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Ranting About the Media and Politicians
Jan. 11th, 2001 09:55 pmI know everyone rants about the media and politicians, but there's one thing they do that annoys me more than anything else... writing up articles and giving speeches blaming capitalism and free markets for exactly the problems they solve -- problems caused by socialist, paternalistic policies that have been in place for decades.
"Deregulation [...] has been a colossal failure in the state of California", says California's governor regarding the current power crisis there. Meanwhile, politicians say they must intervene to stop "price gouging" by electricity wholesalers. All in all, it sounds like California's power "deregulation" scheme is causing a major energy shortage.
However, let's look at what "deregulation" means in California. It means that the companies that sell power to consumers are not allowed to own power plants; likewise, the plant owners are allowed to sell power only to the state-sponsored utilities. A government-sanctioned organization called the ISO then determines how the power should best be divided. While the plant owners can (ostensibly) control the price of wholesale electricity, the utilities (which are the only companies allowed by law to sell to the consumer) are subject to strict price controls. Thus, they're now terribly in debt, since the price of electricity is up around $320/kWh now (it's typically <$50, by way of comparison).
Hmmm.. the government decides who can manufacture and who can sell, then sets the prices and rations the power availability. "Deregulation" sounds an awful lot like regulation, doesn't it?
So, since "deregulation" isn't working, the solution is obviously... more regulations! Now California's state power comission is asking the Department of Energy to step in and order price controls on the energy wholesalers. Of course, that's because they don't want to do it themselves and look bad; they'd rather the federal government do it. Also, they know that since all their utilities (which are only retailers, necessary because the law doesn't let the generators sell their power to anyone else) will soon be bankrupt, so they need to do something.
The idea of letting the utilities set their own prices so they can make a profit on electricity hasn't occurred to them -- after all, that would be LESS regulation, and that's just unthinkable. Likewise, letting them enter into long-term contracts for electrcitiy (currently, it's illegal to buy or sell future power -- you have to buy it day-by-day) would let them buy years of power at a time at a predictable rate, so spikes like this would have their cost spread over years instead of all at once. But of course, that would be less regulation, so they can't possibly do that. "Deregulation" is a colossal failure! We need more regulation now!
Ever wonder why, since California is always out of power, nobody builds more power plants? Well, up until two years ago, when their "deregulation" was put into place, it was impossible to be profitable in the industry due to government monopoly that had been there since the 1970's energy crisis. So nobody built major power plants. It would be profitable now, though (if they'd loosen up the price controls, at least)... but it takes 10 years to build a power plant. And "deregulation" has failed after two years, so I guess we won't see any new power plants in California.
If they really want to solve the power problem, long-term, there is an easy way to do it -- you drop the price controls on retailers AND wholesalers, you allow the retailers and wholesalers to merge if they want, and you drop the restrictions on long-term contracts. The only regulation they could leave there without adversely affecting the industry is the equal-access provisions (it's like in phone companies -- power companies have to let each other use each other's lines, though they can charge rent for them). While the equal-access provisions are unethical, paternalistic, and socialist, they're not the regulations causing this power crisis.
What would happen with the price caps gone? Simple -- prices would go up. Way up. Specifically, power would cost WHAT POWER COSTS. Right now, the government asks companies to turn off their lights. When power cost what it was worth, companies would turn them off. Some companies would simply shut down for a time -- if it costs more to operate their factory (due to high power costs) than they'll make in profit, they'll stop operating for a time. In fact, they can make a profit by shutting down, since many have long-term contracts with the utilities that the utilities, right now, will pay good money to be let out of. Would people's heating bills go up? Yes, they would. The government might even have to help people out this winter (which I would find acceptable only because it's a government-induced problem to begin with). However, prices wouldn't go up to the $320/kWh level they're at now. While prices would be higher than they are typically, they'd be much LOWER than they are right now.
All the power is being used because it's NOT a free market. The retail prices are regulated, so demand (for cheap power) stays high. The wholesale prices aren't, so when supply goes down (as it is now, due to past regulation making plant construction unprofitable and a host of factors that are no one's fault, like an unusually cold winter), the utility companies just get shafted. If the market were free, wholesale prices going up would lead to retail prices going up, which would cause those who don't really need power to cut down their use of it. Thus, the prices wouldn't spike to absurd levels.
Opponents of deregulation (real deregulation, not this load of pig-crap) seem to think that all these problems are caused by the "free market", which bears little resemblance to a free market. And they'll undoubtedly cry that if power prices were allowed to go up, only the rich would get electricity, as if the rich like wasting money and wouldn't curtail their power use in the slightest as prices rose. If this were a true free market, the utilities would have contracted for power years in advance, charged consumers a reasonable price for it, and right now, instead of this time of crisis, consumers would have power, utilities would be profitable, wholesalers would be profitable (perhaps wistfully wishing they could drive prices up more , but contractually prevented from having too large an effect), and we wouldn't be in this mess.
"Deregulation [...] has been a colossal failure in the state of California", says California's governor regarding the current power crisis there. Meanwhile, politicians say they must intervene to stop "price gouging" by electricity wholesalers. All in all, it sounds like California's power "deregulation" scheme is causing a major energy shortage.
However, let's look at what "deregulation" means in California. It means that the companies that sell power to consumers are not allowed to own power plants; likewise, the plant owners are allowed to sell power only to the state-sponsored utilities. A government-sanctioned organization called the ISO then determines how the power should best be divided. While the plant owners can (ostensibly) control the price of wholesale electricity, the utilities (which are the only companies allowed by law to sell to the consumer) are subject to strict price controls. Thus, they're now terribly in debt, since the price of electricity is up around $320/kWh now (it's typically <$50, by way of comparison).
Hmmm.. the government decides who can manufacture and who can sell, then sets the prices and rations the power availability. "Deregulation" sounds an awful lot like regulation, doesn't it?
So, since "deregulation" isn't working, the solution is obviously... more regulations! Now California's state power comission is asking the Department of Energy to step in and order price controls on the energy wholesalers. Of course, that's because they don't want to do it themselves and look bad; they'd rather the federal government do it. Also, they know that since all their utilities (which are only retailers, necessary because the law doesn't let the generators sell their power to anyone else) will soon be bankrupt, so they need to do something.
The idea of letting the utilities set their own prices so they can make a profit on electricity hasn't occurred to them -- after all, that would be LESS regulation, and that's just unthinkable. Likewise, letting them enter into long-term contracts for electrcitiy (currently, it's illegal to buy or sell future power -- you have to buy it day-by-day) would let them buy years of power at a time at a predictable rate, so spikes like this would have their cost spread over years instead of all at once. But of course, that would be less regulation, so they can't possibly do that. "Deregulation" is a colossal failure! We need more regulation now!
Ever wonder why, since California is always out of power, nobody builds more power plants? Well, up until two years ago, when their "deregulation" was put into place, it was impossible to be profitable in the industry due to government monopoly that had been there since the 1970's energy crisis. So nobody built major power plants. It would be profitable now, though (if they'd loosen up the price controls, at least)... but it takes 10 years to build a power plant. And "deregulation" has failed after two years, so I guess we won't see any new power plants in California.
If they really want to solve the power problem, long-term, there is an easy way to do it -- you drop the price controls on retailers AND wholesalers, you allow the retailers and wholesalers to merge if they want, and you drop the restrictions on long-term contracts. The only regulation they could leave there without adversely affecting the industry is the equal-access provisions (it's like in phone companies -- power companies have to let each other use each other's lines, though they can charge rent for them). While the equal-access provisions are unethical, paternalistic, and socialist, they're not the regulations causing this power crisis.
What would happen with the price caps gone? Simple -- prices would go up. Way up. Specifically, power would cost WHAT POWER COSTS. Right now, the government asks companies to turn off their lights. When power cost what it was worth, companies would turn them off. Some companies would simply shut down for a time -- if it costs more to operate their factory (due to high power costs) than they'll make in profit, they'll stop operating for a time. In fact, they can make a profit by shutting down, since many have long-term contracts with the utilities that the utilities, right now, will pay good money to be let out of. Would people's heating bills go up? Yes, they would. The government might even have to help people out this winter (which I would find acceptable only because it's a government-induced problem to begin with). However, prices wouldn't go up to the $320/kWh level they're at now. While prices would be higher than they are typically, they'd be much LOWER than they are right now.
All the power is being used because it's NOT a free market. The retail prices are regulated, so demand (for cheap power) stays high. The wholesale prices aren't, so when supply goes down (as it is now, due to past regulation making plant construction unprofitable and a host of factors that are no one's fault, like an unusually cold winter), the utility companies just get shafted. If the market were free, wholesale prices going up would lead to retail prices going up, which would cause those who don't really need power to cut down their use of it. Thus, the prices wouldn't spike to absurd levels.
Opponents of deregulation (real deregulation, not this load of pig-crap) seem to think that all these problems are caused by the "free market", which bears little resemblance to a free market. And they'll undoubtedly cry that if power prices were allowed to go up, only the rich would get electricity, as if the rich like wasting money and wouldn't curtail their power use in the slightest as prices rose. If this were a true free market, the utilities would have contracted for power years in advance, charged consumers a reasonable price for it, and right now, instead of this time of crisis, consumers would have power, utilities would be profitable, wholesalers would be profitable (perhaps wistfully wishing they could drive prices up more , but contractually prevented from having too large an effect), and we wouldn't be in this mess.
