Electricity prices in California increased dramatically in 2000. During 1998 and 1999, consumers were insulated from these spot market prices because of rate agreements entered into by each investor owned utility during restructuring of California’s electricity market. However, by 2000, San Diego Gas & Electric’s customers began to face these prices as retail tariffs began to pass through spot prices being paid by the company. While customers of the other two large investor-owned utilities, Pacific Gas & Electric and Southern California Edison, did not have to face these prices, the utilities themselves were forced to pay them and have accumulated billions of dollars in charges, which if no means of recovering them is available, threaten the entire equity value of these companies. Investigations of the causes of these price increases have been initiated at the state and federal levels. In this paper, NERA Vice President Jonathan Falk discusses some of the possible responses to the problems identified in the California market.

This article was published in the Infrastructure Journal, Jan. 2001.