Not Invented Here: What Can Be Learned From Elsewhere About Restructuring Electricity Markets

California’s failure in restructuring its electricity market has been interpreted to mean that “deregulation will not work.” A number of studies have pointed to flaws in the California experience that -if corrected -should allow restructuring to be successful. This study compares the California experience with the actual, successful experience of several other states/countries to identify what they did right. The study is organized around the control parameters that must be set by any electricity system seeking to restructure. Knowing what works as well as what does not will provide some guidance to California as it considers changing its course and to other states/countries contemplating restructuring in order to capture the benefits of competitive electricity markets. 1 The original version of this paper was prepared for the Conference on California’s Energy Problem, sponsored by the Hoover Institution and the Stanford Institute for Economic Policy Research, October 18-19, 2001. I am grateful to the Hoover Institution for financial support for this research and would also like to thank Richard Green, Sam Lovick, Geoffrey Rothwell, Gregory Rosston and Bernard Tenenbaum for their valuable comments.