Abstract
Abstract This paper discusses the California electricity market debacle and asks which lessons could be drawn from the Californian experience. It analyzes the market developments and depicts the reasons for the market meltdown. It is shown that the present situation in California may be only the calm before the next storm. Essential questions concerning regulatory policy are unsettled, and the Californian policymakers at present do not seem to be able to resolve the problems largely stemming from their own past decisions. The revealed regulatory failure demonstrates that design and analysis of adequate competition and regulation policy must explicitly consider incentive constraints in the political-regulatory area.
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