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Deregulating Energy the Right Way

Deregulation is a new dirty word. Memos from Enron Corp. show how electricity traders manipulated the newly deregulated California market. We now know that California power suppliers shut off their plants to artificially limit supply. After promising to lower consumer prices while increasing capacity and flexibility for producers, deregulation now appears to be nothing more than a rigged game run by market insiders. So let's go back to government-controlled utilities, right?

Wrong. There are successfully deregulated power and electricity markets operating in New York and Texas. PJM is a regional market for Pennsylvania, New Jersey, and Maryland. But these states differ from California in two ways: Their rules give suppliers incentives to sign long-term contracts at stable prices, and they have regulations governing the trading of electricity that curb traders' more egregious manipulations of the market. California, on the other hand, built a playground for delinquent traders and suppliers and they acted out, costing consumers billions of dollars.

All markets need rules to work, even deregulated ones. By lobbying regulators, and others were able to remove online electricity trading from all traditional oversight. Even banana trading has more regulation. Congress must end this. States also should set up regional power grids to expand supplies and increase flexibility. Finally, the Federal Energy Regulatory Commission has to do its job, stepping in when power generators create false scarcities. If the public trust isn't quickly restored, energy deregulation will go from dirty to dead.

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