Waiting for the boom:: a simulation study of power plant construction in California

This paper describes a computer simulation model constructed in the summer of 2000. It was used to simulate the general patterns of power plant construction that might appear in an electric system with approximately the same loads, resources and markets as those in California. The paper begins with background on restructuring in California and a review of previous research on construction. The paper then describes the computer model by presenting several simulations with qualitatively different patterns of construction. The simulations reveal that construction could appear in a steady, even fashion, causing power plants to come on line exactly in time to meet the profitability goals of investors. But this is not the dominant pattern. The more likely pattern shows construction lagging behind the growth in demand, allowing prices to climb to surprisingly high values during peak periods in the summer. When new power plants are completed, they come on line in great numbers causing a bust in wholesale prices. The boom/bust pattern of construction is common in industries such as commodities and real estate, and there are good reasons to believe that a boom could appear in the electric industry. Electricity consumers would certainly benefit from a boom in construction. Unfortunately, waiting for the boom is a difficult challenge with the current mix of state and federal rules in California. The paper concludes with a summary of recent events that have led to the demise of the California approach to deregulation and to the stateʹs entry into the power business.