From: Michael S. Lorrey (mlorrey@datamann.com)
Date: Mon Dec 18 2000 - 13:39:45 MST
Harvey Newstrom wrote:
>
> Michael Lorrey wrote, >http://dailynews.netscape.com/mynsnews/story.tmpl?table=n&cat=50100&id=200012151238000293407
>
> The story is actually more complicated than it appears on the
> surface. This is NOT a story about implementing price caps which are
> doomed to fail. This is actually a story about an attempt at
> deregulation that appears to have failed. California actually
> deregulated the industry and predicted that free-market competition
> would make prices fall. Instead, prices skyrocketed and
> price-gouging abounds. After spiraling costs continued to grow
> out-of-control, the state decided to cap prices at their more
> reasonable levels. The state basically is telling the deregulated
> companies that they must produce power cheaper than the state can
> produce its own power, or else they are pricing themselves out of the
> market. This is how the free-market is supposed to work.
>
> What went wrong with deregulation? Why did the deregulated companies
> not produce power cheaper than the regulated government monopoly?
> Because the deregulated industry was not really a free market. The
> state of California was a captive marketplace which had to purchase
> the power by law. There was no customer feedback to reject prices
> when they got too high. Instead of high-priced companies losing
> market-share, this deregulated environment ensured market-share to
> all power producers no matter how high their prices got. Naturally,
> prices kept going up and up with no end in sight.
You are missing the key thing Harvey, which is why my emphasis: The
market fluctuated out of control because government mechanisms that
prevented any new local suppliers from providing power to be built
unless they were 'renewable' sources like wind and solar power which are
highly variable and do not synchronize with peak power demands.
There was nothing 'wrong' with deregulation. What was wrong is that the
distribution and demand sides of the market got deregulated, while the
supply side of the market did not.
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