Posted on 04/16/2002 2:40:06 PM PDT by Ernest_at_the_Beach
Edited on 09/03/2002 4:50:19 AM PDT by Jim Robinson. [history]
SAN FRANCISCO -- State regulators unveiled a reorganization plan for Pacific Gas & Electric Co. on Monday that calls for customers to pay $4.7 billion--or $1.4 billion more than the stockholders would--to restore the company to financial health.
But the California Public Utilities Commission contends that its plan filed in federal Bankruptcy Court avoids $13.5 billion in higher energy and other costs associated with PG&E's own plan.
(Excerpt) Read more at latimes.com ...
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These power suppliers have seemed to survived without the extra cash so far.
Wonder why?
There is a real danger when the government starts deciding what is a fair or excess profit. We tried that experiment for about 70 years.
It was called the Soviet Union.
Point well taken but ....
The profits of these company are felt by many (the people) to be obscene and artificially created in a not so "free market place".
These deservedly, much maligned, "long term" contracts negotiated in secret by Grayout probably represent a resonable profit for the suppliers and would be a good starting point for the wrangling.
Here's the problem. Davis and Lockyer don't mind at all if these companies sell at a loss and go bankrupt. They've already proven that.
They are also unwilling to let free market forces be unleashed which would create the same benefits in buying electricity as we have in buying any other commodity, like ketchup, for example. There's no need for long term ketchup supply contracts, because the free market works to keep it in ample supply and at reasonable prices.
Instead, we have political spin machines putting out garbage about gouging and artificial shortages. As always, government meddling makes things worse. Davis, et al, are making California an ugly place to consider putting a power plant. What are the economic consequences of that, as California grows to 50 million people in the next 20 years?
The prediciment facing some of the rate payers in California appears to have three contributing sources. 1)The profit driven nature of free enterprise (the power producers and the utilities affected), 2) the responsibilies of the State of California (the people of the state through their elected representatives) which created the flawed plan that lead to the disaster and 3)the rate payers themselves who refused to conserve in the face of obvious problems and then screamed when asked to pay the "not so fair" price for their excesses.
The two plans provided look only to the rate payers and the utilities to provide relief. Neither plan looks toward the power producers or the State of California (the tax payer) for a portion of the relief.
If production and distribution of power were amenable to the free market that would work but they aren't.
The basic fallacy lies in the production and distribution under present conditions.
Because power can't be economically transported great distances it is a regional matter. Because distribution is dependent upon the public domain (right of way) it is always subject to the artificial control of government.
Under prevailing conditions power is best left a regulated monoply subject to fair and equitable oversight. The system worked well for California for scores of years and would continue to provide a stable and relatively cheap commodity compared to the situation that unfolded in California in December 2000 and then some months later when San Diego when full monty with deregulation.
So you feel that we have had "fair and equitable oversight in this matter?
If production and distribution of power were amenable to the free market that would work but they aren't.
And you think the California deregulation experience proves your premise?
In 1990 PG&E's, first tier, retail price for power varied seasonally between $.083 to $0.093 per Kwh. In 2001 that same power cost from $.093 to $.125 per Kwh.
That's a 33% increase during peak need plus blackouts plus major investment uncertainty so I'd say yes the regulated market was superior to the California style deregulated market.
If anybody cares I've written trading, scheduling and risk management software used in the following markets CA, Chile, Australia, England and wales (one market), Ireland, Alberta. We saw Davis getting long term contracts, knowing he was a babe in the woods we knew he would overpay.
Further disclosure, I can't say everything I know.
Correction ... planning for the shortage was absent during regulation or .....willingness to accommodate increases in supply were absent during regulation.
Any nonproprietary predictions you'd be willing to offer with regard to the path to resolution of the current California crisis?
There will only a few (perhaps even none )privately financed power plants built in the State of California in the next few years , particularly while a democratic assembly and Governor are in charge in this State!!!
A good parrallel is the english power pool. In the first two years prices were up significantly and there were charges of generators gaming the system. This drew in large amounts of capital. All the new high efficency combined cycle gas plants came on line at about the same time. Not only was load growth covered but many of the same old inefficent plants that had been accused of gaming the system were forced to shut down as they were no longer economical.
In CA this will be exaserbated by the fact that deregulation took place during a dry hydro period in the pacific northwest. That means the price spike was extra sharp and hence even more capital was drawn into the market. Extra plants are being constructed. When hydro conditions improve the supply of power in the west will be further boosted.
This is not that unusual a phenomenon. Equilibrium prices tend to follow a square pattern for all commodities that have long lead times, be they power plants, RAM or engineers time. What I'm saying is the supply curve tends to jump, not shift gradually as all players are responding to the same market forces and face about the same lead times.
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