California introduced competition to itsretail and wholesale power markets in 1998, but hasexperienced a major crisis during 2000 and into 2001. Thepaper attempts to gain an understanding of what has happenedin California, and to draw lessons from the Californiaexperience that are applicable to other countries. The paperbegins with an overview of the key features of the 1998California power sector reform: how it differs from reformselsewhere, the events and actions that have put it in acrisis mode, and the main lessons that can be learned fromthe crisis. The main text is divided into two parts. Part Idiscusses in depth lessons learned, which concern mainly theestablishment and regulation of a mandatory, wholesale powermarket based on spot pricing. Since this is not a near-termoption for many developing countries, the paper alsodescribes other, more-limited forms of competition that maysuit their situations. Part II details the specific reformsinitiated in California, reviews the factors that led to thecrisis, and examines whether the crisis could have beenavoided through better market design and management.
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