File this one under DUH!
Competitively Priced Electricity Costs More, Studies Show
Retail electricity prices have risen much more in states that adopted
competitive pricing than in those that have retained traditional rates
set by the government, new studies based on years of price reports show.
Really? Go figure . . .
Source:
Competitively Priced Electricity Costs More, Studies Show
DAVID CAY JOHNSTON
NYT, November 6, 2007
http://www.nytimes.com/2007/11/06/business/06electric.html
Deregulating an industry with incredibly high barriers to entry is always a good idea!
Those high prices are going to encourage more competition, just try not to expire from heat stroke or frost bite in the mean time.
Leave it to the NYTimes to think California is deregulated. There’s the problem right there.
“Competition” hardly describes the system where outfits like Enron got monopoly trading rights for electricity and abused them to push up prices. Bribery and collusion can be effective substitutes for the invisible hand, or at least give it a whole new definition.
Yes, true. But not the whole story – not the BigPic if you would. The biggest problems are first that ONLY retail markets were de-regulated (& opened up all sorts of manipulation opportunities for ENR, et.al.) while the buying, production and distribution markets were largely not. In fact in some places it got run in reverse. CA de-regged upstream so they could get market prices and re-directed power away from the regulated local retail markets; it’s why Ahnold is governator and Grey Davis ain’t.
And of course rising real energy costs don’t help. If you de-reg you need to de-reg across the board. And if you do it right then their’s investment in future capacity which reduces long-run costs (if a utility can’t get it’s cost of capital it won’t invest in new plants) and also creates a pressure on users to cut back. The reason Iran imports gasoline (did you know) is price-controlled markets and no domestic refineries. The reason Cantorell field (the Mexican giant) is dying rapidly is no investment in production infrastructure.
This is a really messy and non-simple issue. If we’d really like to fix it it’s time to start building coal plants, investing in alt. R&D and putting conservation on a national priority footing.
In Georgia they deregulated natural gas and we pay more than the contiguous states. When it first happened they asked Georgia Natural Gas why it was so high and they said they would be “competitive”, not low priced.
We pay as much to get gas “delivered” as we used to pay for delivery and natural gas.
And with electricity, the republican, Stan Wise on the PUC doesn’t think the staff should be “adversarial” and challenge the utilities and that there is nothing wrong with meeting in secret with the utilities.
The only good thing is that stopped electricity deregulation in its tracks.
I get a chuckle when I read my power bill and see that blurb: “The table below shows your energy usage for the past year. This information may be useful as you look for opportunities to save energy or when you compare offers of other energy suppliers…”
We used to have some of the cheapest energy in the country in Montana. Since the Rethugs deregulated our market, we have some of the most expensive. It will take decades to undo the damage they did to this state.
Don’t get me started on TXU. In the ‘buyout’ 11% bonds were issued. Who be gonna pay fo dat?
At what point do we pronounce a meme or an ideology to be false?
The meme that the deregulated market can handle most things better and more efficiently than government, has been, and is currently being, disproved.
People seem to forget that behind every regulation is a sound reason for enacting the regulation. The reason we have regulations is that many of our grandparents and great-grandparents were robbed or otherwise rankly abused by someone acting without appropriate regulation.
Unregulated trade in a vital commodity? Bad, bad idea (unless you own the commodity or the delivery conduit).
Never support an idea or ideology that does not benefit you.
Yeah, here in Maryland I had monthly bills for -June- $563, July $745, August $520…..WTF!!!!!!!!
I swear its time for me to build that 21st century conastoga wagon. Well insulated, wind turbine, solar array, antennas, grey water recycle, rain roof catch system and its gotta be comfy. Cubical mounts on multi fuel chassis.
Find a nice place to stay with a great job. Add a pole barn to vacant lot, dig a well, install septic system, till it’s time to skate.
Unregulated means they have the ability to charge the customer MORE than they were being charged before.
Ma Bell was broken up in the name of “deregulation” .. and the country’s landline service has suffered ever since. Ma Bell was the textbook definition of a benign despot, and was broken up because of the THEORY that deregulation would be better.
It hasn’t.
You’d think the government regulators would learn something from these continual failures. Every now and then, they got it right the first time.
Unregulated means they have the ability to charge the customer MORE than they were being charged before.
Ma Bell was broken up in the name of “deregulation” .. and the country’s landline service has suffered ever since. Ma Bell was the textbook definition of a benign despot, and was broken up because of the THEORY that deregulation would be better.
It hasn’t.
You’d think the government regulators would learn something from these continual failures. Every now and then, they got it right the first time.
Unsympathetic:
You really think that telecommunications service has gone downhill since the Ma Bell breakup?
The Dirty Mac:
I think he means to make the exact opposite point. The problem with that is that the courts forced Ma Bell to provide the other potential competitors with their product at wholesale prices. Therefore the barrier to entry was lower.
However, I know of no proposal that would require unregulated energy companies to sell their product to competitors at wholesale costs (which, in itself, would be a regulation).
Barry, you may like this story:
Is Jay-Z signaling a recession?
There is something quite alarming on the recently released “Blue Magic” music video.
The song, by the wildly successful rap artist and businessman Jay-Z, is on an album of songs accompanying/inspired by the Ridley Scott movie “American Gangster,” starring Denzel Washington and Russell Crow.
But it wasn’t sex, drugs, violence or explicit language that shocked my conscience.
It was the Euros.
The Jay-Z video flashed large stacks of $500 Euros.
http://www.chaskaherald.com/node/3010
Barry, i think you need to counter your inflation postings with some of price cuts.
eg. I cancelled my subscription of the WSJ online which was $79 a year and now get it all from free blogs, including yours. I make that a 100% drop in “information inflation” and that’s BEFORE i include quality adjustments (and the information quality from the blogosphere is far higher than that of the MSM).
Any other deflationary signals out there?
I supose a theoretical case could be made that, in a “free market”, the deregulated price of energy might be lower. Unfortunately, dereulation kicks the price into the futures market which, IMO, is the most manipulated dirty market ever inleashed on the American public.
The futures market “reason for existance” is liquidity and price discovery. I fail to see how this wall street vehicle fullfills either function. Instead it is a means for the “financial” interests to co-op the market through an unregulated blizzard of paper-based cartel behaviour.
Prices increase under deregulation because the futures markets are rigged, with no regulatory over-site.
Why are oil prices almost $100 per barrel, gaining 50 % in four months? Must be a shortage. Gee, I hope the government bails the wall street traders out again, then we can have $200 oil.
blam, oil prices are almost $100 a barrel because that is where the supply/demand balance is.
maybe…just maybe…there is no PPT, and no wall street all-knowing cartel…and having worked on the trading desks of a few investment banks over the years, i definitely believe that there is no massive manipulation out there (of course there will always be a little bit of screwing around with prices on any particular stock or commodity from any particular counterparty/counterparties, but there is no big grand scheme out there behind the scenes).
whilst being bearish on the oil price myself, due to the fact that you can pull it out the ground for probably 10 bucks a barrel, there is still a case to be made that at $97 a barrel = $2.30 a gallon for a non-renewable resource is cheap compared to a renewable resource you can pull out of a cow that sells for $3.80 a gallon!!
Thanks to deregulation I now have more efficient air and heating systems, double paned windows, CFL lighting, and a tankless water heater. If our prices continue to be so damned high, soon I’ll have solar or wind power on my home, too.
These companies that are ripping us off will be working themselves out of business at the rate they are going.
Not a bad idea. Wish everyone could afford to get off the grid, or to be charging the electric companies for providing THEM with power.
Quote for the article: “Under the rules of these markets, every electric power generator whose bid is accepted gets the highest price paid to supply power, called a clearance price or single-price market. In most auctions, each supplier gets the price at which they offered to sell, known as an as-bid market.”
This market auction format “Locational Marginal Pricing” encourages the bidder to bid their marginal cost to produce. The example of the low nuke getting a high profit is correct but that’s not the “problem” the article finds. Is anyone saying the profits in these states is “too high” No they are not saying that…
…The problem is not PROFITS to energy companies but prices to retail. The studies need to control for energy source as oil has gone up more than nat. gas and coal (as an example.) What sort of industrial growth exists. Are the plants older? etc. Just comparing average retail prices is not necessarily proof, in other words who’s to say prices wouldn’t have gone up more?
I’ve always thought there needed to be a line drawn in the regulated/free market debate between things that are discretionary, and those that are necessary and essential to our daily lives. It sure seems we’re heading to the following extreme example–“You can no longer pay for your water? Too bad for you. Next!”
We used to be a better society than this.
With the windfall these deregulated companies are making over the regulated states, they must be putting the “competitive” money back in to their infrastructure and energy generation systems to provide more reliable power.
Those deregulated states must surely be free from brownouts, blackouts.
Isn’t it possible that the regulated states are forcing utilities to set prices too low? All energy prices are rising, why wouldn’t electricity? If utilities in regulated states are purchasing power on the open market (or even from their own generation) where prices are rising, but are not allowed to pass along those costs, they will simply stop investing in their system. This will lead to more frequent and longer outages.
In Illinois (where deregulation has been a mess), that state froze rates for 12 years and when it was time for the freeze to be lifted, the politicians decided to extend the freeze. The utilities faced a situation where they would purchase power at a higher price than they were allowed to sell it. When you are selling at a loss, do you think the utility is going to invest in their system? Do you think they are going to work around the clock to get your power restored after a storm? I’m not saying that utilities in deregulated states aren’t taking advantage of the situation, but the regulated states may be in trouble if the local pols force prices to be too low.
I think Reg. and Dereg. both have problems, but to draw conclusions by simply looking at the chart above ignores a whole lot that goes on behind the scenes in each state. There are short run and long run implications in each instance
>> traderboy said, oil prices are almost $100 a barrel because that is where the supply/demand balance is.
Please enlighten me as to what happened in 4 month’s to double the demand for oil which justifies the price increase, other than the obvious speculation and manipulations that cause obtuse swings about the mean causing reversions, leaving the consumer to be scalped. Maybe if we’re going to allow the private centrals banks to play with the currency then possibly everything should be regulated. After all its not like I can request my employer pay my fixed salary in EURO’s I’m sure I could get them converted but obviously thats not the point.
I think your data is incorrect – it must be. Competition produces lower prices, due to the laws of competition that weeds out the weak suppliers of electricity and rewards the low cost suppliers.
I don’t think you can argue with that logic. Therefore your data is suspect. Markets are always the best solution- I read it in a book by Milton Friedman, where he states that in situation where there is choices between public and private monopolies, the logic for private monopolies is so compelling that it results in the greater public good. As your data doesn’t comply with this, it must be flawed in some way we cannot easily determine.
BTW – am reading papers and books by Robert Haugen, very interesting. Replicating his work isn’t all that hard
“Markets work Governments Don’t” regulate nothing. How insane to believe a government thats 9 trillion in debt up to their neck in alligators globally can regulate anything. As for “obvious speculation and manipulations that cause obtuse swings” in the oil prices that is pure capitalism just as short selling and black markets are. They serve a purpose and if they didn’t they too would go away. The FED created this nightmare and the sooner they leave business to business the better off we all will be. Europe will never hold up to our productivity if we had any body with brains in the beltway.