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M a c r o M a y h e M

Monday, November 07, 2005

De-regulation - how it messed up California.

Here is a nice llittle story about how de-regulation screwed Californians' out of cash and caused many small stores to go out of business. And somehow, Gray Davis got blamed for it.

Prop 80 claims to set things right again.

[...]
"California's 1996 deregulation law was supposed to lower electricity rates, which were among the highest in the nation. The state-regulated utilities were allowed to sell most of their power plants, and an independent agency was created to manage the transmission grid. Retail rates were frozen until the utilities paid off the debts incurred over decades of building power plants and transmission systems.

The plan was built around the assumption that getting rid of the utilities' monopoly would lead to competition, driving down the price of electricity.

But while private energy companies bought the utilities' power plants, they didn't build new plants to keep up with California's growing demand for electricity.

That energy deficit was compounded by a drop in the amount of hydroelectric power available from the Northwest in 2000 and an increase in the price of natural gas, which fuels most of California's power plants. Instead of having a more competitive power market that drove down wholesale prices, the energy shortage drove prices sky-high.

That left California vulnerable to market manipulation.

In 2001, the state suffered rolling blackouts and its three largest utilities teetered on the brink of bankruptcy after months of buying expensive wholesale electricity and selling it at the cap"

[...]

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