However, these markets are shallow and skittish today. Price caps and active government intervention in California's power markets combined with financial uncertainty about the utilities' ability to pay has built large risk premiums into bids in those markets. If California entered into forward contracts after an active program to site new transmission and generation, forward prices would be lower and more bidders would bid in greater supplies. Forward contracting in that environment will produce better results. Without credit worthy buyers of power, it will be difficult to attract new generation and long term supply commitments.
Nothing is gained by letting the utilities in the state become insolvent.
The state appears to be on the right track with recently introduced legislation designed to ensure collection of past amounts and provide support for future purchases. The introduction of real price signals to bring supply and demand into balance can and should be tempered by phasing in rate increases and market pricing and by insuring that low income customers are protected through continuing subsidies. Price caps in the West have not worked and will not work. Price caps have led to the cancellation of peaking power projects which could have brought additional supply to California in the near term. Price caps merely export California's problems to neighboring states, discourage investors from developing needed supply resources, disrupt the market, and force a last minute scramble for power which endangers reliability.