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SecretMethod70 · 10-17-2004, 09:10 PM

The California "deregulation" was mentioned a little while up IIRC...here is a little something from the WSJ regarding that:

Quote:

California's restructured electricity market was, in fact, the furthest thing from a capitalist jungle imaginable. The government forced electric utilities to sell off most of their power plants and discouraged them from buying electricity outside of a complicated state-managed spot market. Furthermore, the electric utilities were forced to open their power lines to anyone who wanted to use them [...] under tightly regulated terms and conditions.

The day-to-day management of the grid was likewise taken from the utilities and given to state regulators. While wholesale electricity prices were deregulated, retail prices remained tightly controlled -- a combustible combination. In sum, the state was more heavily involved in the restructured market than it was in the old system we all grew up with.

It shouldn't come as a surprise to learn that companies like Enron figured out how to game the system with colorfully named strategies such as "Death Star," "Get Shorty," "Fat Boy" and "Ricochet." All involved exploiting arbitrage opportunities offered by the fact that California's electricity market was actually four separate markets: 24 separate "day-ahead" markets (one for each hour of the day) overseen by the state managers of the spot market; a transmission congestion relief market mirroring the 24 day-ahead markets; a reserve market managed by the state grid operator; and a real-time market overseen by the same.

In a well-functioning market, the prices for day-ahead, reserve and real-time energy during each hour would be equal in all areas of the West, including California. But because of transmission congestion, price controls and the fact that each of those market auctions occurred at different times, uncertainty reigned and prices varied widely. Enron, as well as others, figured out all kinds of schemes -- most of which are perfectly legal -- to buy low and sell high within this Byzantine system. ...

It's instructive to remember that the accounting shenanigans that eventually led to Enron's downfall and the indictment handed down this week were brought to light not by diligent regulators but by investors who smelled a rat. Enron survived as long as it did because those very same market forces that brought the company down were largely exiled from the California electricity market. Whether that particular narrative is as compelling as the alternative may well influence the course of politics for years to come.

Also, information from the LPCA...

Quote:

A consensus of experts agree with the Libertarian position that the electricity market in California is far from deregulated — and that government intervention is the real problem:

* Economist Thomas Sowell in his syndicated column published January 25: "The political micro-management of California's utility companies can hardly be called deregulation without twisting the meaning of the word beyond recognition."
* Lance Izumi, Senior Fellow in California Studies at the Pacific Research Institute for Public Policy in San Francisco, writing for the Knight-Ridder News Service on January 15: "The reality...is that government, not the market, is the cause of California's power woes. Despite [Governor Gray] Davis's slam against California's 1996 'deregulation' of electricity, state government did not totally deregulate the pricing mechanism for electricity."
* Pepperdine University Professor of Economics George Reisman wrote: "We do not yet have such a [deregulated] market yet. We have merely taken a modest step towards it, in the aftermath of numerous, more powerful steps in the opposite direction."
* Adrian T. Moore and Lynne Kiesling of the Los Angeles-based Reason Public Policy Institute noted: "California didn't deregulate its electricity market, but rather 'restructured' it, requiring far more state intervention in electricity transactions than existed before."