Electricity Prices Converge and a Comedy Unfolds in California 

Palo Verde electricity price, a proxy for the West, can now fit on the same chart with Cinergy electricity, a proxy for the East, along with natural gas and heating oil (see chart).  Just two months ago the futures price for Palo Verde electricity was $34 per million British Thermal Units for August and $21 for September (see Meter Reader, Forward with Energy, June 4, 2001).  Today, Palo Verde for September is just $6.  Cinergy for September remains near $3.  The futures market correctly anticipated the eventual convergence of Palo Verde and Cinergy, but it happened sooner. 

While numbers tell an exciting story to analysts, the human story reads like "The Gang Who Couldn't Shoot Straight".  After taking over electricity buying for the State of California, the governor and his aides signed advanced contracts to cover the state's needs at a price of $100 or more.  In a quick turn of events the governor's team apparently bought too much electricity and has resold the surplus for $20 or less.  As if to rebuild public confidence, the governor imposed strict rules after the fact on ownership of power company stocks by his electricity buyers.  After learning that electricity buyers for the state had widespread holdings of Calpine and some Enron, we further learn that the governor's chief spokesperson bought Calpine stock during the height of the state's castigation of the power industry.  

August 6, 2001; Meter Reader: Power Glut or Opportunity?