California Electricity Market Options for 2001

Since May 2000, California's restructured electricity market has experienced rapidly rising prices and uncertain reliability. In response to disruptions in service, or blackouts, the state has taken steps to increase electricity supplies and to reduce demand through conservation. The California Independent System Operator, the agency in charge of balancing electricity supply with demand, expects high prices and disruptions to persist, and perhaps even worsen, in the summer of 2001. This report reviews (1) the condition of California's electricity market, including changes in demand, supply, and prices; (2) the extent to which the Department of Defense (DOD) can help enhance western electricity supplies during the summer of 2001; and (3) available private backup generation resources and any benefits and problems associated with their deployment. GAO found that electricity demand has risen sharply in recent years while supply has not kept up with the demand, causing higher prices. DOD could help augment western electricity supplies by generating an estimated 90 megawatts of electricity and implementing conservation initiatives. The use of private generation is limited because of business and environmental risks.