<i>Failure by Design: The California Energy Crisis and the Limits of Market Planning</i> by Georg Rilinger

This is not another post mor tem of the California elec tric ity cri sis of 2000-2001.The voluminous lit er a ture on that cri sis points to mul ti ple causes, and very lit tle basis to say which set of causes was more deci sive.Participants in the disas ter in ret ro spect tend to empha size either severe short ages of sup ply or gam ing behav ior by buy ers and sell ers in the restructured mar kets.But Georg Rilinger moti vates this study by point ing out that each of these expla na tions points to a deeper ques tion: How did a mar ket come to be designed and built in a way that pro duced both severe resource inad e quacy and oppor tu ni ties to profit from a rep er toire of games?What led the design pro cess to pro duce a mar ket that failed to induce an effi cient allo ca tion, con sis tent with the secure oper a tion of the power sys tem, and failed to pro vide incen tives so that truth ful behav ior would be at least as profi t able as stra te gic games?To answer those ques tions, Rilinger con ducts a soci ol ogy of mar ket design, encompassing an unri valed col lec tion of data from all key actors and insti tu tions.And in the pro cess, he hopes to develop a gen eral the ory for the soci ol ogy of mar ket design.In the defense of the mar ket design experts, it is unde ni able that the polit i cal econ omy of California's elec tric ity sys tem dealt them a hor ren dous hand.In great detail, Rilinger takes us through the con ten tious pro cess that pit ted the util i ties against large buy ers, energy trad ers, and poten tial new entrants in the mar ket.It is well known that Enron, the energy trad ing com pany, favored a mar ket with abun dant arbi trage oppor tu ni ties and ways to cash in on infor ma tion asymmetries.But Rilinger shows us that Enron was not in a posi tion to impose its pre ferred design, and depended on a pow er ful coa li tion that included one of California's large util i ties and many of the state's large elec tric ity cus tom ers, among oth ers.A com pro mise agree ment, which was offi cialized in leg is la tion, envisioned a power exchange, a cen tral ized mar ket place, but cut off from the Independent System Operator (ISO) that oper ated the grid, thus sev