Off Peak

February 15, 2001

Deregulation 101

 

California high school students put their education to work.

Jan. 11, 2001

Dear Secretary of Energy Richardson:

As students, we are taught the fundamental theories of economics, but are often warned of their limitations. Indeed, theories are exactly what their names suggest, and work only in a theoretical world. Real-world events are often much more complex and much more unpredictable.

That, however, is exactly why, when we examined the energy crisis in the state of California, we were appalled to find the issue clearly and completely explained by pure economic theories. We wondered how such fundamental and obvious theories could be overlooked by the state legislature, the governor, the Public Utility Commission, the Federal Energy Regulatory Commission and all other parties involved. ...

The idea was for generators to compete against each other to sell power to the utilities in the Power Exchange Market, thus driving the price down. However, as demand far exceeds supply, it is the utilities that are competing to wholesale power—thus driving the price up instead. ...