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Heat wave and power deregulation

As merciless heat sent America's death toll above 130 last month, President Bill Clinton blamed global warming for the unprecedented temperatures. The heat wave also prompted debate on electricity deregulation as prices surged to about 100 times normal and a spate of brown-outs hit the Midwest and Northeast. Does the volatile new market need some controls reinstated or will it settle down once more mature? The spot price of electricity rates in California, which launched its deregulation in April, sky-rocketed briefly in early July to $9.90/kWh, up from $0.05-$0.10/kWh. A similar phenomenon had also hit the Midwest and Northeast in late June as temperatures soared, bringing a surge in demand for electricity while violent storms knocked out a nuclear plant and a key transmission line. A major beneficiary of the volatile prices is Enron Corp, the owner of Enron Wind Corp. Its trading subsidiary reports a doubling of revenue and an 85% rise in income in the second quarter, according to the New York Times. But for the first time since the Federal Energy Regulatory Commission (FERC) ordered utilities to open their transmission lines to competitors in 1996, companies were unable to deliver power they had promised. Four Midwestern utilities have also now petitioned FERC for some re-regulation while a utility holding company filed a lawsuit against a power marketer in Ohio that allegedly failed to deliver. Officials at California's Independent System Operator are also discussing the matter with FERC. According to the American Wind Energy Association (AWEA), the problem is typical of an immature trading market and the prices will stabilise. Not everyone, however, was quite so sure. "I'd expect some re-regulation -- some reliability will have to be put back into the system," says one industry member, requesting anonymity. "It showed what people will do in a crisis -- profit take." And Chris Flavin of Worldwatch Institute, AWEA's environmental adviser, comments, "I think people are beginning to see the downside of deregulation. If you had your own power in this sort of situation, or if power were more decentralised, you could be more independent of the market."

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