Page 48 - Sustainable Cities and Communities Design Handbook

The Green Industrial Revolution Chapter j 2 25

The subsequent vulnerability of energy system decision makers to
unprecedented misinterpretation and market manipulation cascaded into the
energy crisis in California and subsequently into other regions of the world.
Rapid swings due to market forces are important to examine in energy
availability and how price caused large effects and how undeterminable
consequential forces led to surprising outcomes of vulnerability, reliability,
and price increases. The rapidly changing political agendas aggravated the
conditions that they were supposed to stabilize into competitive markets.
The misinformation, the poor timing in which public policy was made, and the
market control exercised by private sector firms led to the rapid escalation of
chaos and complex systems out of control. For example, the rapid increase and
fluctuation in prices was nowhere near linear to the reduction in supply of
energy. Furthermore, even when demand decreased, prices did not come down
to previous levels. The political process necessary to control a complexity
crisis in uncharted territory is different from what is needed to manage a
system that is well understood.
In order to not lose sight of the scale of the problem in the electricity
system, it is essential not to forget that the California price/cost problems were
not experienced for the first time in the 2000e01 energy crisis. Under the
historical public structured energy markets, the unknown had led to previous
policy failures:
l The consensus was that nuclear power would be inexpensive, ultimately
too cheap to even meter. The mistaken enthusiasm in the 1960e70s over
nuclear power led utilities to build some of the most expensive plants
instead of the cheapest.
l Utility forecasts for power demand during the 1970s expected demand to
increase, whereas per capita demand fell instead of increased. As already
noted, California avoided problems of overconstruction of plants through a
timely review of the methodology for demand projection.
l Prices for power paid to qualified facilities and independent producers
under PURPA were appropriately linked to oil and gas prices, and
projections of these prices were for rising prices and limited availability.
Instead, prices fell and gas supplies were abundant during most of the
1980e90s. Most of these contracts ended up being priced way too high
because they were based on faulty price assumptions with no correction
mechanism.
l Restructuring proponents assumed that spot market prices would remain
low and that they would provide the foundation for lowering prices
following deregulation. Instead, they became unstable.

In this chapter, complexity theory in public policy is discussed in order
to offer a theoretical perspective on the information availability, influence,
and problems for practical interpretation that affect the management of
large technical systems. Then we give some examples of how these