10 Feb 2010

Bureaucracies are not businesses

This article says:
California’s energy crisis in the winter of 2000... may seem like a thing of the past for electricity customers. It’s not. They’re still paying the price: About $3 billion each year for the next three years.
Bureaucrats are not good at making business decisions because they do not face bankruptcy, have no competition, and have others to pay their losses.

Oh, and the disaster of California's energy deregulation cannot be blamed on markets OR Enron -- it is the fault of the bureaucrats who deregulated wholesale but not retail markets. In other words, wholesale price spikes did not lead to retail price spikes. Because they did not, customers did not use less, and utilities got squeezed into bankruptcy.

Bottom Line: Deregulation can work, when it REALLY means deregulation!


  1. JWT says: At the end of WW II, New Zealanders decided that they wanted to have a country where nobody was too rich or too poor.

    At the time, there was a huge market for pulp so the NZ government decided to get into the world pulp business. Accordingly, they planted thousands and thousands of acres of pine trees which you will observe. It takes about five years for the trees to mature. They used the time to build a huge plant to turn all those pine trees into pulp. You will pass within sight,

    Then they discovered that the pine trees they had planted were the WRONG species for making pulp. Bureacracy strikes again.

  2. I was a member of the Energy Crisis Task Force for MWD in 2001. The Crisis was not caused by Enron or energy deregulation. It started by Federal EPA mandating clean air in Cal smog basins by 2001 or Federal highway and school funds would be stopped. The quickest way to cut smog was mothball old, polluting power plants which did the trick. But a crisis arose as to who was going to pay the mortgages (bonds) off on the old plants.

    The first scheme was called deregulation and involved opening Cal's grid to competition. This failed when Grey Davis and all Democratic Party legislature came into power and pulled the plug on the idea to open up California to Texas natural gas providers.

    The Democrats then devised retail price caps in order to induce a pricing fever (bubble) to pay off the bonds on the old shuttered power plants. This failed because price controls always fail.

    Then Cal had a recall election and Schwarzenegger was elected. He rolled the old unpaid mortgages into a $42 billion consolidated bond to be paid back by revenues on long-term electricity contracts due to expire in 2012.

    The current scheme to increase Green Power to 20% or up to 33% of all power consumed comes from the idea to capture the revenue stream from the bonds and shift it to solar and wind power for green jobs and vote buying.

    So, in 2001, California was running out of clean sky, not electricity, Enron did not cause the crisis, both deregulation and price caps failed, and now Cal wants to capture the long-term energy contracts for Green Power. I will let you figure out for yourself whether Cal is going around in a circle or not.


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