What Not to Do.(European Union learns from United States energy mistakes)(Brief Article)

Energy has surely been the beleaguered sector in the United States lately. First, California's newly deregulated power system crashed, leaving bankruptcies and blackouts in its wake. Then Enron, the king of energy trading, imploded. All this happened at the same time that the rest of the world was trying to free up energy markets. Now many countries are examining their own deregulation plans to make sure they don't get caught in similar crises. So, what exactly are the lessons to be learned from the U.S. energy debacles?

First, don't stop liberalization altogether. At last month's EU summit in Barcelona, the French cited Enron and California as reasons to delay free-market reforms that would undermine France's old state-run monopoly--"one of the most beautiful electricity companies in the world," President Jacques Chirac calls it. While the French managed to put off deregulation for households, the EU will press on with most of its reform plans. Most Europeans are less fearful of Enron than they are motivated by the success of countries like Britain, where energy prices have fallen as much as 38 percent since gas and electricity markets were opened more than a decade ago.

Enron's disaster doesn't mean energy trading is bad. Companies and regulators still see trading as a crucial way to build consumer choice and cut prices. A recent PriceWaterhouseCoopers survey found that about three quarters of European utilities view trading as a profit center, and half plan to expand their trading operations. "Trading has been an important driver for EU deregulation," says Ralf Schaefer, a spokesperson for RWE Trading, a subsidiary of the German utilities conglomerate RWE. "Without it, no one would have a benchmark for reduction in prices."

Lesson two: don't let deregulation leave you short of power. From California to Catalonia, electricity flows over grids that were first built locally, and only later connected nationally in some countries. In places like the EU and India, avoiding blackouts means building ...