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The Green Industrial Revolution Chapter j 2 23

system that assumed idealistic market mechanisms based upon one set of
economic theories. The basic problem with these theories is that they ignored
reality and hence were so flawed that it led to a $40 billion catastrophe and the
recall of the California governor. The deregulated system left open market
opportunities for corporate officials and their companies, who were mostly
out-of-state energy market players. California, as it has historically, beckoned
to these companies and allowed them to engage in illegal and unethical
behaviors. Without regulations and by manipulating a system that was more
complex than the ability of those in charge to understand, monitor, control, or
even dampen the extent and nature of the problems that would emerge, energy
companies could make quick profits.
The deregulation plan more or less seemed reasonable at the time it was
designed. The last piece of legislation, for example, needed to enact deregulation
was approved without one negative vote. Bipartisan support was overwhelming,
yet naı ¨ve.Woo(2001,p.753)notes thatthisapparentreasonablequality among all
the decision makers was fairly persuasive:

A cursory review may lead one to believe that the California market reform should
be able to provide reliable electricity at low and stable prices. After all, the
PX-CAISO market design marries the economic model of market consumption and
the engineering model of optimal dispatch. Competitive bidding among PX buyers
and sellers should theoretically yield an efficient allocation of electrical energy.
Competitive auctions of ancillary services should enable the CAISO to perform
least cost dispatch. Zonal pricing of transmission should efficiently allocate the
limited transmission capacity. Surging zonal MCPand the associated excess profits
should attract new generation at the locations with dwindling supply or rising
demand. But the reality of the events that have occurred since Summer 2000
obliterates such a belief.
The plan that was adopted in California had many flaws and pointing
them out is easy picking for a critic. In fact, since late 2001, most experts and
economists now refer to the deregulation public policy as “restructuring.”
Most analysts agree that aspects of the deregulation scheme have proven
faulty and should not be repeated by any future deregulation scheme.
However, it is far more compelling to question the very premise on which
deregulation was proposeddthe premise of competition. In the words of
Governor Pete Wilson, who pushed the policy and claimed at its signing that
the policy would combat the 40% extra that consumers in California were
paying every time they flicked on the light switch, competition and
dismantling the electricity monopoly would “guarantee lower rates, provide
customer choice and offer reliable service, so no one is literally left in the
dark.”
Of course, the public now knows more (but will probably never know all)
about how brokers, traders, and generators used illegal and unconscionable
gaming of the California electric system with such well-named schemes such