O&M

The Yankee Group reviews effects of the California energy crisis and a workable Solution

BOSTON, MA, Jan. 25, 2001 — According to the Yankee Group, the ongoing California energy crisis was many years in the making and will not dissipate anytime soon, whatever action is taken.

Groups far from California, and with no direct connection to the power market, will soon feel its effect as the ripples spread this year:

Power Shortfalls Will Continue. California exports power to Washington State during the winter and imports power during the summer. Washington State is now exporting hydropower to California to prevent further blackouts. This situation will create added pressure in California to find power this summer. Any new California power facilities will be hard pressed to keep up with the growing demand this summer.

Financial Ripples Across the U.S. The financial impact of the current crisis is being felt across the nation. J.P. Morgan Chase and Bank of America led scores of other institutional investors extending loans to SCE and PG&E, respectively. Scores of other power industry players are owed money from power sales. Even without a full bankruptcy of the two utilities, money squirreled away to cover possible losses is money not in circulation elsewhere in the U.S.

Corporate Restructuring. PG&E Corp. moved recently to shelter the National Energy Group from the debt of the sister company. Other utility holding companies across the U.S. in the same situation are expected to follow suit, if only to placate the fears of Wall Street analysts fearful of a recurrence.

The Yankee Group believes that a workable solution to the California crisis must address some of the original goals of deregulation: encourages out-of-state power generators to build in the state; lower electricity prices; and provide protection and choice to consumers. If the regulators only apply bandages to the situation instead of addressing its structural flaws, the pain will only be prolonged.

The Yankee Group (www.yankeegroup.com)

As a global leader in technology research and strategic consulting, the Yankee Group provides impartial and practical analysis, custom consulting, and personalized one-to-one client inquiry encompassing all areas essential to e-business success: the Internet, electronic commerce, communications, wireless/mobile, computing, and enterprise applications.

Established in 1970 and headquartered in Boston, the company maintains offices throughout North America, Europe, Latin America, and the Pacific Rim.