Market Lessons From California

The scary thing about California's electricity mess is how quickly things went bad and the way in which seemingly small policy errors are having catastrophic consequences. For deregulators in other states and nations, California serves as a powerful warning that the road to hell is paved with good intentions. An electrical system that appeared to be reasonably stable got slightly out of balance as demand grew faster than supply. Instead of righting itself, the situation became increasingly chaotic, with rolling blackouts and soaring prices for electricity. Power merchants like Enron Corp. became the focus of public distrust and hostility.

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