Perspective

I wanted deregulation. But not if we can't do it right.

As an economist, I confess I failed to predict the disaster in California. But I wasn't the only one. Anybody who tells you differently is either lying, fooling himself, or guilty of Monday morning quarterbacking.

Granted, there were those who foresaw problems with electricity deregulation. That was the safe bet—given the path they chose in California—but certainly not at the scale that transpired. Some, like myself, thought problems might arise. But we also believed that natural market forces would right most wrongs over a short transition period. That didn't happen. That's where I get frustrated.

Instead, the industry fell into a tailspin that quickly collapsed into free fall. The dynamics of a properly functioning market just never got going. Wholesale prices rose dramatically, followed by rolling blackouts and financial calamity for the state's two largest electric utilities.

We watched an industry self-destruct in real time.

What Happened

Some say that unfavorable market conditions combined with faulty restructuring rules (easy to spot now) and the inherently strange features of electricity as a commodity to produce a disaster that was all but inevitable.