BY JOHN SANFORD

Caps on retail electricity prices don't encourage ratepayers to be sensitive to the fluctuation of wholesale prices, notes Severin Borenstein, director of the University of California Energy Institute.

"For the most part, the markets are designed without any demand responses," Borenstein said. Thus, when it's the middle of a hot August workday, ratepayers generally won't pay any more for electricity needed to power their air conditioners than they would on a cool, weekend night.

"As a result, at any point in time, if the price of electricity in the wholesale market goes through the roof, there's no signal being passed through to buyers," he said.

Real-time pricing of retail electricity could help stave off impending summer blackouts in California, he said. And, overall, it would be more effective in keeping demand and supply in better harmony. Technology that would allow utilities to charge ratepayers on a real-time basis is readily available, he added.

Borenstein, who is also a professor of business and public policy at the University of California-Berkeley's Haas School of Business, was one of five energy experts who spoke Thursday at a daylong seminar called "Covering the 2001 Energy Crisis." The program was designed for reporters and editors in states where energy markets are being restructured, or in states that have been affected by California's power crisis.

Roughly 45 people attended the event, which was held at the Stanford Institute for Economic Policy Research (SIEPR). The institute and the Foundation for American Communications (FACS), a nonprofit organization aimed at educating journalists, sponsored the seminar in association with the San Francisco Chronicle and the Associated Press.

James Sweeney, a professor of management science and engineering and director of the SIEPR Program on Energy, Natural Resources and the Environment, presented an overview of energy markets, technology and regulation. Economics Associate Professor Lawrence Goulder, a senior fellow at Stanford's Center for Environmental Science and Policy, talked about how to analyze the tradeoffs between energy production and environmental quality. Economics Professor Roger Noll, director of the SIEPR Program on Regulatory Policy, discussed the regulation of energy markets. Jane Woodward, a consulting associate professor of civil and environmental engineering, talked about natural gas. Borenstein focused on the energy crisis in California.

Journalists and editors have been forced to bone up on the workings of energy markets and the power grid, among dozens of other energy-related topics, since the energy crisis first appeared on the public's radar screen about nine months ago.

So who or what is to blame for the debacle? Politicians? Utility companies? The booming economy?

All of them, it turns out -- in addition to the public and some unforeseen market and environmental factors -- share some responsibility. According to information presented at the seminar, a rapid increase in demand for electricity, a slow increase in energy production in the state and increases in the wholesale prices of natural gas and petroleum precipitated the crisis. Over the summer of 2000, the wholesale price of natural gas quadrupled, and it has remained high since. Meanwhile, a dearth of water flowing through electricity-producing dams in the Northwest also contributed to the problems.

The exercise of market power by electricity generators, a number of power plants out of operation for reasons related to maintenance or pollution permits, and a cold winter, as well as other factors, have added to the Golden State's current power woes.

The problems began occurring a few years after the state decided to restructure the energy market. At the time, the utilities and state policymakers figured the price of wholesale electricity would fall, allowing utility companies to pay off some off debts they had incurred from bad investments in the past, Borenstein said.

Utility companies banked on cheap spot-market prices to carry the day for them. Of course, the spot market went in the opposite direction than expected. And retail price caps on electricity didn't allow companies to cover these costs, so they quickly found themselves floundering in even more debt.

But in two years, California likely will be out of the crisis, the experts said.