First, don’t stop liberalization altogether. At last month’s EU summit in Barcelona, the French cited Enron and California as reasons to delay free-market reforms that would undermine France’s old state-run monopoly–“one of the most beautiful electricity companies in the world,” President Jacques Chirac calls it. While the French managed to put off deregulation for households, the EU will press on with most of its reform plans. Most Europeans are less fearful of Enron than they are motivated by the success of countries like Britain, where energy prices have fallen as much as 38 percent since gas and electricity markets were opened more than a decade ago.
Enron’s disaster doesn’t mean energy trading is bad. Companies and regulators still see trading as a crucial way to build consumer choice and cut prices. A recent PriceWaterhouseCoopers survey found that about three quarters of European utilities view trading as a profit center, and half plan to expand their trading operations. “Trading has been an important driver for EU deregulation,” says Ralf Schaefer, a spokesperson for RWE Trading, a subsidiary of the German utilities conglomerate RWE. “Without it, no one would have a benchmark for reduction in prices.”
Lesson two: don’t let deregulation leave you short of power. From California to Catalonia, electricity flows over grids that were first built locally, and only later connected nationally in some countries. In places like the EU and India, avoiding blackouts means building power systems that are more interconnected than those in the United States (which still uses regional grids). India is currently wiring its 28 state systems into one national grid. In Europe, the European Commission wants to avoid problems like last winter’s Catalonian blackouts. The power loss, caused by ice storms, could have been remedied if Spain’s grid had been more tied in to its neighbors (Spain currently has the capacity to import less than 3 percent of its power from the rest of Europe). “We don’t want 15 liberalized markets existing as islands,” says EC energy spokesman Gilles Gantelet. In particular, the EC aims to encourage cross-border energy trading and to allow member states to demand that utilities build new plants, thus avoiding the supply shortages still haunting California.
The third lesson: create markets that are fair and transparent. In California, badly designed partial deregulation actually discouraged competition and inflated energy prices. Now countries around the world are seeking the right balance between public and private control. In places like India, where corruption and mismanagement are rife, that might mean more regulation. There Enron spent $20 million “educating” Indian politicians about energy markets, and somehow ended up with incredibly favorable terms for its controversial Dabhol nuclear plant in Maharashtra. The state later balked at paying such an inflated bill, and Enron is now selling the plant. This scenario, along with a growing reluctance by outside players to enter the Indian market (where demand can be as much as 14 percent greater than supply), has persuaded 14 of India’s 28 states to appoint new energy regulators to police the markets. In Brazil, too, energy shortages and wary investors have forced the government to begin untangling an opaque system of public-private energy partnerships. Everywhere the new impulse seems to be to go slow and get it right. To the extent that Enron and California helped drive home that lesson, America has done the world a favor.
