Re: California Energy Crisis: a report from Cato

From: Peter C. McCluskey (
Date: Wed Aug 01 2001 - 12:22:08 MDT (Chris Hibbert) writes:
>And now to respond to Peter's particular points.
>"Peter C. McCluskey" wrote:
>> They also claim that producers who signed long-term contracts at low
>> prices would go bankrupt and renege on their contracts, as some who
>> actually signed such contracts have done. The claim that a significant
>> fraction would go bankrupt seems to reflect an unusual pessimism about
>> the reasonableness of the relevant bankruptcy laws,
>How so? They said it happened before in the 80s. I don't know the
>history, myself. What do you think bankruptcy laws could do?

 Bad bankruptcy laws can make it sufficiently easy to renege on contracts
that contracts are useless. With the best bankruptcy laws, bankruptcy
would be painfull enough that most companies will avoid it. The actual
bankruptcy laws are somewhere in between those extremes.

>Early in the paper, they were clear that 98 and 99 were fairly normal.
>I interpreted the later references to three years of drought to be
>relative to the heavy rain years before. Normal weather in California
>is pretty dry, and not enough to refill all the reservoirs. The normal
>rainfall in 98 and 99 led to less-full reservoirs, and no cushion when
>the rainfall was even lower in 2000.

 Your version is even farther from the truth than theirs. 98 was one
of the wettest years on record. California reservoirs were essentially
full at the end of the spring runnoffs in 98, 99, and 2000 (I think in 2000
some reservoirs in states further north were hurt by a dry year). The
current low reservoir levels in California are entirely due to this year
being dry and to the higher than normal use of water for power in the second
half of 2000. Anyone who wants to wade through lots of actual data can follow
the links from and (I pay close attention to this
because of its effects on when and where I kayak).

>I think we're arguing about minor issues. Do you think other policy
>decisions than the price caps were foreseeable, or had a major impact on
>the actual shape of the crisis?

 Our disagreements about what happened are probably minor.
 I think the effects of spot market pricing instead of pricing via long-term
were about as foreseeable as the effects of the mistaken retail pricing,
and if either of these two mistakes had been avoided the problems would
not have amounted to a crisis. (Chris Hibbert) writes:
>The one factor (rising prices) that would normally have allowed demand to
>react to supply prices was missing,

 The retail pricing mistakes may be the most important issue to emphasize
because of governments' widespread pattern of making this type of mistake.
But your use of the word "normally", and the paper's attempt to claim that
it was the only, are probably misleading. We have a long history of retail
power prices being pretty insensitive to short-term changes, and many
governments have accomplished this without crises (the main problem being
inefficiency). The restriction on long-term contracts appears to be the
least normal contributor to the crisis.

Peter McCluskey          | Fed up with democracy's problems? Examine Futarchy: | or .ps

This archive was generated by hypermail 2b30 : Fri Oct 12 2001 - 14:40:00 MDT