1. What took place in California wasn't true deregulation. It was what a group of liberals and environmentalists came out with and called deregulation. It was crap. The structural flaws with the retail price caps, lack of incentive to invest in generating capacity, and inability to enter into long term contracts for power created a climate ripe for a price spike. And it happened. 2. I don't deny that Enron kept generation offline. If they own the generation, they are under no obligation to provide power to the grid under terms that are unfavorable to them. It's called a supply curve -- Economics 101. What you've seen since 2001 with high natural gas and high power prices confirms that the 'malicious' work of the merchant energy guys was only to blame for a *small fraction* of the price spike. Gray Davis and the rest of the jilted California liberals are looking for any kind of scape goat to cover up their failures -- Enron is a convenient target, given their bankruptcy and ethics issues. Supply and demand determinants were the main culprit in California in 2001. Demand was artificially high b/c retail price caps kept prices low for the consumer. Supply was artificially low b/c of the drought (no hydro), the EP pipeline blowup, poor transmission infrastructure, and lack of generating capacity. In the long run, the liberals in that state are going to have to turn to coal fired plants (mainly in the Powder River Basin) to ship in power to them. Given the state's ridiculous environmental leanings, their current situation is very much self-inflicted. For the liberals to attempt to compare oil prices -- prices which are set on the open, global market -- with the California situation, is pure ignorant trash.
California is also pretty much its own energy market. It has its own movers and shakers, closed off from the energy fluctuations of energy east of the Rockies. I'm not saying Enron wasn't at fault, but California as a whole, politicialy and economically, just works different the rest of the U.S. Arizona is as close to California as I ever intend to live.
Trader's making some excellent points in favour of stringent regulation and additional 'red tape.' When there are limited suppliers (due to infrastructure, etc) oligopoly powers are not good for the economy. Economics 201. To say Enron had the 'right' to shut off supply to drive up prices --- ignores the ideals of a free market. Dismissing Enron's ways as a few rogue individuals is simply false. The California dereg experience was certainly messed up from the onset -- poorly thought out and executed -- no question about that. But Enron, and the other suppliers exploitation of it remains a case study in the detrimental effect of unharnessed oligopolistic powers. I also find it very difficult to dismiss the role of investment banks as NYR does given they eagerly coughed up billions of dollars (CIBC, Citigroup, JPM about $2b each) rather than face scrutiny over their roles in the structuring of the companies that allowed them to consolidate and conspire to the extent they did by creating paper dragons with economic powers well beyond their merit. Not sure how this relates directly to Bush or Chaney. Perhaps their evangelical zeal towards industry self regulation and their admistration's track record in terms of foresight and planning (hey....an iraq link!) should be even more unsettling given we've experienced what can go wrong with a poorly thought out program. I find it tough to grasp how a free-market disciple could ever defend Enron, when their actions around California and business practices are about the strongest illustration about what could go wrong.
Trader, NYC your points are true. Also, keep in mind they were the ones aggresively pushing for this deregulated market. California did it badly but they took advantage of it extremely unethically. You are seriously discounting the roles Enron and others had in maninpulating this flawed market. Enron wasn't the only one, and they all raped the system.
Quite the opposite. The two biggest problems were the red tape surrounding retail price caps (the low prices raised demand) and the red tape that limited investment in generating capacity (lowered supply of power). When demand goes up and supply goes down, prices spike. That's exactly what happened. I am arguing for removing red tape, not adding it.
*Even if* what you said is true, what thrust do the oil companies have to invest in refinery and expand the capacity? Concrete examples, without having to put in extra work, the oil industry is doing more than *just fine* -- record profits simply coming out of high prices of crude oil and gas at the pumps. I am hardly convinced.
