Beginning in the summer of 2000 and continuing through 2001, California suffered from a variety of energy problems. Wholesale electricity prices rose to unprecedented levels in the latter part of 2000. By December 2000, wholesale prices exceeded $376 per megawatt hour, 11 times the price one year earlier. High wholesale prices resulted in a steep rise in retail electricity prices. The related problems produced shortages, rolling blackouts, increased electric bills for consumers, and the bankruptcy of one of the state's utilities.
The crisis forced the California electric system to operate with thin electric generation and transmission margins. The situation also highlighted a structural problem with California's electricity generating portfolio. California's in-state generating portfolio depends primarily on two sources—natural gas and hydropower—as shown in Figure 1.1. With the exception of 1999–2000, natural
Figure 1.1—California In-State Generating Capacity
SOURCE: DOE/EIA Inventory of Electric Utility Power Plants in the United States, 1994-1999, Inventory of Nonutility Electric Power Plants in the United States, 1999-2000 and RAND estimates.