Ahhhhh. That would make some sense then.
Commodities futures are of course another game entirely.
Well, depending on how you look at it, there is the Tennessee Valley Authority (TVA), a huge power company in Tennessee, Kentucky, and parts of Northern Alabama. Most people think “dams” when they hear the word “TVA”, but they have a couple nuclear plants, numerous gas plants, and 66 coal-fired units operating (depending on what you consider to be “operating”).
TVA is either government-controlled, quasi-governmental, or a 99% privatized agency, depending on who you ask and what source you quote. They have not had a political problem due to high power prices yet because the power supply in their neighborhood has been good.
Power demand is growing in that area, but unlike other areas power production is increasing steadily. They do have a “secret plan” in place to re-start one of their shutdown nuclear units though, and there are also 3 new coal plants that are close to be fully approved for construction in that area (not TVA owned), so their power supplies should be good.
Collounsbury, I agree with most of your assessments.
You say some goverment monopolies provide good service but also recognize it comes at a cost. I agree. My main point is that they are not better or more efficient than private companies.
There is not trick around the basic premise: A government owned company needs to buy raw materials, supplies, labor etc in the open market just like a private company. They have absolutely no advantage there. Capital has to be raised and rewarded in both cases. There is absolutely no economical or financial advantage as some around here seem to think.
The only difference is management style. I believe private management will do a better job every time.
Now, the difference is this: when you have services which cannot pay for themselves, then, if the state decides it wants to have them anyway, it has two choices: subsidize private enterprises or run the thing itself and subsidize it directly (often fudging the numbers as expenses are transferred to other parts of government budgets).
If a country wants to subsidize cultural stuff or whatever because it won’t pay for itself then that is one thing but it must be roconized that we are paying with taxes for stuff for which there is insufficient demand to make it pay for itself. Train service has generally fallen into this category.
Now, there is no way around the fact that if california wants cheap electricity it will have to subsidize it through taxes, whether the power companies are owned by the state or privately.
Another question is, is it wise to subsidize electricity so it can be sold cheaply. Isn’t the truth that California wants people to conserve rather than use more electricity? Isn’t subsidizing it a way of encouraging people to use more rather than less?
So, as I say, in general terms I can agree with your post. However your assessment that telecomms are natural monopolies and things will get worse and the monoply situation will return I just can’t believe you really mean to say that. I do not think anyone really believes that.
sailor wrote:
Hmmm … from the above website:
“The generator is self-contained and does not require any outside energy source.”
“Act now, the first 1.6 million to pre register will do so for only a $5.95 handling charge. After the first group is installed, the registration fee will go up to $1,000.00 per home.”
Sounds like a scam to me.
>> Sounds like a scam to me.
NO! You don’t say! 
Agreed, except in cases where in fact private companies can not provide the service required w/o either assistance or subventions etc. (e.g. first stage electrification of rural areas, i.e. areas or types of services which are likely to experience market failure). Later on of course one must reevaluate the situation.
In this case certainly not. There might be advantages in some circumstances – which of course should be justified-- in re service to marginal or even non-economic markets given a certain technology level
We probably can agree easily that far too many discussions in this regard are way too static.
For the entity, likely – although I read a while back, damn can’t rember the cite for the moment-- an article in re comparative management of some European public agents and private corps which suggested that public utilities/services in the proper conditions (semi competitive etc.) can achieve very decent responses. Nonetheless, I agree that given a well-organized market (and even not in the majority although not all cases) private management will outperform public organinisms.
I want to add the observation that it may very well be that current market structures in a given country may impede the development of underlying infrastructures etc. for a variety of otherwise economic activies. Ergo, when we say pay for itself we need to be specific. Some activities, ** given certain market conditions and perhaps above all financial market conditions** will require government subventions to render them attractive to private actors.
Well, here I think you are committing a classic analytical error in re macro economic analysis. E.g in re train services. The question of externalities arises. That is, auto or private ICE transport is implicity subsidized through a variety of means, above all transport infrastructure (roads above all, non-trivial by the way. When one has to take wheeled transport for business purposes in the 3rd world off the roaded path one learns the importance). Insufficient demand is not the proper context to consider this in unless one takes into account compartive costs which are externalized unto others, above all
Now here I agree. Energy costs are fundamental and frankly subsidized costs are likely to externalize non-market costs. I can think of very few conditions where this would make sense outside of some sort run political considerations. In fact examples are legion that this is a bad idea. (i.e. try living in Venezuela. I have not been back to Caracas since the mid 90s but the example was clear)
Absolutely, let me be clear. I in no way think that cheap electricity/gas in Cali is a good idea. It’s bad all the way.
Did I say that?
I hope not! I certainly didn’t mean to. Under some circumstances, economic and most of all technological, they are. However presently they absolutely are not. To my eyes, here is a case where technological advances have absolutely undone the prior calculus.
No mind you, I think that with technology up to maybe the 1970s (first world) they were a natural monopoly, given existing constraints etc. However, telecom strikes me as the perfect example of tech changes absolutely changing the game.
Now power isn’t my game (in fact neither is telecome although I have toyed with the idea of trying my hand at entreprenurial things with an African telecom) but it strikes me that there are still constraints in re physical infrastrucure in re competitivity.
Well I ** hope ** I didn’t say that! If I did, I blame it all on my latest little Bacardi shipment. (Man, I am becoming a little advert, aren’t I?)
I might add, I’m freeI, word is I’m going to Switzerland en permenance! Free of Egypt…
Okay that’s irrel.
Carry on.
Agreed, except in cases where in fact private companies can not provide the service required w/o either assistance or subventions etc. (e.g. first stage electrification of rural areas, i.e. areas or types of services which are likely to experience market failure). Later on of course one must reevaluate the situation.
In this case certainly not. There might be advantages in some circumstances – which of course should be justified-- in re service to marginal or even non-economic markets given a certain technology level
We probably can agree easily that far too many discussions in this regard are way too static.
For the entity, likely – although I read a while back, damn can’t rember the cite for the moment-- an article in re comparative management of some European public agents and private corps which suggested that public utilities/services in the proper conditions (semi competitive etc.) can achieve very decent responses. Nonetheless, I agree that given a well-organized market (and even not in the majority although not all cases) private management will outperform public organinisms.
I want to add the observation that it may very well be that current market structures in a given country may impede the development of underlying infrastructures etc. for a variety of otherwise economic activies. Ergo, when we say pay for itself we need to be specific. Some activities, ** given certain market conditions and perhaps above all financial market conditions** will require government subventions to render them attractive to private actors.
Well, here I think you are committing a classic analytical error in re macro economic analysis. E.g in re train services. The question of externalities arises. That is, auto or private ICE transport is implicity subsidized through a variety of means, above all transport infrastructure (roads above all, non-trivial by the way. When one has to take wheeled transport for business purposes in the 3rd world off the roaded path one learns the importance). Insufficient demand is not the proper context to consider this in unless one takes into account compartive costs which are externalized unto others, above all
Now here I agree. Energy costs are fundamental and frankly subsidized costs are likely to externalize non-market costs. I can think of very few conditions where this would make sense outside of some sort run political considerations. In fact examples are legion that this is a bad idea. (i.e. try living in Venezuela. I have not been back to Caracas since the mid 90s but the example was clear)
Absolutely, let me be clear. I in no way think that cheap electricity/gas in Cali is a good idea. It’s bad all the way.
Did I say that?
I hope not! I certainly didn’t mean to. Under some circumstances, economic and most of all technological, they are. However presently they absolutely are not. To my eyes, here is a case where technological advances have absolutely undone the prior calculus.
No mind you, I think that with technology up to maybe the 1970s (first world) they were a natural monopoly, given existing constraints etc. However, telecom strikes me as the perfect example of tech changes absolutely changing the game.
Now power isn’t my game (in fact neither is telecome although I have toyed with the idea of trying my hand at entreprenurial things with an African telecom) but it strikes me that there are still constraints in re physical infrastrucure in re competitivity.
Well I ** hope ** I didn’t say that! If I did, I blame it all on my latest little Bacardi shipment. (Man, I am becoming a little advert, aren’t I?)
I might add, I’m freeI, word is I’m going to Switzerland en permenance! Free of Egypt…
Okay that’s irrel.
Carry on.
Collounsbury , I think we pretty much agree on the big picture and that bughunter’s proposal is a bad idea.
The only people it’s a “bad” idea for are the power plant owners, their shareholders, and people who religiously subscribe to unfettered, unrestrained capitalism. And it’s not my idea. It was a threat made by Gov. Grey Davis in a January State of the State address.
If you’re a small shopkeeper in Sacramento, where it reached 100 F yesterday during rolling blackouts, it begins to sound like a pretty good idea.
I’m not trying to convince everyone that it’s a “good” way or a “bad” way to solve the immediate crisis of getting power to the consumers tomorrow. It’s just a way, at a time when the supply of ways is pretty goddamn thin.
What I disagree with you most about, sailor is that even now, with a set of market rules in place that just begs to be manipulated, one that has bankrupted our public utilities, electric power prices should still be completely and unconditionally left to the whims of the free market.
That’s the bad idea.
Darn it, when are those cheap solar collectors gonna be available? I keep hearing about those things being ready “any month now” by the companies developing them.
bug said:
Well, yes, and I have. Manny manny people have. Frankly Enron, Coastal and Conoco are the biggest hairs in my soup right now, but we hang with them. The overwhelming majority of oil and gas produced in this country is produced by the thousands of independent oil companies who can’t do diddley about the price, but can operate more efficiently than the big sisters (I can run rings around Exxon in operations).
And you can do it too, if you can convincingly demonstrate that you can do it more efficiently than the rest of the pack. The money’s out there to back you (and it’s frankly a little shy about e-commerce right now, so it’s looking for something to do).
I really can’t imagine a scenario where a government administered oil and gas discovery and production operation would be more efficient than a competitive market. So, oil & gas might be provided at a unit price that appears cheap but the real, ultimately higher cost would have to be tucked away in something like your income tax.
And if you consider that ~45% of what we consume now is domestically produced, government confiscatory action against the livelihoods of those who produce energy reserves domestically would only remove a component of the competition that keeps downward pressure on the price. The U.S. cannot dictate to the foreign suppliers. And, they don’t have to sell to us - the world market is surging ahead as the Third World recovers from its stumble and moves ahead with its Industrial Revolution.
And how much of the hydrocarbon energy business should the government seek to take over? Drilling rigs, exploration, seismic contractors, mud-loggers, wireline companies (see how long Schlumberger sticks around), pipeline companies, refiners, data processors, gas stations? Maybe they should keep it simple and just seize the mineral rights of all who own such (and can’t do diddley about the price). How would that make it all cheaper?
Even at $3.00 a gallon gasoline is cheap. I’m sure you’re aware of prices around the world. Our average price for gasoline as of Monday was $1.703/gallon. Twenty years ago it was a little over $2/gallon and ten years ago it was ~$1.50. That’s in constant, i.e., unadjusted for inflation, dollars. Can you think of another consumer product that has remained as cheap? I can’t.
So let’s talk price caps. The ultimate folly of the California “deregulation” plan was the consumer price caps - end result being that suppliers like PG & E had to bankrupt themselves to maintain their market presence while supplying gas at below market cost. A little more:
From the DOE:
So, California screwed itself.
But what might price caps ultimately produce? Well, the market dipped terribly low in 1999 and premium oil was fetching ~$10/bbl. Average lifting costs were $6/bbl and a typical NRI (Net Revenue Interest) was 75%. Figure in transportation and quality penalties, plus amortizing the discovery costs and you wind up losing money on every barrel you produce at that price. So what do you do? You shut the well in (i.e., kill it for now).
Ultimately demand outstripping supply is the problem with energy costs. In 1981 we had 4500 rigs working to discover new oil and gas reserves in the United States, and we were adding reserves (remember the “gas bubble?”). In 1999 we saw a low of 488 rigs working (we’re now up to a little over 1100). California is both a big consumer and a big eschewer of our stuff.
Windfall profits? Yeah, right. I was losing money at $10/bbl but I hung in and kept the remains of the infrastructure alive, and now I can afford to drill more for the future.
Over 450,000 jobs in energy exploration have gone smoke since 1982, which makes the tragedies visited, by the caprice of the business cycle, upon Youngstown, Ohio (steelworkers) and Flint, Michigan (autoworkers) pale by comparison.
The end result is that market forces remain in effect and government intervention is, as I see it, unlikely to produce any benefit to either consumers or producers in the long run. Short term benefits, based on false accounting, are possible, but I see it as unlikely that government produced hydrocarbons will ultimately arrive at the consumer’s disposal any less expensive than those produced by those of us who have an interest in competing for them.
The big giant pricing-collusion conspiracy theory just doesn’t hold any water. While it costs your any-brand-name politician nothing to mount yet another investigation of energy pricing, the facts-of-the-matter are that none of the various (20 or so) investigations of the last couple of years have turned up anything suggesting such.
It just doesn’t work that way.
Nobody can control oil prices. Probably the biggest player is OPEC (when the principals can agree) who can huff and puff and blow on the sails to get the price where they’d like it. But they can’t spot it. And sometimes it doesn’t do what they’d like.
bughunter, it is not free market rules which have caused this problem, on the contrary, very much on the contrary, it is the price caps which have bankrupted the utilities. If you own a burger joint and they put a cap on what you cand charge for a burger but not on what you have to pay for your meat supplies, if the cost of meat rises beyond a certain point, you cannot stay in business. Meat suppliers will not supply you and there will be a shortage. i do not know how simpler I can put it. If you do not understand this, you just do not understand what has happend in California. What has, in fact, happened is that politicians thought they could circumvent the rules of the free market by passing a law setting caps. What created this problem was the lack of a free market.
nobody here defends your ideas. nobody . they are quite extreme and they will never happen. If the governor said he was considering expropriating the utilities without compensation, which I seriously doubt, he was probably high on something and pandering to people like you who do not have any kind of understanding of how things work. He knows full well he cannot do such a thing.
Look how the posters here who show they have a good knowledge of what they are talking about, none of them even comes close to thinking that is a good idea.
Beatle, that was very informative and very interesting. Thanks.
Once again, sailor, it is not my idea.
It was told to me by a man named Davis, in a little chat he had with me and 40 million other Californians last January.
And I do indeed have an understanding of how things work. I can pull out my college transcript and show you the economics courses I passed. Hell, I got better grades in economics and political science than I did in most of my upper level engineering classes.
What appears to make me different from you and the most of the rest of the participants in this thread is that I don’t place supreme importance on pursuit of every last almighty dollar.
I’m more concerned with the general welfare of society, and even more specifically, with being able to cool my house this summer during the inevitable heat waves, and not seeing my favorite local shopkeepers go out of business because they’ve gone bankrupt trying to keep their refrigerators and ovens working.
It may be an interesting economics case study to you, but to me it’s a quality of life problem.
I’m outta here. I gotta get up early and work overtime so I can pay for the cost of running this computer.
He might have said it in front of the whole world. He still can’t do it and it still ain’t gonna happen.
The common good? as defined by who? you? Those in power? Let me make my own good and don’t tell me what is good for me. Please.
The common good is expressed every instant by the votes of every individual as he spends his money. With how he spends his money he expresses the relative importance of things to him. And sellers, by willing to part with goods or services at certain prices express their priorities and importance they give to them.
Now you are telling me the government knows better than myself what I want? No thanks.
Anyway, it is a moot point. What you preach is not going to happen. Not in California anyway.
bughunter, your rationale is exactly the same as the mobs who ransacked the Chinese and Korean stores during the riots: “They charge too much!” Different style, different scale but same idea. They charge too much, let’s teach them a lesson. (No, you do not need to tell me you disagree, I already know that.)
If the power companies are charging too much, then how come they are going bankrupt? Are their shares soaring to the sky? That’s what happens when companies make a lot of money.
Sorry for the simultaneous posting: what I put in Sam’s other thread is really more appropriate for this forum.
-
There is a demand side problem in the California electricity market and a supply side one.
-
The demand side problem reflects the lack of real-time pricing. California faces a shortage of electrical capacity, during peak periods, not an overall shortage of energy. What’s needed is conservation during these peak periods. Tech note: a feasible real-time pricing system would have an added effect of making the hourly demand curve for electricity less than perfectly inelastic.
-
The supply side relates to the way out-of-state electrical providers have been granted monopoly power. By cutting back on output (or shutting down plants for extended repairs) they can jack up the price enormously, even without colluding with other power providers. (A single firm can do this while controlling only 8% of capacity, because jacking up the spot price doesn’t decrease demand substantially.)
POLICY:
-
RE: Demand side. a) Encourage Real time Pricing. b) As an indirect method, increase the marginal cost of electricity for high-usage households. Essentially, that’s an added charge on air conditioning.
-
RE: Supply side: Take off the ideological blinders and institute price caps. Crack open an introductory economics text. Note what happens when you set a price cap between the competitive and monopolistic price under monopolistic conditions: the equilibrium amount supplied actually increases. Monopolists no longer have an incentive to restrict output, since doing so will no longer increase the price.
-
After this Summer: Build and approve more power plants. This involves overcoming NIMBYism more than anything else. Oh, BTW, much of the reason why plants were not built had to do with a) firms’ reluctance to invest before the rules of deregulation were spelled out and b) a surprisingly high rate of CA economic growth and its associated increase in electricity demand.
Prospects:
#1a) Don’t know. 1b) AFAIK, that’s in the works. #2) Fat chance, since price caps have to be instituted from Washington and W has written off California. #3) It’s a done deal.
Prospects for this summer: Given W’s policy, it’s grim. There was not an absolute shortage of capacity this winter, yet there were still shortages (“rolling blackouts”). That had to do with a financial crisis (handled via California takeover) and some convenient plant shutdowns for “repairs” (wink, wink). New plants can’t be built instantaniously and I’m skeptical about whether demand policies can overcome the independent power-provider’s immediate opportunity to make a killing. And given the immense financial benefits of selling on a spot market, I can’t see an incentive for power providers to sign long term contracts.
Helpful Link:
http://www.ucei.berkeley.edu/ucei/Recent_Presentations/recent_present.html Real time Pricing
Prior to the State of California’s takeover: PG&E sold electricity to consumers at a capped price. One that was reasonably high by national standards. They produced some power on their own. The deregulation plan had them sell some of their power stations to independent electricity providers.
Those independent providers sold electricity on the spot-market. Last year, they made a killing, as spot prices skyrocketed. Poor PG&E had to buy high (from the indis) and sell low (to power users). Not a good business plan. However, this intrinsically loss-making enterprise is owned by a larger holding company (PG&E), thus insulating the stock holders from a portion of the consequences of some very poor business decisions.
Poor business decision: Lobbying for this deregulation plan in California under Pete Wilson.
Well, medium-term the situation is going to get better in CA for power. I just found out yesterday my company is involved in a “secret project” to build a huge new distribution and generation network, stretching from Kentucky to California, adding something like 15,000 MW of new electric generation delivered by high-efficiency DC lines to So Cal and No Cal both. This system goes all the way up to Canada too, and involves something like 12,000 MW of new, baseloaded coal generation, and an amazing 2000 MW of wind power.
But I can’t tell any more, 'cause it’s a secret! (wiggles in excitement…) I also know of a secret plan to build a new, First-Of-A-Kind (FOAK) pressurized fluidized bed coal furnace specifically designed to supply No Cal…but I can’t discuss that either.
Great rhetoric. I think you’re exagerating the role environmentalists play, but the issue would probably require further study. Anyway, here’s Exhibit A. It’s a letter from Cisco Systems, dated February 2000 (before the crisis materialized) opposing a power plant siting in San Jose. (If I have the correct plant in mind, it was actually pretty green: it was a natural gas-fired cogeneration plant. I may be wrong though.) Anyway, I couldn’t see any environmental concerns listed in the letter. FWIW.
Oh, and given Cisco’s decision to create some 20,000 jobs in San Jose, their public stance was absolutely decisive.
Maybe Anthracite has some insight to this broader issue.
The Metcalf Energy Center by Calpine consists of 600 MW of combined-cycle gas turbines. According to their “Fact Sheet”, they are 2-200 MW GT’s, with an additional 200 MW coming from the steam cycle.
Modern-day GT’s permitted to run in California are about the cleanest large-scale source of fossil power that you can find in the World. CISCO, from what I can tell, simply did not want it’s emloyees fretting over an evil, smog-belching power plant near their homes.
Jesus Christ. It’s a CC-GT. If no one told you what it was, you might think it was just any other small industrial site, or a chip fab plant, or a really large and oddly shaped Starbucks. A 130-MW GT fits inside a double-wide sized trailer for crying out loud. These are not big, or dirty, or noisy plants relative to any other way to come up with the same power output. It is supposed to have a permanent staff of only 24 - 24 people to operate a plant that can supply about 800,000 residential California homes.
CISCO’s stated opposition to it comes down to this:
That’s it. NIMBY, pure and simple. What sphincter-boys. It would be poetic justice if CISCO was shut down for a few random days as a result of poor power supply…