Energy. (Barley Making the Grade).

Year in Review: Tumultuous year in both the electricity and natural gas markets... California's partially deregulated electricity market melted down as two of the state's three utilities became insolvent and rolling blackouts swept through much of the state in January, March and May (except for the area covered by power-rich L.A. Department of Water & Power)... In October, state officials signed a deal to prevent Southern California Edison from filing for bankruptcy... Record electricity price hikes of up to 80 percent passed in May, after which wholesale prices promptly tumbled.

Natural gas prices surged early in the year, forcing local textile makers to close their doors; prices have eased since then... After peaking early in the year, gasoline prices came down, with the slide accelerating after Sept. 11 to hit their lowest levels in two years.

Players to Watch: S. David Freeman, former head of L.A. Department of Water & Power and energy aide to Gov. Gray Davis, who now runs state public power authority... John Bryson, chairman of Edison International... Loretta Lynch, independent but embattled head of the state Public Utilities Commission... David Wiggs, new general manager of L.A. DWP.

BUZZ for 2002: Power crisis of 2001 has transformed into fiscal crisis for state as $6 billion power tab will come due unless bonds are sold in coming weeks. Squabbling over how bonds will be repaid is holding up process. Until bridge financing is obtained, Edison will be unable to return to the business of buying power.

Independent System Operator projects possible electricity shortages next July as hot weather brings the return of rolling blackouts. But major companies and building owners have converted to more energy efficient technologies. That, combined with recession, should further drive down demand.

Davis had committed to building dozens of new power plants, but current power surplus likely to slow drive... Natural gas market should be more stable in the short run as supplies are plentiful, but as more natural gas-powered generators come on line, volatility could return.

As worldwide demand has plunged during the recession, oil prices are expected to remain at low levels compared to last three years. This could put a crimp on returns for exploration companies like Unocal... Gasoline prices at pump could fall even further early in the year before the usual spring price spikes set in.

Grade: C