Environmental Engineering Reference
In-Depth Information
A brief history of deregulation
In the past quarter-century, energy has become a lucrative global busi-
ness on the back of liberalized markets. Oil, the source of the majority of
our energy consumption by some length, has always been a worldwide
commodity because of its potency, versatility and transportability. Prior
to the 1980s its price was directly set by a cabal that initially consisted
of a few Western companies and then a few oil-producing governments.
Nowadays - despite the undoubted indirect effect of OPEC's production
policies (see p.28) - oil is essentially priced according to whatever the
two huge oil futures markets of the New York Mercantile Exchange and
London's International Commodities Exchange determine the value of
oil should be. There are no unified world markets, in the same way, for
other energy sources. But that has not stopped gas and coal being shipped
around the globe and, alongside electricity, widely traded in the big
regional markets of North America, Europe and Asia.
Energy liberalization began in the late 1970s when the US started to
try to free up its energy markets. The Carter administration removed
price controls on natural gas in 1978, and a year later - in response to
the Iranian revolution and surging international oil prices - removed
domestic oil price controls. (Although it is worth remembering that at the
same time, the Carter administration did foreshadow the Obama admin-
istration's interventionism by creating a government corporation to make
synfuels - fossil-based alternatives to petrol.)
However, federal attempts to deregulate the US electricity industry have
always run into opposition from state regulators. At one point, in 2000,
the Federal Energy Regulatory Commission proposed imposing a stand-
ard “market design” on electricity transmission operators across the US,
but in the face of state protests had to withdraw the plan.
More US states might have deregulated of their own accord, had not
the largest of them, California, made such an appalling mess of its own
version of deregulation in 1999-2001. The state of California deregulated
wholesale power prices - which rose by five hundred percent in a year -
but failed to free retail prices as well or to let utility companies make any
long-term forward hedges or insurance provision against future fuel-cost
increases.
This pushed California's two largest utility companies into insolvency.
Nor was the cause of deregulation helped by the Enron company's involve-
ment in making money out of California's power shortages, although this
had nothing to do with the scandal that eventually finished Enron off.
