There are three other factors that this article leaves out that make the deregulation of energy look even more nuts.
1. It's legal to corner the market. When a generator goes out, or is stretched beyond capacity, the supplying company needs energy right that moment. But physically, there are only a few neighboring generators that can supply that power. If all of their free power has been bought by brokers that do nothing that buy and sell power (called "power marketers"), then they can charge you anything they want. And since the market if very small and transparent, that's exactly what happens. The change in prices are phenomenal. For example, during that recent unexpected spike of 90 degree weather in New York a week back, power went from $45 a kilowatt hour to $2,750 a kilowatt hour. And you can count on that happening every time a generator browns out. Synergy, one of the largest power generators in the country, lost $170 million in three days this way.
Because of this, it is an open question whether marketization of the grid causes lower prices. In other words, it may be unseaworthy and cost more.
2. Power marketers do nothing but buy and sell power. All their profits come from arbitrage. And naturally, they short the market sometimes. And just as naturally -- especially when you factor in this spike behavior -- they can get caught drastically short. And even more naturally, when they can't cover their contracts, it causes an astonishing chain reaction through similarly situated marketers. On June 23rd, 1998, bankruptcies cascaded through the system like ice-9. They're still sorting them out.
3. A variation on that last bit is that when marketers don't short the market, they sometimes end up in possession of absurdly valuable power that they've contracted to sell at way below its market value -- e.g., they've got contracts to sell power for $12 a Kwh that they could sell elsewhere for $3000 a kwh. The incentives to break their contracts on flimsy pretexts is huge. And once again, it causes chain reactions.
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com