Do not make the mistake of thinking that because my conclusion is the same as another person's that my reasoning is the same
When the E.P.A. makes our air dirtier, or the Interior Department opens a wilderness to mining companies, or the Labor Department strips workers of some more rights, the announcement always comes late on Friday ? when the news is most likely to be ignored on TV and nearly ignored by major newspapers.
Last Friday the Federal Energy Regulatory Commission, known as FERC, announced settlements with energy companies accused of manipulating markets during the California energy crisis. Why on Friday? Because the settlements were a joke: the companies got away with only token payments. It was yet another demonstration of how electricity deregulation has gone wrong.
Most independent experts now believe that during 2000-2001, price manipulation by energy companies, mainly taking the form of "economic withholding" ? keeping capacity offline to drive up prices ? added billions of dollars to California's electricity bills. A March FERC report concluded that there had been extensive manipulation of prices in both the natural gas and electricity markets.
Using methods widely accepted among economists, the California Independent System Operator ? which operates the power grid ? estimated that withholding by electricity companies had cost the state $8.9 billion. This estimate doesn't include the continuing cost of long-term contracts the state signed, at inflated prices, to keep the lights on during the crisis.
Yet the charges energy companies agreed to added up to only a bit more than $1 million. That is, the average Californian was bilked of more than $250, but the state will receive compensation of about 3 cents.
…So what does this say about electricity deregulation?
There is a theoretical case for a deregulated electricity market. But making such a market work, it's now clear, requires at least three preconditions. First, it requires a robust transmission system, yet the recent blackout made it clear that we have now created a system in which nobody has clear responsibility for the transmission network. Second, it needs a watchdog agency with adequate powers to prevent and punish price manipulation; FERC doesn't have those powers. Third, that watchdog must not be an agent of the very companies it's supposed to be policing. Enough said.
I admire the virtues of free markets as much as anyone. But given what we've seen so far, any state government that lets the federal government prod it into deregulation is just plain crazy.