I wonder if California’s politicians will ever stop externalizing all of the responsibility for their failed electricity restructuring. Now they are moving beyond placing all of blame on Enron and other “greedy, out-of-state, price gouging” power suppliers to Perot Systems, the company that wrote the software to implement California’s failed “market” design and made marketing presentations to energy companies about trading strategies for California. Only looking at the facts can determine whether Perot Systems had a conflict of interest in this situation; it’s not even clear yet whether the presentation was to an energy company or to the Power Exchange to alert them to possible holes in the system. Since they didn’t develop the rules, but only wrote the software to implement them, I’m not sure there is a conflict. I have one question, though: what makes these politicians think that energy companies did not already realize what the flaws were in the rules and structure of the “market”? Governor Davis and some of California’s other political leaders stick solidly with their victim rhetoric, with no acknowledgement that the “market” structure and rules created the opportunities for manipulation that they are decrying. This continuing externalizition of responsibility helped deepen the electricity crisis in late 2000 and early 2001, and does little to further progress toward energy choice for California’s residents.
In terms of energy markets, the news today seems to be no news. Prices are not fluctuating much, domestic gasoline inventories are higher than last year at this time, OPEC producers are pumping 1.4 million barrels per day over their stated quota (that’s 6 percent).
A Reuters article today posted on Yahoo Financial News illustrates a fascinating aspect of the energy future — the old fossil fuel industries can help create a “green energy” future more cost-effectively than totally green options. This article cites a presentation by a Shell official who discussed how oil refiners can use gasification to turn fossil fuels into hydrogen, and how it’s currently far cheaper to do that than it is to create hydrogen through solar-powered electrolysis. It may not be 100% green, but it’s an incremental step toward generating hydrogen cost-effectively. I call that progress.
According to Bloomberg News, Germany’s largest energy trader is planning to expand its US operations. What a great example of entrepreneurial opportunism — RWE representatives state explicitly that they have not engaged in the types of questionable trading practices that are driving the financial uncertainty in US energy markets. This is how competition creates stability; hopefully the entry of RWE and other experienced financial firms will help stem this year’s shrinkage of US wholesale electricity markets. RWE also plans to retain ownership of some actual physical assets to support its energy trading, unlike Enron’s strategy of divesting as much of the physical realm as it could.