ABSTRACT
The California energy crisis of 2000-2001 is a perfect illustration of the consequences of the systemic changes that occur in opening tightly controlled regulated industries, such as the electric utility industry, to the dynamics and complexity of free-market competition. The electric power industry in the United States (US) has been historically regulated by the states. Competition in the electric industry applies only to the generation of electricity and the commercial functions of selling electricity at the wholesale and retail level. The failure of the California energy market and the subsequent findings of illegal and highly unethical corporate behaviour in companies such as Enron and others have put corporate governance at the top of recent political issues in the US. The lessons learned from the California energy crisis re-emphasise the fact that markets by themselves do not work and there is a real role for government regulation.
