The California electricity crisis, also known as the Western U.S. Energy Crisis of 2000 and 2001, was a situation in which California had a shortage of electricity caused by market manipulations and illegal shutdowns of pipelines by Texas energy consortiums. The state suffered from multiple large-scale blackouts, one of the state's largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis's standing.
Drought, delays in approval of new power plants, and market manipulation decreased supply. This caused 800% increase in wholesale prices from April 2000 to December 2000. In addition, rolling blackouts adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers.
California had an installed generating capacity of 45GW. At the time of the blackouts, demand was 28GW. A demand supply gap was created by energy companies, mainly Enron, to create an artificial shortage. Energy traders took power plants offline for maintenance in days of peak demand to increase the price. Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value. Because the state government had a cap on retail electricity charges, this market manipulation squeezed the industry's revenue margins, causing the bankruptcy of Pacific Gas and Electric Company (PG&E) and near bankruptcy of Southern California Edison in early 2001.
The financial crisis was possible because of partial deregulation legislation instituted in 1996 by Governor Pete Wilson. Enron took advantage of this deregulation and was involved in economic withholding and inflated price bidding in California's spot markets.
The crisis cost between $40 to $45 billion.
Read more about California Electricity Crisis: Some Key Events, Consequences of Wholesale Price Rises On The Retail Market, Involvement of Enron
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