Gas and Electric Prices, What the dealio?

Great Debates
41

Antrhacite and sailor – there’s a power reserved to the states called Eminent Domain. It’s not to be used lightly, but in a state of urgent need.

You completely misunderstand my argument - Eminent Domain shouldn’t be used because a property owner is an “evil greedy bastard,” or because it sounds like it might be a good idea, or because the governor likes the flavor of the popsicles produced on the premises. The reason to use it is because the Governor needs to keep control of his economy, needs to prevent bankrupting the state’s coffers buying power, and needs to prevent large segments of the population from having their electric services cancelled because eventually, everyone involved is going to run out of credit if something drastic isn’t done. It’s justified by urgent need. Not punishment, or whim, or political motives. Need is why Eminent Domain exists.

And yes it’s unorthodox, unprecedented. It requires huevos grandes to pull it off. Huevos that Pete Wilson bluffed about, but couldn’t produce.

And my point about the exhaustion of credit also addresses Whack’s points. I agree with your approach. At least, I like the fact that you’re approaching it from a similar starting point: nobody’s blameless. Let’s just fix it. And I agree with the points in your list. Those are the exact steps necessary for a long term solution. I just don’t agree with the order.

Because I don’t buy your price caps are evil premise. They’re a necessary band-aid - you don’t take the bandaid off until the healing has started. Once again, Electricity is not a normal commodity. You remove price caps, consumer rates skyrocket, industrial rates go interstellar, and the whole economy goes to shit. Because the price of every thing else depends on the cost of electricity, and it’s going to take at least a year, probably two, to accomplish your items 2, 3, and 4.

I suggest you rotate your item number 1 down to position 4. Price caps are not an unnatural economic tool when it comes to power. Power is not a natural economic commodity. It’s fundamentally different. Until recently, price caps were a standard tool to regulate the costs of water and power, and things worked fine. Your lights went on when you flipped the switch, and your tap water is the safest in the world, and you barely noticed the cost.

Where do you guys live? I live in Pasadena and work in San Dimas - that’s LA County, outside the City of LA, and we had rolling blackouts yesterday. And the temperatures barely reached 90 degrees. What’s going to happen this August when daytime highs reach 110 and up? When you’re sitting in 110 degree heat, and the power goes out, and you can’t even afford to run your AC when the power is restored, and you’ve slept a total of 12 hours for the entire week because the temperature in your house never falls below 85 degrees at night, and a loaf of bread is $7 because your local Wonder bakery can’t pay for the power to run it’s ovens otherwise, you’ll think a little differently about the urgency of this situation.

And my point about greed is this: when the utilities have run out of credit, the state has run out of credit, and the public can’t afford to pay their electric bills, large numbers of angry people are going to ask “Where has all our money gone?” And they’re going to see that companies like Dynegy and Duke Power are reporting windfall profits of dozens of billions of dollars, when everyone else in the is bankrupt, and they will be greatly, humongously pissed off.

42

The captioning of numbers on tv sucks but remember that Calif is spending Billions of dollars more. The money goes to Texas power comp’s, many of them friend’s of the Prez… The Prez kinda gives California the finger it seems cause we didn’t elect him :slight_smile:

43

Egads, I’ve been harping on the CA governor and using the name of Pete Wilson, the ex-Governor of CA, while who I’ve really intended to accuse of being a chicken-shit is current CA Gov. Gray Davis.

Not that Wilson’s hands are entirely clean either… but I’ve been using the wrong name. Chalk it up to habit. (I guess that shows I’m the only Californian paying attention to this thread.)

Also, for a really good background on the history of “deregulation” in CA, see this story from last Sunday’s Sacramento Bee.

44

Well, we are not going to settle this one here but just to clarify: taking of property by eminent domain still requires fair compensation. As I say, you got that small problem called the cons6titution of the US.

You can always feel something is too important to be left in private hands. For the last 50 years european countries has the government intervene much more in the economy. Airlines, communications, health care, etc were deemed too important to be privately run. After a few decades they have realised the government was not doing any better, rather it was doing quite worse and now all european countries are privatising these things because the alternative was to go bankrupt.

I cannot see the US going in the opposite direction (thank goodness).

Price caps are a very naive idea. If they worked why not put price caps on everything? Why not regulate minimum salaries too? We could all be rich and pay peanuts for everything. It’s been tried and it doesn’t work.

Dubya has some cojones (that’s how it’s spelt, I know; I have some of my own and I checked) to not intervene in the gas market. It is by far the best thing he can do and it requires courage. people want quick fixes but they don’t work.

>> the price of every thing else depends on the cost of electricity,

Well, yes, and on the price of beans and on the price of gas and on the price of getting a haircut and on the price of renting a porno movie…

30 years ago America was clamoring to protect the auto industry because the Japanese were taking over. Rather than protect the American car industry, America chose to let competition sort things out and now you have n American auto industry which can compete. If protection would have happened the American car industry would have got worse rather than better.

The best thing you can do is let the market sort itself out. Government intervention distorts the market and makes things worse.

I’ll give you an example. I have a neighbor who is an 85 year old lady who subsists on government help. Her heating and electric bills are paid for her so it costs her nothing. When I visit her in the winter I cannot stay there for more than a few minutes because the place is like an oven. I start to sweat and have to leave. This lady has no incentive whatsoever to conserve.

By keeping prices artificially low you are sending the wrong message which is use more. The lower the price, the stronger the message. If you let prices rise according to the free interaction of supply and demand, then, as prices rise, the message that goes out is save. people save, look for alternatives, and demand decreases as supply increases

Read the works by Hayek I mentioned in my previous post. he does a better job of explaining it. He got a nobel prize for that.

45

No we aren’t. I’'ve been waiting for the moderators to move this over to GD.

No! Don’t you see? Gas requires electricity to refine. Beans require electricity to process and can. Pornos require electricity to light, shoot, edit, duplicate, and watch. Bread requires electricity to bake. Milk requires electricity to collect, pasteurize, homogenize, and refrigerate.

Everything else depends on the price of electricity. The price of pornos has nothing to do with the price of beans or milk. Well, at least not the kind of pornos I rent. :wink:

Create 100x inflation in the cost of electricity for industry and commerce, and you have an economic disaster on your hands. It’s like plankton to the ocean, or sunlight to a forest. That’s why its not a commodity that can just be casually thrown into the shark-infested food chain of the free market.

Some people, like the Washington Post’s Allan Sloan, are arguing that “Hey, that’s the way the game is played.” Not when it comes to electricity it isn’t. Because it’s electricity, not steel. At some point, when the repercussions of your behaviour has sufficiently dire consequences, “amoral” becomes “unethical.”

We can’t permit unfettered predatory behaviour by energy companies. If it was cheese or steel or cotton, sure, ok - that’s capitalism, if the price gets too high, just go without. But you can’t “just go without” electricity for pete’s sake!

46

A thing that has bothered me for years is the electric billing is set up to promote using electricy. 1-500 KWH @ .08, 501-1,000 KWH @ .06, 1001 and more @ $.05! Use more pay less. Those are not real prices, just examples.

47

>>A thing that has bothered me for years is the electric billing is set up to promote using electricy

Well, like any other product there is an economy of scale. The business which consumes 1000 times what you do can get a better price. There is a logic behind it. The guy who consumes very little is making the electric company maintain capacity for nothing and that costs money…

You can argue it many ways and the structure of rates can be done in many ways to achieve different objectives.

Here the first 400 Kwh cost at 5.446 cents and it’s 11.83 after that. Personally I think it is a bit dumb. I am single and have very low usage but if I had a family and consistenly used more i could easily get around this by defining the basement as a separate apartment and getting a second meter. Now the electric company has to maintain two meters and gets less than it did before. The price structure is kind of silly.

I am familiar with different price structures and one thing used in other countries which improves efficiency immediately is to have a power cap which you pay for.

For instance: I choose to have a power cap of 3.5 Kw and the company installs a limiting switch which trips is I go over. Now I cannot run air conditioner, dryer etc all at the same time so I stagger the use. If I have heavy air conditioning use all day, I run the dryer at night.

I can have any power limit I want as the cost is per Kw. If I do not mind paying more I can get 10Kw or whatever.

So, now the electric bill has a fixed part or “power fee” which compensates the power company for the plant and equipment they need to have even if I do not consume and a variable part reflecting energy consumed.

This structure makes power cheaper in the sense that you pay a fixed cost and then the cost per Kwh is lower, but it also smooths out demand a lot

There are many ways to structure rates depending on what you want to achieve and you can argue any of them. I argue that what they do here of charging more over 400 Kwh is dumb

But I do not want to hijack this thread

Bughunter, you really have very little idea about how the economy works. What you propose has been tried many times and it is a disaster.

everything including beans and porno flicks is related. If you set a cap on electricity then you have to set caps on everything that goes into making electricity: anthracite, trucks, gas, steel, salaries, and into the things that go into making those things. It is a chain

To think a price cap would achieve anything is the extreme of naivete. Why not caps on other things? Food is more important than electricity. How about drugs and health care? Transportation is one of the fundamental sectors of an economy, probably greater than electricity. let us set caps for all. Just warn me before you do it so I can get the hell out. My uncle barely made it out of Cuba when things were getting tough. He can tell you it started quite mildly. I remember he played a tape of Fidel Castro in some speech (I have no idea when) boasting:
"So the big American companies would not do what we told them and we said ‘you know what? we’re taking your refineries! ha ha ha!!’ And the crow cheered… It was a chain of events which lead to what they have now.

California can do some things (they cannot seize property wiithout compensation unless the manage to secede and become a province of Cuba) but it cannot force the outside world to sell them electricity, energy, or raw materials at below market prices.

The whole idea of price caps, seizing the power companies etc is all just too naive to entertain seriously.

48

If I missed this point in the thread I apologize. Someone said that the power companies were bad by not locking in future power contracts. The deregulation in CA specifically forbade the power companies from buying buying power on except on the day to day spot market. So they really did not have the option to do much planning ahead.

Secondly the price caps are very anti environmental. Solar power will work for generating electricity for home use. It is just expensive. I looked into this for my house in southern California. It would cost about $12,000 to install this at my house for something that would take care of my electric needs completely. If I got a 15 year loan at 8% interest to cover the cost I would have to pay $115 a month. This does not include maintenance expenses and I am hoping that the system will last 15 years. This is about twice my electric bill for a month. So I could pay a lot more and have the hassle of maintaining this or I could get my electricity at the state mandated price.

49

sailor and anthracite,

I’m going to attempt to defend bug’s argument a little.
Let’s say the government wants to build a highway to improve transportation and the economy. The only problem is that the path of the highway goes right through my house. What’s going to happen? They will give me some reasonable amount of money for my house, tell me to move, and call in the bulldozers. I don’t have the option of refusing to sell.

So in theory the government of Cali could force the power companies to sell the plants to the state for whatever the companies paid plus a little bit. California is already spending billions so they would just be spending the billions in a different area. The power available could then be rationed, much like stuff was rationed during WW2.

Cali could also purchase additional power on the open market from out of state. I find it had to believe that all power companies would refuse to sell power out of spite, and if they did it might be an illegal cartel, no?

Sailor, The idea that government run power would turn america or california into Cuba is just silly. We have government run water supplies but, I still get water at a reasonable price so government can sucessfully run a utility. Do you realise that you use this Cuba/end-of-the-world argument often?

Anthracite, Aren’t there some government run power companies in the USA? I’m thinking of dams mostly. Do any other first world nations have government run power supplies. Maybe the French nuclear plants?

50

I suppose I’m probably the only person left in America that doesn’t play the stock market, but allow me to ask you wiser people this; doesn’t buying more stock in a product not only raise the price of the stock but raise the price of the goods the company makes?

The reason I’m asking is because just before we heard of the up coming increase in the price of gas, a commercial appeared on TV urging people to invest in gasoline stocks because the prices were going to go up and they would make a great return on their money.

If a couple of hundred thousand people invest in gasoline hoping to get big returns, won’t that raise the cost of gas on the consumer level, and if so, isn’t that like investors complaining about pump prices shooting themselves in the foot?

51

labdude, of course california can buy power from out of state at the market price. who owns the utility does not matter. The fact is the utilities went bankrupt because they were forced to buy high (by market conditions) and to sell low (by regulation). Now tell me something. If now the government runs the utility how can they make money by buying high and selling low? I don’t get it.

I was using Cuba as an extreme example. You can use Europe as a closer example if you like. They have had decades of government owned sectors which have only managed to have bad products, bad service, inefficiency and high prices. Government intervention in Europe has lead to higher not lower prices. They have realized this and are now privatizing everything. Phone rates have gone down. Air fares are going down, etc. There is just not one instance in recorded history where a monopoly, especially a governmet run monopoly, has done better than private competition.

A government run monopoly has no incentive to be more productive. When they lose money they get subsidies from the government. When they need more money they don’t need to ask for it, they just raise your taxes.

The inefficiency of European monopolies is legendary. Government owned companies become places where people are given posts as rewards for political support.

Yes, some utilities in the US are owned by the local governments. The water and sewer

I forget who said it but it is worth quoting: When buying and selling are controlled by legislation, the first thing to be bought and sold are legislators.

(Who was it that said “this country has the best congress that money can buy”?)

Hayek said: “Anything which can legally be bought and sold should be bought and sold freely with whatever price and conditions the parties agree” (I am paraphrasing here)

That’s enough quotes for tonight

52

Y’know what? I’m not nearly brave enough to try to argue with Anthracite or sailor over a matter of power production. If you’uns insist on trying, though, I’ll just move this on over to GD, and sit back to watch the carnage.

53

[QUOTE]
*Originally posted by bughunter *
**Egads, I’ve been harping on the CA governor and using the name of Pete Wilson, the ex-Governor of CA, while who I’ve really intended to accuse of being a chicken-shit is current CA Gov. Gray Davis.

Not that Wilson’s hands are entirely clean either… but I’ve been using the wrong name. Chalk it up to habit. (I guess that shows I’m the only Californian paying attention to this thread.)
Oh, I’m a fellow Southern Californian paying attention–and would you believe I didn’t even notice the Wilson/Davis mix-up until you pointed it out? Must be the heat…

54

Sorry about the boldface explosion in the above post.

It’s the heat. Again.

(I place blame facetiously, but there may be a grain of truth in what I said.)

55

Aha - I knew that was coming.

Anyway, I’ll bow to labdude and any others in the wings here because I’ve pretty much exhausted the depth of my opinions and my research into this issue. Any more, and I’ll just be repeating myself.

I will urge everyone to go back and read that SacBee article I linked to. It’s very well researched, without slant, has a number of interesting quotes and anecdotes, and isn’t that long of a piece. It directly addresses the OP’s question: How did we get in this mess?

And just one more reply to sailor - I’m not talking about low price caps, just sane ones. Spot prices for power, that the ISO was typically seeing go for about $1 per kWh on the spot market, were spiking at $400, $500, or even $1000 per kWh! That’s just insane, and experts suspect that it’s the result of market manipluation by suppliers. Cap the price at $10, $25, or even $50 per kWh until this insanity is over. Something that leaves plenty of room for suppliers to make a killing, but not erode our economy.

Tonite on the news, local reporters were interviewing small shopkeepers who were hit by rolling blackouts today during the hottest part of the afternoon. Not only did they lose money on opportunity costs because they had to close their shops, but many had perishable goods that had to be thrown out. Small business owners typically operate on a very slim margin, and cannot afford those kinds of losses. And doctors offices and pharmacies couldn’t serve their patients. Rest homes and dialysis centers had patients that rely on machines powered by the wall sockets for their lives.

I have a very good understanding of economics, TYVM. But when it comes to that kind of broad spectrum impact due to an out of control market, I vehemently and fundamentally disagree with Hayek; there is an exception to his “rule,” Nobel Prize or no.

Electric power is not that kind of commodity.

56

Interesting parallels could be drawn between fundie capitalists and fundie religious nuts. Chant the mantra often enough, and it becomes truth. “A free market helps all” “A free market cures all ills” “Privatization is perfect” Aaaameeen. Now turn your hymnals to page 23 and will we begin “Cast Off The Demon Taxes”

You’d think people would learn from the examples of “true” deregulation and/or privatization (particularly the cases in Europe), where it results in little more than skyrocketing prices for poorer service, in the name of “remaining competitve”, but no. Social Darwinism isn’t exactly my kettle of fish, especially when you’re talking about something as vitally crucial as electricity, and I have absolutely no qualms about government regulation of an inherently monopolistic industry. I guess I’m just a dirty commie.

BTW, blaming those evil awful eco-nuts isn’t very accurate either. I’m an eco-nut that’s all for nuclear power. I’ll happily take one nuclear plant over ten or twenty coal plants, precisely -for- ecological reasons. As for future power research, to hell with this so-called “clean coal” crap (a contradiction in terms), fund research into real solutions like fusion power. The best solution would be to just have solar power on every home, instead of these centralized generating plants, but that will never happen unless it gets worked into building codes (which will probably happen eventually, at least)

57

>> You’d think people would learn from the examples of “true” deregulation and/or privatization (particularly the cases in Europe), where it results in little more than skyrocketing prices for poorer service, in the name of “remaining competitve”,

I’d like to know WTH you are talking about. One sector I happen to be familiar with is telecomms and all over Europe where telephone service was expensive and apallingly bad, since they privatised and allowed competition, quality has increased dramatically and prices have been dropping . Or are you going to deny that? I’d like to see you contradict that. In fact I’d like to see any European dopers contradict that. Any europeans here think telephone service was better before?

Airlines fares were sky high and service was awful (in general). Since they have started privatising fares have dropped quite a bit. Service has improved slightly in the old airlines because old habits die hard but new airlines are appearing with better service and you bet they are forcing the other ones to shape up or go under. The customer is much better off now and things are getting better.

What other industry would you like to discuss? Which ones are you referring to? I am familiar with some other industries I’ve dealt with professionally and I am willing to find out about others I may know less about. Pray tell, which are those privatisations you are referring to which have resulted in skyrocketing prices and poorer service? And please tell me where you get your information.

I am going to go out on a limb here and make a guess: You are not European and have not spent much time there. Did I guess right?

58

No, there is absolutely no (required) relationship between the product(s) price and the price of the stock. Issuance of stock puts more capital in the hands of the corporation, this would not mean any necessary rise in prices and if higher efficiency resulted, could mean lower prices. Buying existing stock from other stockholders of course is a transaction between themselves and does not directly involve the company.

Not in any way.

59

Collounsbury, I think (maybe) he was thinking of investing in futures, not stocks.

60

Well, I’m not going to defend siezure of power plants or anything of the like. That is just mad. However, I will advance some corrections to sailor’s ultra-market stance. I preface my remarks by noting that I largely find free market solutions preferable to non-market solutions, agree that where possible free markets solutions are generally both more efficient and cheaper for society in the long run and that where possible, monopolies should be replaced by competition.

However, I also note that it is emperically unsupportable to assert ipso facto that all markets are always servable through non-monopolies in all places at all times. Further, I find the characterization of European monopolies, based both on my readings and my personal experience, to be excessively negative and exagerated.

And these are very different games.

There is no call to exagerate. High prices, yes. Frequently less-efficient than private sector alternatives, where possible, yes. Bad products and service. Not always. Often oustanding service and products, in my experience. But at a price, although one often subsidized by the public. To the extent such services contributed to other gains, I am thinking of rail, it doesn’t strike me as ipso facto an economic bad.

In some sectors where it has been judged that privatized companies can effectively operate in a competitive environment. Technological advances as well as innovations is financial and corporate structures (in part related to technological advances) of course have increased the scope of competitive markets and thus should allow for less resort to monopolies (that is reduced the number of markets characterized as natural monopolies).

That is pure exageration. We both know that not every market can be economically served by private actors in an efficient manner. Competition in natural monopoly conditions simply will not last, and in the end a monopoly will be more efficient, given the nature of the market in question.

Come on now, you know very well that this is not how rate structures necessarily work – it certainly is not just a matter of raising taxes without asking.

In some monopolies. Some have been quite well run. Again, you are over-generalizing and exagerating. Let me be clear that in noting this I do not advance the thesis that European monpolies (let us say in transit or post or in other sectors) were/are necessarily better choices overall. I rather simply wish to note there is no reason to paint an exagerattedly bad picture. It should suffice to say that where introduction of private operators has proven possible – and it should be more and more possible given technological and financial innovations – privitazation has usually proven to be more efficient.

Bah, buying and selling of legislators will go on regardless so long as their rules in society, and as there will always be rules in societies for that is how they work…

Good for Hayek. I prefer to regulate monopolies or monopolistic conditions where fully competitive conditions do not hold.

In any case, I wanted to affirm that one can be a critic of the California situation, and reject the “statization” of power generation without being what might be fairly called “a liberal fundamentalist” (in the economic sense of this term.)