Tuesday, August 19, 2003
California Electric History Revisited-I've given up fisking Krugman much for the same reason I've given up Diet Pepsi; they both raise my blood pressure. However, I'm going to make an exception today. Other bloggers will take the whole thing apart, but I'd like to hit on one key paragraph in his The Road to Ruin-
Incidentally, there seems to be a weird reluctance to face up to what happened in California. Since the blackout, I've seen national news reports attributing California's woes in part to environmental restrictions, while ignoring the role of market manipulation. Huh? There's no evidence that environmental restrictions played any role; meanwhile, even the Federal Energy Regulatory Commission, which strongly backs deregulation, has concluded that market manipulation played a major role. What's with the revisionist history?First of all, enviromental issues did contribute to the crisis, for a combination of regulations and nimbyitis led to few, if any, plants build in the southern half of California in the last two decades. That meant that the area needed to import power from the north and east. Secondly, the electrical grid had a limited capasity to bring juice from the north; if I recall correctly, the grid had a bottleneck around Fresno that limited the amount of electricity that could come through. Thirdly, the half-aseled deregulation plan that was put in place allowed wholesale prices to float while fixing retail prices via state utility regulators. When demand spiked and costs went up due to high natural gas and oil prices, you quickly saw the cost of energy get higher than the price they were earning. Part of the market manipulation was likely the fear that power suppliers would be selling to soon-to-be-bankrupt firms that might not pay for their power for a long time, if ever. I'll give Krugman credit, he opted not to utter the word Enron in this mix. However, those enviromental issues were real and not revisionist history. It's easier to blame corporations rather than the Sierra Club.
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