hal@finney.org said:
> In general, the market makes the best guess possible about the future.
> It may be wrong either way, but on the average it will be as likely to
> be wrong one way as the other. This means that using futures
> contracts will lead to prices that are, on the average, the same as
> spot market prices. It does not save money.
There's one particular piece of bad design that argues that long term
contracts would help even though what you say is mostly true. The
utilities are currently required to buy all their power in a market that
charges, each day, the highest price bid at any time during the day for all
contracts.
If 75%, for example, of the power sold each day weren't subject to this
bizarre rule, because it had been purchased as a long term contract, then
the power companies would be insulated from a significant source of up-side
volatility. There's no corresponding source of down-side volatility.
The exorbitant prices that result from the broken market design are the
sources of the charges of price-gouging that are flying all around. There
may have been some gaming of the system (I haven't seen any evidence or
even heard that any exists), but the institution is designed so that any
fluctuations in supply or demand inevitably drive prices up.
Chris
---
Chris Hibbert It is easy to turn an aquarium into fish soup, but
hibbert@netcom.com not so easy to turn fish soup back into an aquarium.
-- Lech Walesa on reverting to a market economy.
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