From a new book by Lynne Kiesling and Andrew Kleit entitled Electricity Restructuring: The Texas
Story.
In the early 1990s, the U.S. electricity industry was plagued by cost overruns and stagnant productivity. Many states turned to deregulation to promote innovation and cut costs, a strategy that had worked for the telecommunications, trucking, natural gas, and airline industries. Yet, after the California energy market's infamous meltdown in 2000-2001 triggered the recall election of Governor Gray Davis, deregulation lost popular and political support. Plans to introduce competition and retail choice in electricity markets were stalled or abandoned nationwide--in every state but Texas.
This volume explores how Texas's groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States. The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.
The success of electricity restructuring in Texas proves that deregulation is both feasible and potentially effective. State policymakers' commitment to competition, decentralized coordination, and ongoing market analysis have made Texas's electricity industry the most competitive in the country. Electricity Restructuring: The Texas Story offers a unique set of guidelines for deregulation done right.
One of the big problems with the California deregulation story is that California deregulated the wholesale market for electricity but kept a price cap on the retail side, which resulted in the wholesale price being higher than the retail price. As we know, price ceilings discourage the sale of goods while they simultaneously encourage the consumption of goods, creating shortages. That's no way to deregulate a market.
HT DOL