For years California, one of the world's richest economies, has been a key driver of US growth. But today the State is scrambling to buy power at virtually any price, its electricity utilities have sustained heavy financial blows, and consumers are being hit by blackouts.

Some claim the lesson from California is that deregulation can only work in Ireland if the transition process to an open market is greatly accelerated. Others say we should step on the brakes of deregulation and take stock of what went wrong in California. Both extremes are mistaken.

One problem in California may have been the perception that the forces of supply and demand would ensure continuity of supply. Authorities there capped consumer prices, thereby discouraging investment in new generating capacity. Demand rose far more quickly than anticipated and the authorities quickly found that there were physical limits to the amount of electricity that could be imported to meet peak demand.

The UK is often cited as a prime example of the benefits of electricity deregulation.

The success in the UK was founded on significant surplus generation capacity at that time and the move to new-generation technology. And yet, in the two years immediately following deregulation in 1989, UK electricity prices rose.

There are lessons to be learned from the experience of deregulation around the world . Continuity of supply is the most important priority. Electricity is an essential service for everyone and is particularly important for economies that rely increasingly on energy-intensive high-technology applications.

The second priority must be to create a competitive environment that will bring tangible benefits to consumers and a good quality supply at lower prices.

As a participant in deregulated markets throughout the world, ESB has recognised the need for the introduction of competition. ESB has been an active and willing participant in the process, advocating the adoption of a balanced approach.

As part of this proactive approach, ESB has initiated a number of steps:

Auctioning generation capacity to new suppliers.

Agreeing to full market-opening by 2005 - well ahead of the EU requirements.

Restricting its own targeted share of the supply and generation markets.

The Commission for Electricity Regulation (CER) has already achieved much in a surprisingly short time, and as the process proceeds it is important to bear in mind the circumstances facing Ireland.

We are a small island economy with limited interconnection with other power networks. Irish electricity prices are already exceptionally low. Prices have risen just 3.5 per cent in nominal terms and fallen by 40 per cent in real terms over the past 15 years. Irish domestic prices are still lower than those in Britain, and far lower than in Northern Ireland.

Ireland needs additional capacity urgently. With continued strong economic growth driven by energy-intensive technology industries, potential supply problems could be on the horizon. For this reason, building the Statoil-ESB joint venture plant at Ringsend is critical.

Potential market entrants will not make the major investments required to build new plant without the certainty of reasonable returns. Electricity production costs worldwide are rising due to rapidly escalating fuel costs.

With production costs increasing and prices to consumers exceptionally low, an immediate challenge for the CER is to set tariffs, terms and conditions that give incentives to new entrants.

Meeting the principles of security of supply and benefits to customers needs a balanced, progressive approach.

Price benefits to consumers have to be balanced with quality and security of supply. This can only be achieved through an appropriate transitional arrangement.

Aidan O'Regan, Head of Regulatory Affairs, ESB.