Eugene Coyle wrote:
> You have mistaken my basis for posing my query with the conclusion (if any)
> I reached after reading the responses. As I said earlier, the responses
> were very helpful.
>
> You seem very sure of your conclusion about what is or isn't
> "progressive taxation." I thought there were a variety of positions in the
> responses -- so maybe your conclusion isn't what all economists hold.
Your response raises a profound philosophical question, Gene. How does one
know what words really mean, even ones in fairly common usage? Should we just
gauge the consensus of comments on an email list to determine meaning? If that
is the standard, btw, then the definition I gave holds. By my reading, only a
couple posts by Tom Walker seem to quarrel with it.
But that would be a silly way to decide, wouldn't it? So I took the liberty of
consulting the American Heritage dictionary that comes with this lousy
computer. Sure enough, this is what it says: "Increasing in rate as the
taxable amount increases: a progressive income tax." Convinced yet? Perhaps
you would like to consult any macro text book to verify (which would, of
course, be your best source). Or your local neoclassical economist.
In any case, I've had my say on that.
> Roger, you then go on:
>
> > > Rod Hay asks about the experience with deregulation -- is it giving
> > > the benefits promised? No, it isn't. It isn't even delivering the
> > > benefits on the energy piece of the total, and rates for the
> > > transmission and distribution are going up, quite sharply, and
> > > swamping the downward push on the energy side.
> >
> > Where do you see this? Transmission and distribution costs are small
> > compared to generation.
>
> You are factually wrong on that. T&D costs are not small compared to
> generation.
>
> > Plus they are still regulated on a cost basis,
> > and consist mainly of sunk capital costs (depreciation of plant and
> > equipment).
>
> Wrong again. There is a lot of labor and a lot of General and
> administrative expense.
Au contraire, Gene. Sure there's labor and admin costs; other O&M too, such as
fuel costs. But most of it, including all of the fuel cost, is properly
functionalized as part of generation expense, not T&D. And, correct me if I am
wrong, but I have this feeling that you are ignoring the costs of the
generation plants themselves in your counterposition of T&D and "energy"
costs".
Generation consists of capital costs (return on, plus depreciation of,
investment in generating plant and equipment), and operating and maintenance
expense (O&M). O&M, functualized for generation, consists of all fuel costs
(which, by themselves comprised about 1/3 of the total costs of service, last
time I looked--about 10 years ago), and most of the labor and admin expenses.
T&D consists only of capital costs of the grid and lines to end users, plus
the remaining nonfuel O&M, including some labor and admin.
Most of O&M is properly cionsidered generation expense because, think about it,
most of a utility's resources, including labor and admin, go into planning for
and operating generating plants, not the lines that take the power from plants
to load centers to homes. With deregulation, however, which unbundled
generation from T&D and deregulated its rates, the game is for the utility to
slip as much cost under the regulated T&D rates as it can. To avoid having to
collect those costs in market prices, that is.
So sure, PG&E asked for $650 million increase in T&D rates. The ALJ says they
were entitiled to only $268. That means the real number is probably less than
that. They aren't proposing to build a lot of new T&D lines are they?
But your point that I was reacting to was the statement that the (expected) T&D
rate increase was "swamping the downward push on the energy side". Didn't the
Calif. commission deny more than $1 billion of PG&E's proposed "stranded"
costs, mostly nuke plant capacity costs?
My impression is that of all the state to deregulate so far, Calif. has handled
it especially badly (been most utility friendly), but surely they disallowed
more costs that otherwise would have been collected from ratepayers under
regulation, than PG&E is likely to recover in new rate increases for T&D. If
you say not true, then Calif. will indeed jump to the head of the class as
deregulation dunces.
> The airlines have fought to avoid competition -- that's what I said. They
> cooperate, post fare increases through a cental computer that they
> collectively own. And the power generators must, fairly soon, come to some
> sort of "cooperation" or collusion to keep capacity additions down and thus
> avoid "cutthroat competition." If I read you correctly, you are saying the
> same thing.
I was trying to add to the point about "collusion or cooperation", by pointing
out the (1) mergers and asset sales are the more likely way utilities will move
to control supply and price, rather colluding from existing positions, and (2)
there will be a particularly important fight over the control and operation of
transmission, as the key element in market entry, which is so important to the
development of any competition and even the possibility of lower prices.
RO
