Brilliant_ The Evolution of Artificial Light - Jane Brox [105]
The Energy Policy Act of 1992, signed by President George H. W. Bush, encouraged further deregulation of the electricity industry at the state and federal levels and broadened the types of competitive companies allowed to produce energy for the grid. It brought energy trading companies such as Enron, Dynegy, and Reliant Energy into the mix. These companies were essentially unregulated power brokers that might not own any generating facilities at all. They bought and sold electricity on the open market and also traded in derivatives, betting on supply and demand as with any other commodity, such as corn or pigs. Enron CEO Jeffrey Skilling claimed the development would be a boon to consumers: "We're working to create open, competitive, fair markets," he remarked. "And in open, competitive, fair markets, prices are lower and customers get better service. We are the good guys—we are on the side of angels."
Decisions concerning the deregulation of power grids rested largely with state governments, and during the late 1990s—a time of fervent support for deregulation in general—a number of states, including California, passed legislation that deregulated their power industries. California's electric rates were historically high, and its power grid was plagued by problems. For one thing, no new generating plants had been built in recent years, but demand for electricity had soared. As a consequence, California had grown heavily dependent on out-of-state hydropower from the Pacific Northwest, and state legislators hoped that competition fostered by deregulation would strengthen in-state electricity generation and also bring down the cost of electricity for households and businesses.
California's deregulation laws were complex. Indeed, the buying and selling of electricity is endemically complex: it still can't be stored, the control of supply and demand needs to be exquisite at all times, and each set of transmission lines has limited capacity, which means that in a high-demand, high-volume market, the supply routes for all customers need to be charted out ahead of time to avoid congestion in the lines. To handle the buying and selling of electricity in the deregulated marketplace, California created an agency that set hourly prices for electricity, which could be bought at auction the day before or on the day of delivery. Another agency managed the transmission lines and conducted real-time auctions, which were meant to take care of last-minute, unexpected changes in supply and demand and guarantee adequate power reserves.
Initially, deregulation did reduce the cost of power. But the winter of 1999–2000 was a dry one in the Pacific Northwest, and the low snowpack meant that come spring, there would be less available hydropower from Oregon for the California utilities. In May 2000, unseasonably warm weather caused the demand for air conditioning to soar, and already scarce power sources became even scarcer. Within this tight market, some of those in a position to take advantage of unfavorable conditions did. Enron and other energy trading companies exploited loopholes in the California laws to create an appearance of even greater scarcity in the face of high demand. The energy traders weren't interested in simply acquiring energy; they made much of their money by "flipping" it—buying and then selling in order to make a profit on the trade. Their primary goal was not to provide better service to customers at a reasonable profit for themselves, but to make money.
The traders created artificial shortages by reserving energy for which they had no need and by inducing generators to shut down for maintenance even when maintenance wasn't necessary. They also scheduled large loads of electricity for limited transmission