April 23, 2001

A few weeks ago, temperatures unexpectedly rose in Southern California. As the heat intensified, people turned on their air conditioners. Combined with the extra energy needed to keep refrigerators cool, this added demand for power outpaced suppliers ability to deliver. The result was the first in what will be a series of rolling blackouts in Southern California. As the summer approaches and the heat really kicks in, these blackouts will likely occur more frequently and more extensively. What will the impact of the energy crisis be? How will California companies be affected? We analyzed the situation from the viewpoint that California is an integrated economy, and represents one of the largest economies in the world. This integrated-economy framework allows us to derive some interesting insights and investment implications.

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