Did Enron Pillage California?

Revelations this summer about Enron Energy Services' byzantine electricity-trading practices have fueled charges that merchant power producers and traders artificially engineered the California electricity crisis of 2000-01. A careful examination of the suspect trading practices, however, reveals that there's less to those charges than meets the eye. The trading strategies in question all involved the pursuit of arbitrage opportunities, which arise when price discrepancies exist for a commodity in different locations or time periods. Exploiting arbitrage opportunities generally enhances economic efficiency by ensuring that electricity is reallocated where it is needed most. While some of the arbitrage opportunities were artificially manufactured by the companies themselves (in ways that may or may not have violated the law), most of them arose as a natural consequence of the market structure imposed by the California political system. In any case, it's unclear whether the trading strategies in question actually served to increase prices on balance. Even economists who are convinced that they did contribute to the increase in electricity prices attribute only about 5 percent of the alleged overcharges to the strategies at issue. Most of the price spike of 2000-01 is explained by drought, increased natural gas prices, the escalating cost of nitrogen oxide emissions credits, increases in consumer demand stemming from a hot summer and then a cold winter, and retail price controls that prevented market signals from disciplining producers or consumers. The price collapse in the summer of 2001 stemmed from a reversal of those conditions, not the imposition of federal price controls or the elimination of the trading practices in question

Demand and Pricing in Electricity Markets: Evidence from San Diego During California's Energy Crisis

We study the electricity consumption of San Diego-area households following a series of price changes and related events during California's energy crisis in 2000-01. The analysis uses a five-year panel of disaggregate billing and weather data for a random sample of 70,000 households. In contrast to prior work, these data allow us to proceed without behavioral assumptions regarding a consumer's knowledge of energy prices. We find that after a rapid price increase in summer 2000, consumption fell substantially over about 60 days, averaging 12% per household; consumption then rebounded to within 3% of pre-crisis levels after a price cap was imposed. Under the price cap public appeals for energy conservation and a remunerative voluntary conservation program had significant, but transitory, effects. Further, a large share of households reduced electricity consumption substantially (over 10%) but saved small monetary amounts ($10 or less). Overall, the results indicate consumers may be far more responsive to pecuniary and non-pecuniary incentives for altering their energy use than is commonly believed.

The Oil Weapon: Myth of China's Vulnerability

The geopolitical canvass on which China plots its strategy for energy security displays a ubiquitous presence of one country: the United States. Chinese energy security planners must reckon with America's ravenous consumption of imported oil, its strategic alliances with other heavy importers of oil in Asia, its overseas military operations in the heart of the world's leading oil producing region, its naval dominion over the world's oil transportation routes, and the global domination of U.S. oil companies or multinational oil companies heavily capitalized by American investment. This is the context in which China pursues its energy security, sometimes blandly described as 'conservation and diversification of supply', which masks the nation's real struggle to satisfy its rapidly growing energy needs without exposing its energy lifelines to external forces that may, intentionally or not, betray China's interests

A model for hedging load and price risk in the Texas electricity market

Energy companies with commitments to meet customers’ daily electricity demands face the problem of hedging load and price risk. We propose a joint model for load and price dynamics, which is motivated by the goal of facilitating optimal hedging decisions, while also intuitively capturing the key features of the electricity market. Driven by three stochastic factors including the load process, our power price model allows for the calculation of closed-form pricing formulas for forwards and some options, products often used for hedging purposes. Making use of these results, we illustrate in a simple example the hedging benefit of these instruments, while also evaluating the performance of the model when fitted to the Texas electricity market

Higher energy prices in the Midwest

Middle West ; Gasoline ; Power resources - Prices

California's Secret Energy Surplus: The Potential for Energy Efficiency

Assesses the achievable energy efficiency potential over the next ten years across California for all electricity customers using hundreds of commercially available measures

Will the 2012 Drought Have a Bigger Impact on Grocery Prices than the 1988 Drought

In the summer of 2012, the United States experienced its worst drought since the 1980s. According to the U.S. Department of Agriculture (USDA), 80 percent of agricultural land in the United States experienced drought conditions in 2012. Extremely dry weather can lead to crop failure, which reduces supplies, and subsequently increases prices. This is important to consumers because higher crop prices typically lead to higher prices for groceries. A previous Focus on Prices and Spending article examined the lag between an increase in agricultural prices and an increase in consumers’ grocery bills. The article found that changes in the Producer Price Index (PPI) for processed foods and feeds usually has an impact on the amount consumers pay for food at home 3 to 4 months later. However, periods of drought are considered unusual and may impose a different shock to our food costs, depending on the drought locations and severity

Understanding the fine structure of electricity prices

This paper analyzes the special features of electricity spot prices derived from the physics of this commodity and from the economics of supply and demand in a market pool. Besides mean reversion, a property they share with other commodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a "jump-reversion" component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our approach allows to capture—for the first time to our knowledge—both the trajectorial and the statistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major U.S. power markets

Impact of the Drought on Corn Exports: Paying the Price

In the summer of 2012, weather conditions caused the most severe drought the United States has seen since the 1950s. This drought affected agricultural crops across the nation. As a result of drought-related crop damage, U.S. export prices for corn soared nearly 128 percent above the 20-year historical average, as measured by the Bureau of Labor Statistics (BLS) monthly export price index. Export prices also hit the highest level since the import and export price index series began in December 1984. Although weather conditions often wreak havoc on corn and secondary product price levels, this drought not only caused a spike in export corn prices, but has begun to influence U.S. trade for corn-derived products such as ethanol as well