Learning theorists tell us that one of the key reasons we don't learn from our mistakes is that we don't or won't recognize them as such. We attribute good outcomes to our skill and intelligence and blame bad ones on others or on just plain bad luck. This unhealthy mind-set can be tolerated for a season, but it isn't going to create a strong foundation for a long-term, mutually beneficial relationship. A breakup is inevitable unless both partners compromise and dedicate themselves to making it work. No, I'm not a marriage counselor—I'm talking about troubled power markets.
Failure to launch
Witness the most obvious example. In December 2000, the California ISO issued its first Stage 3 power alert when reserves dropped below 3%. Rolling blackouts began. Regulated utilities teetered on bankruptcy in a power market wrecked by high wholesale prices and retail price caps. Six years after the debacle, ex-Governor Davis is back to practicing law, the state still owes millions to utilities and public power agencies, and Kenneth Lay beat his rap the hard way. Those were expensive lessons that shouldn't soon be forgotten.
It's generally agreed that two key causes of the meltdown—besides flawed deregulation legislation and the willingness of those able to exploit its vulnerabilities for a buck—were lagging investment in new power plants and overreliance on imported power (about 22% today). The U.S. Energy Information Administration reports that while California's power demand increased 11% from 1990 to 1999, net capable generation decreased by 2% over the same period.
The impact on the state was devastating. Developers, which as a group abhor uncertainty, left California in droves, sacrificing dozens of vital projects in the process. Since 1999, the California Energy Commission has approved 54 facilities totaling about 23,000 MW, but only 12,908 MW are on-line today. Netting retirements, mothballed plants, and expired licenses have left a mere 5,500 MW increase in installed generation capacity since 1999. In a recent draft decision, the California Public Utilities Commission found that 3,700 MW of new generation must come on-line by 2009 for the state to have adequate capacity and reserves. Future reserves will be tight, considering the dearth of projects in the queue.
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