Statement of Professor Paul L. Joskow Before The US Senate Committee on Govermental Affairs
Paul L. Joskow
Thank you for giving me the opportunity to appear here today to discuss issues associated with the restructuring of U.S. electricity industry and FERC’s role in guiding the development of efficient competitive wholesale electricity markets. I last appeared before this Committee on June 13, 2001 as a participant in a hearing that focused on California’s electricity crisis, FERC’s responses to it, and more generally on the state of restructuring and competition in the electric power industry. I thought that it would be most useful for me to update the comments and observations I made at that time in light of 18 months of additional experience.
A lot has happened in 18 short months. The extraordinarily high wholesale electricity market prices and power supply emergencies that plagued California and the rest of the West during the second half of 2000 and the first several months of 2001 subsided by the summer of 2001 and these extraordinary conditions have not reappeared since then. These changes in market performance followed several actions by federal and state officials that constrained wholesale prices, increased supplies of and reduced the demand for electricity, along with favorable weather conditions and a significant softening in natural gas prices. However, the impacts of the crisis continue to be felt. Retail electricity prices have increased dramatically (on average) in California to cover the costs of power supplies purchased during the crisis, while its two major utilities have yet to regain investment grade credit ratings and one remains in bankruptcy. The future structure and performance of California’s electricity industry remains uncertain.