companies own the power plants sold by PG&E, Southern California Edison and other utilities as part of the deregulation process that began in 1996.
There are also only a handful of very large traders. At any time, any one of them can control enough electricity to have what economists call "market power" -- the ability to move the entire market by raising prices far beyond costs.
Sellers get a second assist from the nature of the product.
Buyers can't walk by today's electricity market as if it were an ice cream stand, check out the prices, roll their eyes and say, "No thanks, I'll skip dessert." The public wants electricity to be instantly available. So the state Independent System Operator, which runs most of California's long-distance transmission grid, was given the job of keeping the lights on by being the buyer of last resort.
If utilities don't buy enough power at the PX to supply all their customers, the ISO will step in and buy the rest, then bill the utilities for however much it costs.
Both buyers and sellers have maneuvered to get the most from this pingpong between ISO and PX."
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Econ 101 and the Davis Administration bureaucrats didn't pass it. They were busy in multi-cultural studies.
Ouch, the truth hurts!