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Regulatory Sclerosis in Energy Markets:

It is still "Energy Week" on NRO. Among today's articles is this piece by my former colleague Andrew Morriss on the regulatory sclerosis afflicting energy markets. His bottom line:

On the rare occasions when energy markets have been allowed to work relatively unimpeded by political efforts to serve special interests, market forces and private enterprise have delivered dramatic improvements in energy. Competition, not government tax breaks, drove the "octane race" of 1930's that boosted gasoline quality. Market forces, not government regulations, led some U.S. oil companies to lead the world in the development of the tanker fleets, oil terminals, and exploration rights around the world that brought America falling energy prices throughout the 1950's and fueled the post-World War II boom in automobile travel. Companies seeking an advantage in sales, not bureaucrats, drove the development of retail innovations, from clean service station restrooms, to today's pay-at-the-pump technology. Improved blends of gasoline for high altitudes and cold weather came from entrepreneurs, not regulators. If we unleash the power of markets and entrepreneurs on our energy problems, American consumers can count on economical, safe, and reliable energy supplies. If we let politicians in Washington and state capitols force feed our energy markets more "regulatory cholesterol," we face a future of rising energy prices, shortages, and an increasingly unreliable infrastructure.

martinned (mail) (www):
L.S.,

Let's not get overenthusiastic here. Libraries have been filled about this problem. Generally, one could say that, in a market where economies of scale and scope tend to drive down the number of suppliers, the following things will happen absent government intervention:

- Cartels in restraint of trade;
- Product differentiation (the more difficult it is for customers to compare prices, the higher they can be. Examples include telephone and internet services, but also insurance.);
- Total supply that is lower than the so-called "perfect market equilibrium", and at a higher price. (Exact numbers vary depending on the characteristics of the market and the specific oligopoly model used.);
- Attempts to leverage market power into bordering markets (oil companies owning gas stations, etc.);
- And many others

One could easily make a similar list for government intervention. The net effect is that regulation of various kinds is sometimes optimal, and sometimes it isn't. The optimal regulation varies over time, and accross markets and countries. The only thing we can safely say, is that the extremes will rarely be efficient.
9.27.2007 10:13am
Lloyd George:
Hmm, deregulation provides better services? One could argue, certainly, from the experience of California's deregulated electric market in the early part of the decade that customers were getting screwed over. I vaguely recall Enron traders rejoicing at fleecing both California and the state residents. Does anyone recall this?
9.27.2007 10:43am
Randy R. (mail):
I sure do. And Cheney and Pat Robertson blamed the lack of electricity on environmental regulations! Of course they were wrong, but I don't see any apologies coming forward.
9.27.2007 10:57am
J. F. Thomas (mail):
Yep, market forces, not regulators, got lead and sulfur out of gasoline and diesel.

Oops, never mind.
9.27.2007 10:57am
Andrew P. Morriss (mail):
Enron and California - that's not a deregulation story. California "de"-regulated in a particularly stupid manner, forbidding long term supply contracts among other things. The result was a market that allowed gaming but did not allow people to protect themselves.

Economies of scale and scope produce monopolies? There is actually little evidence that this describes energy markets. Standard Oil certainly tried to gain market power, but it was losing market share long before the antitrust decrees. But even if martinned is correct that there are antitrust issues, isn't the remedy antitrust law enforcement rather than governments choosing technologies, subsidies for favored producers and products, etc.? The history of government regulation of energy markets is described in great detail in Rob Bradley's 2000+ page book Oil, Gas and Government and in somewhat lesser detail in my article (with Nate Stewart) in the Brooklyn Law Review. There is no evidence of beneficial government intervention into energy markets in this century that I am aware of. From price controls to import quotas, the story is depressingly similar - the favored get privileges, the rest of us lose.
9.27.2007 10:58am
martinned (mail) (www):
L.S.,

You will note that I did not say anything about monopolies. In some cases, particularly concerning the "last mile", monopolies are (almost) unavoidable, but even then there is still some competition between different products. (Cable internet vs. telephone line internet, gas vs. electricity, etc.)

Instead, I talked about market power, which implies few enough companies that they behave strategically, that they have some freedom in their market behaviour, etc.
9.27.2007 11:22am
davod (mail):
You could say that government intervention in theenrgy markets has had a very detrimental effect on supply.

No drilling for oil and gas of the coasts or in ANWAR is a prime example.

Favouring Ethanol over ot
9.27.2007 11:23am
davod (mail):
You could say that government intervention in theenrgy markets has had a very detrimental effect on supply.

No drilling for oil and gas of the coasts or in ANWAR is a prime example.

Favouring Ethanol over ot
9.27.2007 11:23am
davod (mail):
You could say that government intervention in theenrgy markets has had a very detrimental effect on supply.

No drilling for oil and gas of the coasts or in ANWAR is a prime example.

Favouring Ethanol over ot
9.27.2007 11:23am
J. F. Thomas (mail):
No drilling for oil and gas of the coasts or in ANWAR is a prime example.

How is that government "interference" in the energy markets? The government owns the land and the oil and gas underneath it. We can sell the oil and gas to whomever we want. And if we (through our elected representatives) decide we would rather leave oil and gas in the ground that is our right since we, as American citizens, own the land and the oil.

There is no evidence of beneficial government intervention into energy markets in this century that I am aware of.

Certainly you're not saying that environmental regulations have not improved the cleanliness of all forms of energy regulation as well as the efficiency of generation. And the relatively higher taxes on energy in other countries compared to the U.S. has certainly forced them to be more energy efficient than us.

Economies of scale and scope produce monopolies? There is actually little evidence that this describes energy markets.

What about the electricity industry which requires a huge investment in infrastructure. How many people have a choice in who they buy electricity from?
9.27.2007 11:54am
Ex parte McCardle:
Deregulation of utilities, at least here in Georgia, has produced mixed effects. There was a huge push a decade or so ago to deregulate natural gas. In return for deregulation, we were promised that market forces would produce these two results: (1) the price would plummet due to the effect of competition; and (2) service would henceforth be perfect, again due to competitive effects (bad companies would be driven out of the marketplace, etc.). To put it mildly, it hasn't exactly worked out that way.
9.27.2007 12:08pm
J. F. Thomas (mail):
There is no evidence of beneficial government intervention into energy markets in this century that I am aware of.

What about the rural electrification program? Surely you can't seriously say that wasn't beneficial. How about the construction of all the hydroelectric dams even if you don't like the TVA that still operates some of them.
9.27.2007 12:18pm
Andrew P. Morriss (mail):
On rural electrification - how do you define beneficial? What's the counterfactual? That rural areas would never receive electricity? What support is there for that? That they would get it later? How much?

What we do know about rural electrification can be summed up by a visit to the REA headquarters in D.C. - one of the most stunning monuments to a bureaucracy ever built. Despite completing its electrification of rural areas, the REA is still around.

So, I am not persuaded at all that federally financed rural electrification has been something other than the subsidization of rural living by urbanites. Why should my preference for rural living be subsidized by someone else who doesn't share my preferences?
9.27.2007 1:15pm
LecturerRich (mail):
Re: Deregulation of utilities, at least here in Georgia, has produced mixed effects. There was a huge push a decade or so ago to deregulate natural gas. In return for deregulation, we were promised that market forces would produce these two results: (1) the price would plummet due to the effect of competition; and (2) service would henceforth be perfect, again due to competitive effects (bad companies would be driven out of the marketplace, etc.). To put it mildly, it hasn't exactly worked out that way.

In NJ we were promised the same benefits and all we have seen is an ever increasing bill for our usage. It does not matter how much I try to conserve my bill always goes up.

Realize also that there is no real competition, I pay for actual delivery to my house and then for usage but the prices are all pretty much the same no matter who it is.

Sometimes deregulation works, (see phone bills and services, though that model is breaking down), and sometimes it don't!

But it is a area that politicians can use to tell you they are on your side and forcing those nasty utilities to be fair.

oh well
9.27.2007 1:15pm
Toby:
Andrew Morris is correct. California created a "de-reg" scheme with the maximum possible number of surfaces between de-regulated and regulated behaviors, with each regulated area another deal with a politically powerful rent seeker. Each and every such surface was an oportunity for a black market. Very little to learn about de-regulation there.

You can't replace decades of "natural monoply" regulation overnight without some effort to create new markets. To the extent deregulation has been tried it has been limited deregulation of wholesale markets only. In all cases the deregulation never addresses the vertical bundling that was inherent in the technology of the 20's, but is insane today.

Today, at every surface of electrical transaction, the technology could easily handle open markets. The surfaces are the borders between Generation / Transmission / Distribution / Consumer. With today's technology, there is no reason why individual consumers should not be able to contract with any generator they wish, whether individually, or through third party buyers, the equivalent of mutual funds. With today's technology, there is no reason for local distribution to be owned by the same company as owns the transmission lines -- and good reasons in many cases to separate them.

Some of you may remember a decade ago when PC's had to be fully depreciated over 5 years so that the full value could be used. This backward focus on cost rather than value in investment was wrong and harmful companies that benefit from technological change. Utilities, with their focus n regulated cost recovery and static efficiency are stuck in exactly that point. Until we change that, the electricity industry in the US will never be focused on the value creation and dynamic efficiencies that are the hallmark of every other engineered business in today's world.

True deregulation, one which valued end-user autonomy, would be nimble as it looked to future value rather than past cost. Future value is dynamic, as it includes changing consumer tastes in environmental policy, social environment, and in technology. True deregulation lets new entrants in, seeking to create value in novel ways. The last round of deregulation was focused on rent seekers and escaping from poor [nuclear] plant decisions more than on creating any actual markets.

An here's a question for those who think that de-regulation is really tested by wholesale de-regulation alone: How many times has the green power in your state been sold? Can you prove it? If you can, can you prove that the green power revenues flowed directly to the new producers? Can you prove they weren't use to subsidize older, dirtier plants?

We have the technology, today, to make each of those surfaces I named above transactive, including able to support time of day or dynamic congestion pricing. Installing tech technology will be cheaper by an order of magnitude or two than building out the transmission infrastructure the cost recovery innovation-averse infrastructure of today will require in the next 10 years.
9.27.2007 1:43pm
J. F. Thomas (mail):
What support is there for that? That they would get it later? How much?

Considering that there are still some communities in the continental U.S. that still do not have phone (granted not an energy source, but the provision of phone service is analogous) or electrical service, then I would say that it would be much much later.

Why should my preference for rural living be subsidized by someone else who doesn't share my preferences?

Assuming that there are some things that go on in rural areas that involves more than a personal preference (e.g., growing food), I would think that the entire country would be interested in having dependable, reasonably priced, electricity delivered to rural areas.

You may as well say that you don't think you should have to subsidize roads in rural areas, after all you never drive on them. Then again, you might believe such a ridiculous thing.
9.27.2007 1:46pm
J. F. Thomas (mail):
How many times has the green power in your state been sold? Can you prove it?

You of course are talking nonsense. There is no differnce between "green power", "coal power", "nuclear power", or any other source. Once electricity enters the grid you can't identify its source. Actually it doesn't "come" from anywhere other than the layer of wire immediately adjacent to it. It also can't be stored in tanks waiting to be used. The transmission lines (which have to be owned by someone) and the power plants (which also have to be owned by someone) have to be built to handle a peak load. You can discourage peak load usage by penalizing use at peak hours, but to say I am going to buy my peak electricity from one company and my off-peak electricity from another is just an accounting trick.
9.27.2007 1:57pm
Temp Guest (mail):
I'm a paleolithic conservative. But it's only fair to point out that an important and cost-effective energy measure imposed by federal regulation in the US is the requirement of "scavenger" gas pumps. These gas pumps condense gas vapors that would otrherwise be released dangerously into the atmosphere and return them to the gas reservoir of the pump. Literally hundreds of millions of tons of gasoline are added to the nation's gas supply and prevented from polluting the atmosphere. The overall prevented costs are enormous and far outweigh the cost of retrofitting old pumps. However, if individual owners had born the entire cost of retrofitting, it would have been very financially adverse to an individual owner to install scavenging pumps.
9.27.2007 2:04pm
Toby:
Next:

J. F. Thomas explains that no one really pays for anything because the dollars he put in his bank are not really the ones I got from the teller after I cashed his check...it's all just an accounting trick...

Well, except in a regulated environment, he might be right - which is sort of the point...

The regulated market reflexes run deep, and a concern with which electrons I get makes no more sense than checking those dollar bills to see if they have the same serial numbers. They are both fungible goods. If I want to buy scarce consumer goods, no one talks about penalizing. "If I want to penalize the customer for buying this fine diamond tiara despite it using scarce components…. " is nonsense.

A deregulated environment is not about penalties -- it is about markets, and the market based allocation of goods. One component of that allocation is temporal scarcity, which applies in normal markets. Electricity is scarce mid-afternoon in summer; raspberries are scarce, except at Whole Foods, in February. Making those costs transparent and open, end exposing them to consumer choice creates the markets to drive innovation.
9.27.2007 2:13pm
springjourney (mail):
Gasoline market should be regulated, because people don't get it. Whoever is buying SUV for recreational purpose, is a terrorist (i.e. person who supports islamic terrorism).
It is government's responsibility to fight terrorism.
9.27.2007 2:17pm
martinned (mail) (www):
L.S.,

A deregulated environment is not about penalties -- it is about markets, and the market based allocation of goods.

Sorry to disappoint you, but I hardly think anyone values markets in their own right anymore than I care about the computer I'm now using other than for what it does. In the end, it is about incentives, and if you want to decide on the ideal level of regulation, if any, you want to consider the incentives that the various players have.

Regulatory agencies have an incentive to regulate, regardless of whether there is any need to. Companies have an incentive to do any number of things, some of which I listed in my very first comment in this thread, to maximise their profits. And consumers have an incentive to find the cheapest seller with the best service. (Or whatever other non-price things they value.)

The question is what all these incentives add up to under various institutional setups. However, let's not be overoptimistic: at the end of the day, everybody has an incetive to screw everybody if they can get away with it.
9.27.2007 2:24pm
J. F. Thomas (mail):
Electricity is scarce mid-afternoon in summer

But unlike ice, which is also in great demand on a hot afternoon, you can't make lots of electricity before hand and store it in anticipation of great demand. You have to build power plants and transmission capability that will only be used a few times a year (and will have the most dire consequences if they fail at those times of peak demand). So nobody is simply going to be in the business of selling or maintaining generation capacity for peak demand--it simply doesn't make sense. It would be like opening a bank that only caters to lottery winners.
9.27.2007 2:33pm
Toby:
Or, as Constellation Energy does, you could buy Call Options from your customers on load curtailment...

THere are lots of things people can do to change their energy use, and the time of day of their energy use. As long as we pretend that energy is so "special" that no behavior can be changed, that usage is too "complicated" for the home user to worry his little head over, then all your assumptions are true.

I dispute the predicate.

I remember talking to a Physics Post-doc, smart and technically savvy, whose device used mmense amounts of energy, who had never considered that maybe he shouldn't choose to run his one hour experiments just after lunch. Why? Because he has been taught his whole life that the Grid is a magic device that meets all needs. This immutability of time of use is a symptom of the regulated markets we've had until now, not a principle of nature.
9.27.2007 3:20pm
Frater Plotter:
But unlike ice, which is also in great demand on a hot afternoon, you can't make lots of electricity before hand and store it in anticipation of great demand.
Actually, you can. This is called "grid energy storage"

One way is to pump water uphill to a reservoir during low-demand hours, and use it to run a hydroelectric turbine during peak-demand hours. Basically, you're storing energy in the form of gravitational potential energy.

Another way, on a smaller scale, is to use a flywheel. These are frequently used for industrial-scale uninterruptible power supplies (UPS); they have a much higher energy density than large arrays of chemical batteries. In this case you're storing energy as kinetic energy of rotation.

http://en.wikipedia.org/wiki/Grid_energy_storage
9.27.2007 3:32pm
Andrew P. Morriss (mail):
A couple of points - 1) when I said I didn't expect others to subsidize my taste for rural living, I meant it literally. I live in a rural area, not even in a town. Why should you pay for my desire for space?

2) REA - the agency that does the electrifiying, along with building palatial headquarters buildings in DC - claims that by the early 1970s 98% of farms had electricity. The question is what it's been doing ever since. That some tiny number of areas have not been reached despite subsidies does not tell us much about the larger number of cheaper to serve areas and when someone might have delivered electricity to them.

3) are there alternatives to running electric lines into sparsely populated areas? Yup - generators, for one. Building electric mains is expensive and it's not obvious it is the most effective way to electrify scattered rural houses.

4) subsidizing electric lines to farms, gasoline scavenger pumps, etc. are *not* the main thing the government does in energy. If this is the best that defenders of intervention can do, then stacked up against MOIP and the 1970s price/allocation controls alone, not even taking into account the "you're not competing enough/you're competing too much" on/off antitrust/"destructive competition" regulation, minimimum pricing rules on gasoline sales (which many states still have), "price gouging" laws, martial law in East Texas and Oklahoma during the 1930s, etc., the government has been a harmful actor.
9.27.2007 6:05pm
David M. Nieporent (www):
What about the rural electrification program? Surely you can't seriously say that wasn't beneficial.
Er, why not?

One might say that it benefited the rural areas served by the program. But even assuming arguendo that this is true -- you have this bizarre mindset of thinking that if the government does X, this is proof that if it didn't, nobody else would ever do X -- what kind of metric is that? By that standard, the government's David Nieporent Gets Free Energy policy would be called "beneficial," since it's good for the intended beneficiary of the program.

Assuming that there are some things that go on in rural areas that involves more than a personal preference (e.g., growing food), I would think that the entire country would be interested in having dependable, reasonably priced, electricity delivered to rural areas.
But that's because you wouldn't think things through very well. We don't need to subsidize electricity to get farmers to grow food any more than we need to subsidize electricity to get dentists to fill cavities. Electricity is part of the overhead cost of running a business. If we don't subsidize it, food prices may rise so that the farmers can pay the higher costs of getting market-priced electricity -- but that makes more sense than hiding the true cost of food by forcing everyone to pay for rural electricity instead.


But unlike ice, which is also in great demand on a hot afternoon, you can't make lots of electricity before hand and store it in anticipation of great demand.
Hmm. If only there were a way to make electricity and then store it. I'm going to take my laptop out to the backyard and then surf the internet pondering a way to do this. Oh no! The power cord isn't long enough! What shall I do?
9.27.2007 6:25pm
David M. Nieporent (www):
Which is not to say (having refreshed my browser window and seeing Frater Plotter's similar point) that chemical batteries are the way to go; it's just to point out that repeating some mantra you heard on the television news is not a debate-ender. There are indeed ways to make and then store electricity.
9.27.2007 6:28pm
Smokey:
Henry Hazlitt, in Economics In One Lesson, easily demolishes arguments such as those that claim the government [as in the TVA] is better at providing things [like electricity] than the market.

To cut to the chase, every dollar spent on electricity by the government is a dollar that is unavailable to private enterprise to use to produce electricity.

Furthermore, as noted upthread, government electricity entailed the creation of a brand new federal bureaucracy that is far larger than originally proposed. That bureaucracy is still in existence, providing another teat for the lucky taxsuckers 75+ years later, and long after the job was completed.

Private companies, competing with other private companies, can not afford to protect do-nothing jobs for never-ending layers of bureaucrats like the government does. The result is that the consumer wins with private enterprise.
9.27.2007 7:33pm
martinned (mail) (www):
L.S.,

Private companies, competing with other private companies, can not afford to protect do-nothing jobs for never-ending layers of bureaucrats like the government does. The result is that the consumer wins with private enterprise.

That is completely true. Just one problem: we can't just wish competition into existence. If only...
9.27.2007 8:17pm
Eli Rabett (www):
Regulation and mandated crash testing lead to improved auto safety.
9.27.2007 8:18pm
Toby:
Regulation, when usefull, works when it establishes standards for performance. All too often it establshes preferred methods. Which is why we are all using 1970's anti-smog technology.
9.27.2007 8:33pm
David M. Nieporent (www):
Regulation and mandated crash testing lead to improved auto safety.
Yes, and the rooster crowing caused the sun to rise.

I mean, sheesh. My car has more comfortable seats, a better quality car stereo, and it requires less maintenance than the cars we owned 20 years ago. Was that because of "regulation"? Or because as we get wealthier we demand more, and competition provides it?
9.27.2007 10:56pm
J. F. Thomas (mail):
To cut to the chase, every dollar spent on electricity by the government is a dollar that is unavailable to private enterprise to use to produce electricity.

You still haven't answered my question. If the government hadn't done it, when would private industry have stepped in. Certainly not before the end of World War II. Would they have got started during the fifties, the sixties? How far along would they be by now. Would private industry have built all the water projects out west? I hardly think so.

Well, that is a nice sentiment. But what happens when private industry decides it is just not profitable to supply energy to a community? Not for profit rural electric cooperatives operate in many areas of the country (they are generally the entities that took over after the REA built out their grids). They operate successfully because they do not have to pay off stockholders and high priced CEOs. But I guess that is too much like communism for your taste.

The consumer doesn't always win with private enterprise.
9.28.2007 12:40am
Grover Gardner (mail):
"My car has more comfortable seats, a better quality car stereo, and it requires less maintenance than the cars we owned 20 years ago."

What does that have to with safety regulations? You're talking about advances in technology and ergonomics. My grandmother's 1956 Cadillac was extremely comfortable and reliable, but in a high-speed crash it was a death trap.
9.28.2007 3:43am
J. F. Thomas (mail):
Which is why we are all using 1970's anti-smog technology.

We are using 1970's anti-smog technology because the for-profit power, coal and oil refining industries have fought tooth and nail to not update their power plants and refineries to reduce sulfur before it gets to the stacks or into fuel or stop using high sulfur coal and oil. Shareholders hate it when you have to invest in new capital equipment. It cuts into the short term profits, even though it makes the corporation and industry healthier and more profitable long term. But industry in this country, driven by short sighted shareholder greed, is more interested in next quarters profits than in investing for the future.
9.28.2007 10:35am
Smokey:
J.F. Thomas:
"...industry in this country, driven by short sighted shareholder greed, is more interested in next quarters profits than in investing for the future."
JFT could simply put his savings into those 'greedy' companies, like a hundred million other people do, and collect his share of those 'greedy' profits. But it's apparently much more satisfying to spew hatred at another person's success, huh?

Nobody is arguing that regulation is completely unnecessary. If it costs $25 to install a set of seatbelts in a new car [which could have been done aftermarket by anyone who wanted seatbelts], then certainly GM isn't going to volunteer to spend an extra quarter of a $billion every year, when its competitors don't.

Regulation makes for a level playing field among competitors. [If it's honest regulation and not politically motivated - such as writing a specific set of guidelines that qualify only one garbage collector to bid - high - in return for the Teamster drivers' votes, and at the direct expense of rate paying citizens.] Wide open competition greatly benefits the consumer; why do Leftists hate competition so much? Because, in fact, they do.

However, the argument above started with a claim by the economics-challenged that it's a good thing when the government gets itself into the business of providing goods and services. But it's not. No property taxes are paid by the government when it builds and operates a dam. Management becomes entirely political, many layers deep, and grows like a cancer in the economy. There are no profits as such, and therefore no taxes are paid to local, state or federal entities. And most importantly, there is no competition. Without competitors trying to eat your lunch, why be efficient?
9.28.2007 3:00pm
David M. Nieporent (www):
"My car has more comfortable seats, a better quality car stereo, and it requires less maintenance than the cars we owned 20 years ago."

What does that have to with safety regulations?
About as much as safety features in cars do.
You're talking about advances in technology and ergonomics.
Er, yes. That's the point.
9.28.2007 5:12pm
TJIT (mail):
Lloyd George said
Hmm, deregulation provides better services? One could argue, certainly, from the experience of California's deregulated electric market in the early part of the decade that customers were getting screwed over.
The politicians called it deregulation but the statutes actually applied more generation to electric utilities.

If "deregulation" means less - not more - political control over an industry, then the California electricity industry has not been "deregulated."

First, the state forced the electricity companies to sell their power plants to independent investors and become power distributors.

Second, the state assumed total day-to-day control of the utilities' power grid to make sure they couldn't abuse their market power.

Third, the state required new owners of the divested power plants to sell their juice to a state-managed "power pool." The price of that power is set by a daily spot market run by - you guessed it - the state. Electricity companies that wanted to compete for your business had to buy their electricity from this pool, and the price charged them was equal to the highest price received by any electricity generator in the daily state-managed spot market.

Fourth, regardless of what they pay for power in the wholesale market, no company can charge a consumer more than 6.5 cents per kilowatt hour. That price can't change until the company has paid off its share of the bailout the state gave the electricity companies in order to accept this new regulatory scheme.

Now, what kind of "deregulation" imposes rigid government dictates on how industries should organize themselves? What sort of deregulation keeps fixed prices on retail providers? What kind of "deregulation" requires retailers to buy power through a state-run central exchange? And what brand of "deregulation" forbids retailers from buying electricity more than one day ahead?

Real deregulation would have meant turning the old power companies loose to build what they want, charge what they want, and run the grid as they wished while simultaneously decriminalizing competition and removing barriers to market entry. State regulators, however, went in the opposite direction.
9.30.2007 12:48pm
TJIT (mail):
A good review of the california power crisis can be found here

Deregulation, environmentalists not to blame; more government control not the cure
In "California's Energy Crisis: What's Going On, Who's to Blame, and What to Do," Cato scholars Jerry Taylor and Peter VanDoren argue that the real cause of the price spike of power in California was not state policy. Instead the cause stems from a "perfect storm" of high regional natural gas prices, a large drop in hydroelectric power from dry weather conditions, and a demand shock due to the unseasonably warm summer of 2000. These factors were then exacerbated by air pollution regulations and retail price controls.
9.30.2007 12:53pm
TJIT (mail):
In response to the comment

No drilling for oil and gas of the coasts or in ANWAR is a prime example.

J. F. Thomas said
How is that government "interference" in the energy markets? The government owns the land and the oil and gas underneath it. We can sell the oil and gas to whomever we want. And if we (through our elected representatives) decide we would rather leave oil and gas in the ground that is our right since we, as American citizens, own the land and the oil.
J.F. apparently does not understand that at the most basic level markets are supply and demand for products and services. In this case the product is oil and gas.

By limiting areas open to petroleum exploration congress is restricting the supply of petroleum and they are definitely interfering in the market. There might be a reason for the restriction but that does not change the fact that congress is interfering with the markets.

J.F. apparently also missed the spectacle of congress.

1. Calling in oil company executives to testify and excoriating them for not doing more to produce domestic oil and gas.

2. Within a week of that hearing congress voted against easing easing laws that restrict exploration for and production of oil and gas in the United States.

That might have been good politics but it certainly made congress look more lunatic and hypocritical then usual.
9.30.2007 1:11pm
TJIT (mail):
J.F. Thomas said,

What about the rural electrification program? Surely you can't seriously say that wasn't beneficial. How about the construction of all the hydroelectric dams even if you don't like the TVA that still operates some of them.
Like everything else those actions had some benefits and some costs.

Benefits: electricity to rural areas

Costs:

Killed the use of and market for wind generators in rural areas. We might have had much better wind generators and other distributed forms of power generation if REA had not existed.

Money and resources used to provide electricity to rural areas might have used to construct better and more flexible transmission capacity in urban areas with high power demand

Because of habitat destruction and fisheries impact those hydroelectric dams are not very popular with the environmental community.

Those dams also made possible the construction of large cities in california and nevada which have their own environmental impact.

Sprinkling the magic pixie dust of "done by government" does not necessarily make something good.
9.30.2007 1:21pm
TJIT (mail):
An excellent site for information on utility policy,regulation, electricity markets, and how technology can improve them is Knowledge Problem.

It can be found here


Knowledge Problem Commentary on Economics, Information and Human Action
9.30.2007 1:27pm
J. F. Thomas (mail):
By limiting areas open to petroleum exploration congress is restricting the supply of petroleum and they are definitely interfering in the market. There might be a reason for the restriction but that does not change the fact that congress is interfering with the markets.

If a private landowner decides he does not want to exploit the mineral rights on his property (for whatever reason), is he interfering in the market? Then why is the government not granting rights to exploit oil and gas reserves on federal lands interfering in the market?

Costs:

So can you provide actual examples where these things actually happened?
9.30.2007 11:51pm
TJIT (mail):
J.F. Thomas in blockquotes
If a private landowner decides he does not want to exploit the mineral rights on his property (for whatever reason), is he interfering in the market?
He is reducing the amount of energy available. So if you want more energy production, he is acting in opposition to your policy goals of more energy.

Then why is the government not granting rights to exploit oil and gas reserves on federal lands interfering in the market?
The original post was how government regulation serves to reduce the amount of available energy. The federal government owns the land that has the greatest potential for petroleum production. Not allowing exploration on this ground obviously decreases the amount of energy available in the US.

I really don't care if congress makes that land available for exploration. But please don't insult the intelligence of the American public by simultaneously taking two mutually exclusive actions:

1. Bashing oil companies for not producing enough domestic petroleum.

2. Not allowing oil companies to explore on the land that has the most domestic petroleum resource.

It makes congress look like the economically ignorant tools they surely are.
10.1.2007 10:50pm