Watt Price Ideology?

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NY Times columnist Paul Krugman - who does double duty as the Ford International Professor of Economics at MIT - shreds Bush's non-answer to Gray Davis' request for price caps on wholesale electricity, calling Bush "obtuse."
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June 3, 2001
Watt Price Ideology?

By PAUL KRUGMAN

I once had a math teacher who responded to student errors by saying "Save that answer - I may ask that question someday." I thought of him after George W. Bush's apparently pointless trip to California.
During that trip, Gov. Gray Davis asked for a temporary cap on wholesale electricity prices - a request that gained extra force because it was backed by economists with strong pro- market credentials, including Alfred Kahn, who oversaw the deregulation of airlines, trucking and other industries in the 1970's.
Mr. Bush, however, was unmoved.
Again and again he declared that a price cap would do nothing either to increase supply or to reduce demand.

Save that answer, Mr. Bush. We might ask that question someday.

Actually, Mr. Bush's assertion may have been wrong even on its own terms. I'll come back to that in a minute. But the most striking thing about his declaration was that it had nothing to do with the actual problem.

For the issue facing California right now is not how to increase supply and reduce demand. It's too late for that; summer is almost upon us, and it is simply a fact of life that there will be power shortages in the months ahead. It is important that the state build power plants as quickly as possible, so that this shortage is only temporary. But not to worry: power plants are being built at a furious rate, in California and in the nation at large.
Indeed, last week the credit agency Standard & Poor's expressed concern that electric generating capacity is being added so quickly that the industry will soon face a glut.

Meanwhile, however, the temporary lack of capacity has led to incredibly high wholesale electricity prices, which are a huge financial burden on the state, over and above any disruption that may be caused by physical shortages of power.
Nobody knows exactly how much California will pay for power this year, but reasonable estimates suggest that it will pay at least $50 billion more than two years ago - an increase of more than $1,500 for every resident.
The great bulk of that represents not an increased cost of production but windfall profits for a handful of generating companies.

The main purpose of a temporary price cap would be to reduce - though by no means eliminate - this transfer of wealth away from California residents.
That is, we're talking about dollars, not megawatts. And Mr. Bush's response is therefore almost surrealistically beside the point.
You could argue that any financial benefit from price caps would be more than offset by a worsened physical shortage. But that's a hard case to make.
Nobody has proposed capping prices at a level that would prevent power producers from making extraordinarily high profits; why should this reduce the supply of power?

It's true that Econ 101 teaches that price controls tend to produce shortages. But this would be a minor effect in this case, since neither production nor consumption would be much affected.
And anyway, students who go beyond Econ 101 learn that strictly speaking the standard argument against price controls applies only to a competitive industry.
A price ceiling imposed on a monopolist need not cause a shortage, if it is set high enough; indeed, price controls on a monopolist can actually lead to higher output. That's not an argument you want to use too often, but given the extraordinary prices now being charged for electricity, and the considerable evidence that producers are exercising monopoly power, if ever there was a case for a temporary price ceiling, California's electricity market is the place.
I am actually somewhat surprised by Mr. Bush's obtuseness on this whole subject. No doubt his determination to answer the wrong question is deliberate: misrepresenting policy issues is, after all, standard operating procedure for this administration. But even on a cynical political calculation, Mr. Bush's remarks seem to be foolish, only reinforcing the sense that he neither understands nor cares about California's problems.
Maybe Mr. Bush's advisers are knee-jerk ideologues who believe that the market is always right, even when textbook economics says it is wrong.
Or maybe they are so close personally to energy industry executives that they believe that whatever is good for Enron is good for America.
Whatever the real story, it's clear that this administration not only has no answers for California, it won't even listen to the question.

-- Cherri (jessam5@home.com), June 06, 2001

Answers

Watt price indeed?

Sure wish this hadn't happened. Liked it better when the rest of the country's Libs ignored California as one of them "in our pocket" sort of things. Nobody ever liked us anyway but now that our selfishness really comes home we're suddenly a cause celebre. Wish all you people would just leave us the fuck alone. Keep your opinions & editorials to yourselves. We don't need you and don't want you. This state has an energy problem it will solve but the last thing we need is you bunch of losers trying to tell us how to solve it. Just fuck off and we'll let you know when there are April Pears available.

-- Carlos (riffraff@cybertime.net), June 06, 2001.


Cherri is obtuse.

The highest prices for electricity in California are charged not by out-of-state companies like Enron or Reliant, but California's own local minicipalities.

Krugman is a well known socialist from way back, who would like nothing better than to have more and more bureaucracies pop up whose job in life is to determine acceptable profit rates for private corporations.

-- libs are idiots (moreinterpretation@ugly.com), June 06, 2001.


LMAO Carlos!!

-- (cin@cin.cin), June 06, 2001.

Don Feder

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Consumer Reports

The Idiot`s Guide to Energy

http://www.jewishworldreview.com -- ENERGY isn't a complicated issue. But since certain people -- Democrats, bureaucrats, enviros -- have spent decades avoiding a rendezvous with reality, they require a road map. Presented for their edification is an Idiot's Guide to Energy.

1) If you want more energy, build more power plants and refineries, and drill, drill, drill. For 30 years, we've done the opposite. It hasn't worked.

America consumes more energy than any other nation. In the next two decades, demand is expected to grow by 25 percent.

But we haven't built a new large refinery in 25 years. (Since 1992, we've closed 37.) Those still functioning are operating at 97 percent capacity. Domestic oil production has declined from 9.6 million barrels a day in 1970 to 5.8 million last year. In the words of the Cole Porter song, "Somethin' gotta give."

2) Price caps work well -- if your goal is increased consumption and decreased production. Energy Secretary Spencer Abraham says price controls "make a problem a disaster, and a disaster a catastrophe."

Since 1996, California's political establishment has artificially held down the cost of electricity by capping consumer prices. (Utilities were allowed some increases this spring.) As a result, California ranks dead last among the states in power production per capita. Now Gov. Gray Davis wants caps on what utilities pay for energy, which should be a big incentive to companies that generate power. Why settle for a barge mishap when you can have the Titanic? 3) Conservation won't solve the problem.

Consumers can use their air conditioners less in the summer and turn thermostats down in winter. But you can't meet the increased energy needs of a population expected to grow by 50 million in the next 20 years by unscrewing light bulbs.

As for alternative energy sources (wind, solar, ethanol), by 2020 they will supply a whopping 3 percent of U.S. electricity.

4) Drilling in the Arctic National Wildlife Refuge isn't environmental rape. It doesn't even constitute an indiscrete glance at Mother Nature.

There are at least 11 billion barrels of oil there, the equivalent of 30 years of imports from Saudi Arabia. President George Bush is proposing to use a flyspeck of the refuge's 19 million acres. Since oil operations began in Prudhoe Bay, the area's caribou herds have increased fivefold. As the resource would be developed only during the Artic winter, the environmental impact would be negligible.

5) Nuclear is a crucial component of our energy mix.

Though it's been 20 years since an order was placed for a nuclear power plant, the 103 plants in operation supply 20 percent of our electricity. Without them, in 1999, other forms of power generation would have resulted in carbon dioxide emissions equal to that released by half the nation's cars and light trucks.

In 1999, the cost of generating a kilowatt hour was 3.52 cents for a natural-gas fired plant, 3.24 cents for oil, 2.07 cents for coal and 1.83 cents for nuclear. There's a greater chance of Ralph Nader spontaneously combusting than a nuclear reactor experiencing a meltdown.

6) Dependence on foreign imports makes us vulnerable to embargoes and blackmail.

Our dependence on foreign oil has increased from 36 percent in the '70s to 56 percent today. The friendly nation of Iraq is our fastest growing supplier -- at 613,000 barrels a day under the oil for food program. On Monday, Saddam Hussein suspended all exports because the United Nations is considering a new sanctions plan. If other oil-exporting states, most in volatile regions, decide to start shutting off the tap, we'll be up to our necks in something other than crude.

7) Energy shortages lead to lost jobs and economic slowdowns.

Small- to medium-size businesses, which employ over half the workforce, are particularly vulnerable to increased energy costs. Large corporations, whose work could be done overseas, demand a reliable energy source. Intel says it won't expand operations in California until the state solves its power problems.

The Sierra Club may think the move to a smaller America is beautiful. The average worker, consumer and businessman will like it a lot less.

Policy-makers and opinion-shapers are urged to meditate on the above, before the unemployment lines begin to form and the lights start to dim.



-- libs are idiots (moreinterpretation@ugly.com), June 06, 2001.


Carlos, I'm sorry. I didn't mean to upset you. I don't think it is California's fault that there is a power problem. They were sold a bill of goods, being told an open and free market would allow competition to keep power costs low. No one came out and informed them that monopolies were buying up the infrastructure of power, there was no public announcements telling them (you) that Enron would broker power which would be owned in a monopoly of a few companies who would work together to power down generators to create a false shortage, using this to justify sucking the coffers dry. You were not informed that the head of Enron would decide who runs FERC and would tell them what to do. How were the citizens of California to know that regulations and laws preventing corruption in the power industry were being stripped in the past 12 years?

This situation was not caused because California residents preferred to keep more of their own money by buying into a (supposedly) free open market, as is rational and justifiable, especially in a country that promotes free enterprise. No, what has been going on in dark rooms and behind closed doors for the past 12 years is what has brought you to this situation in this point in time.

Too many people are repeating their party line, Californian's want a hand out. That is not what they were promised or asked for if they went for deregulation. It is like voting for getting lunch at school or at one of many fast food restaurants, with the promise and assurance that due to the large number's and varieties of said fast food establishments, the prices would be held low by normal competition. Then as the the process went through the time and stages necessary to change over to the "promised" open, competitive market, a few companies buy up all of the fast food joints and collectively raise the price of their food up to 300% higher then existed when the people voted for the change. Now you have schools full of kids who can no longer get lunch at a reasonable price at school, no matter how unappealing it was, and are forced to try to pay the monopolies $20.00 for a hamburger that costs them $0.37 to make, including labor and raw materials, or the child can go hungry.

The "school board" which is set up to protect the students from this kind of gouging which in no way resembles free enterprise, is run by people who were hand picked and blackmailed and threatened with their jobs by the managers of one the few restaurants, thus rendering them (school board) powerless to protect the children they were set up to protect.

The damn screech that California wanted something for nothing is pure bull caca! They did nothing more then each of us do many times every day, made a choice to purchase a product at a competitive price. Unfortunately, the safeguards against corruption had been removed quietly and on the sly. So for those who think this just happened by chance, wake up. It has been planned for a LONG time. I don't think they expected the greed of the power traders to make such an open and obvious grab for such an outrageous profit so fast and steep. But that is due to the "instant gratification" mentality combined with greed. Fortunately this mistake has woken up the masses to what is going on and other states are suddenly questioning the promises they are being given by the power industry. One can only hope. But they need to be told what really happened, not the quick "spin" being spouted about the residents of california being greedy, wanting something for nothing.

One thing I have learned about the GOP and Bush spin, they accuse their opponents of the very thing they are guilty of. It is a form of propaganda that is known to work well for large groups of people.
So when you hear the republicans come out scrg and yelling about some democrat, look real close to see what they are trying to hide themselves!

Remember when you were a kid and you did something wrong and ran to your parent tattling on a sibling, hoping they would not notice what you had done? Also, if the opponent tried to complain about what they are doing, they twist everything around accusing you of trying to get even because the (supposedly) exposed you.

So Carlos, don't let the spin and bitching about California residents get to you, it's just people falling for the spin.

-- Cherri (jessam5@home.com), June 06, 2001.



Uhhhmmm,

Cherri has her head up her ---.

Not even Gray Davis would be so bold as to state that the energy markets in California are anything close to being considered "free" and de-regulated. The only thing that was 'de-regulated' was some portion of the wholesale supply. Get your facts straight Cherri and leave the spin to those like Chris Lehane and Mrk Fabiani (on the payroll of the power companies, but also on the payroll of the California taxpayers) who know how to do it right.

-- libs are idiots (moreinterpretation@ugly.com), June 06, 2001.


"Unfortunately, the safeguards against corruption had been removed quietly and on the sly. So for those who think this just happened by chance, wake up. It has been planned for a LONG time. I don't think they expected the greed of the power traders to make such an open and obvious grab for such an outrageous profit so fast and steep. But that is due to the "instant gratification" mentality combined with greed."

This reminds me so much of those wonderful Y2K-related conspiracy theories... best not to go there, I suppose.

Let's assume for a moment that this situation *IS* what you say it is - California's "manufactured" energy crisis still can't be explained by your weak ""instant gratification" mentality combined with greed" hypothesis. To suddenly and purposefully push ONE STATE into a situation where rolling blackouts were required - thus bringing the situation to intense national scrutiny - just to turn a short-term profit... that would be SO FUNDAMENTALLY STUPID as to make me doubt the simultaneous walking/gum-chewing ability of those who hatched such a scheme.

I don't buy it for a second. Incidentally, where do you stand on chemtrails?

-- RC (randyxpher@aol.com), June 06, 2001.


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