Enron Was Mostly Right About One Thing: Deregulation

Business Week Online ^ | MARCH 18, 2002 | Gary S. Becker

[Ernest_at_the_Beach]

Enron Corp.'s collapse and the highly publicized shortage of electric power in California during the summer of 2000 are alleged to demonstrate that deregulation of electricity has gone too far. But I believe this is a misreading of what happened, and that both episodes are really further evidence deregulation has many pitfalls.

[Ernest_at_the_Beach]

In defense of the Enron Company .

[Ernest_at_the_Beach]

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[Ernest_at_the_Beach]

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[Ernest_at_the_Beach]

ping!

[backhoe]

Hi, Ernest- not only will I include this in The Dark Underbelly update, I'll send it in a mass email to a pile of papers & opinionators.

[Dog Gone]

California's power crisis is considered a telling counterexample, but it mainly demonstrates that badly designed partial deregulation may be worse than doing nothing.

That is the obvious lesson.

Enron's failure had NOTHING to do with the situation in California. It's totally unrelated. There are those who want to use Enron's failure as a reason to oppose deregulation, but they are either ignorant or are being deliberately misleading.

[Carry_Okie]

I would add one critical detail Mr. Becker missed, and I am certain that he would agree: California's generation capacity was too tight to support real competition. The classic response would be higher prices until new plants could be built, and we all know what the problem with that is. Supply regulation in California is managed at the CARB and in the courts using environmental law. The delays would be long and prices would stay high.

There we get back to the NGOs and foundations that fund these suits. Seeing as Mr. Becker's think tank relies upon similar sources, I note the oversight with amusement.

[Grampa Dave]

This is the reality:

Had states fully deregulated their electricity markets, the Enron political scandal would have been largely avoided. The company could not have gamed the system by encouraging politicians to deregulate as it favored. I conclude that flexible prices and competition are far more effective ways to improve energy markets than allowing bureaucrats and politicians to determine the speed and direction of deregulation.

Gary S. Becker, the 1992 Nobel laureate, teaches at the University of Chicago and is a Fellow of the Hoover Institution.

Gary Becker has nailed it.

[Dog Gone]

California is not out of the woods as far as having a reliable and abundant supply of electricity. Far from it.

A repeat of 2001 is not only a possibility, it's inevitable unless more power plants are built. Unfortunately, dozens of proposed plants have been scrapped because of business conditions and the hostile environment in California toward power producers.

California could prevent the upcoming train wreck if it would actually deregulate the industry this time, and remove permitting obstacles to new plants.

Davis, however, is moving the opposite direction. He's continuing to assault the power producers and he has plans for the state to build power plants. He likes the Soviet-style government approach to providing electricity.

The results are predictable. It's just a matter of time.

[Grampa Dave]

I ONLY GOT THIS MUCH FROM ENRON. NOT ENOUGH TO CORRUPT ME!

$117,000 ISN'T MUCH TO BUY A GREAT GOVERNOR LIKE ME!

[Grampa Dave]

I have knowledge that basically nothing is being built in N. California at this time re new power plants. Contracts for 2002 and even beyond have been cancelled or delayed.

No company is willing to make the investment in a land ruled by fascist criminals like Davis, Lockyer and Burton's band of crooks in the legislature. If you make a profit, you could go to jail or the NY Slimes will condemn you as greedy. Yet the Slimes has worked on a very high profit margin until this year.

Companies who are thinking about building plants later this year or starting in 2003 want their contractors and sub contractors to make bids that would lose them money. Not too many contractors with half a brain are willing to get into that situation.

If our economy ever recovers, the demand will be right back to where it was at the end of 2000 and the first part of 2001. We don't have enough new power plants to handle that demand.

Hopefully Simon and others will look at how the California recession brought on by Herr Davis has kept the lights on in California, not new power plants!

Simon needs to document the lack of building new plants and even bidding on new ones.

[Ernest_at_the_Beach]

Great.

Be sure and read the good comments above!

[backhoe]

I usually find the commentary here more illuminating than the articles- indeed, I usually skim the article & go straight to the replies.

[eagleye]

I was born in 1947. All through my childhood and up until just recently this nation had cheap, reliable, REGULATED energy. There were no blackouts, no price spikes, and the average family was not held hostage by the electric companies. I have seen absolutely no evidence that deregulation of the utilities is a good thing. Deregulation is a religion, not an effective policy.

[Grampa Dave]

Socialism/fascism/communism is the religion and deregulation is just the coverup for that religion!