The cause of a free market in energy has been given a right bashing from the collapse of US energy trading firm Enron and the electricity blackouts in California. But it seems the guys and gals in Texas are showing that a properly deregulated energy market can really work. Here’s a chunk of a report in the Financial Times (not availiable on FT website):
Critics warned that the state would face its biggest challenge in the heat of the summer, when power usage is greatest. Yet, already mid-way through August, Texas is still passing the test, boasting 30 percent more electricity than it needs.
I would contend that the key to this success is that Texas has gone for full deregulation, rather than the dog’s breakfast of a mess created in California. In California, wholesale distributors of electricity were allowed to set their prices in a market but the retail distributors had their charges capped. When electricity prices went into hyperspace over a year ago, a lot of California’s power retailers saw their balance sheets blow up. Ultimately, if the price mechanism is not allowed to work properly, how is rising consumer demand going to create the incentive to increase production?
Of course another problem in California has been the baleful influence of the Green movement, killing things like nuclear power, but that is another argument for another time.
