>I think David Shemano's newspapers articles deserve a more serious response
>than the ones they've been getting from PEN-L listers. Specifically, it
>would be nice if Gene or Jim or someone of similar knowledge of
>California's energy deregulation could comment on a couple of issues raised
>by the articles.
I don't have time to go read the articles, so I'll answer off the top of my
head. (So consider my answers in that light.)
>(1) The argument, alluded to in both articles, that environmentalists and
>consumer groups are to blame for the failure of California's generation
>capacity to expand.
environmental restrictions can limit the ability of private businesses to
build new generators (though I'm not sure whether they do or not, since I
don't know the law). However, this cost has to be balanced against the
benefit, i.e., a cleaner environment. That's not measured in GDP, but it's
quite important.
I don't know how consumer groups have had a negative effect on the building
of new generators, since those groups don't seem very strong in California.
Further, the new regulatory system seems have to discouraged the building
of new capacity even more than the environmental restrictions, since it
increased uncertainty dramatically. In addition to getting rid of assured
profits, they also got rid of the assured market.
>(2) The argument from the LA Times piece that the deregulation law
>deprived California's utilities of the efficiencies of vertical
>integration and long-term contracting (there would seem to be a
>transaction-cost argument for both in the case of electric utilities).
As far as I can see, this is an argument in favor of the old style of
regulation, against the new style of regulation in California. That is,
it's an argument against what most people call "deregulation." The old
system was based on vertical integration, long-term contracting, and
government "normal profit" regulation. (The effort was to set price equal
to average cost, which included "normal" profits, i.e., a rate of return
akin to other sectors.)
>(3) The argument from the Wall Street Journal piece that consumers, who
>enjoyed fixed rates under the deregulation scheme, have no incentive to
>conserve energy.
This is a return to David's original point. But that argument could be
turned around to say that the old system could have encouraged conservation
by using regulation to impose higher prices. It's not the fixity of the
prices that counts on the issue of conservation, it's their level. Of
course, under the old system if the companies had been allowed to charge
high, conservation-encouraging, prices they would have received much higher
profits than most firms get. That's one reason why I think the imposition
of taxes to encourage conservation is a better idea.
The non-fixity of prices encouraged by the current system seems to mostly
encourage instability of the price of one of the basic needs of modern
life, which disrupts people's lives dramatically (as in recent months),
shifting the risk from the sellers to the buyers (though currently the
distributors are suffering, threatened with bankruptcy, since the
flex-price regime hasn't gone all the way). Further, market prices don't
reflect the impact on future generations (i.e., the need to conserve).
Instead, when allowed to fluctuate freely, they reflect only momentary
scarcity and demand.
As usual, I bow to Gene's knowledge on all these matters. I'm trying to
glean an understanding of what's going on from his posts.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
