Michael Lorrey wrote,
>http://dailynews.netscape.com/mynsnews/story.tmpl?table=n&cat=50100&id=200012151238000293407
The story is actually more complicated than it appears on the
surface. This is NOT a story about implementing price caps which are
doomed to fail. This is actually a story about an attempt at
deregulation that appears to have failed. California actually
deregulated the industry and predicted that free-market competition
would make prices fall. Instead, prices skyrocketed and
price-gouging abounds. After spiraling costs continued to grow
out-of-control, the state decided to cap prices at their more
reasonable levels. The state basically is telling the deregulated
companies that they must produce power cheaper than the state can
produce its own power, or else they are pricing themselves out of the
market. This is how the free-market is supposed to work.
What went wrong with deregulation? Why did the deregulated companies
not produce power cheaper than the regulated government monopoly?
Because the deregulated industry was not really a free market. The
state of California was a captive marketplace which had to purchase
the power by law. There was no customer feedback to reject prices
when they got too high. Instead of high-priced companies losing
market-share, this deregulated environment ensured market-share to
all power producers no matter how high their prices got. Naturally,
prices kept going up and up with no end in sight.
Basically, the new power companies did not try to work more
efficiently or produce cheaper power than the previous monopoly did.
Since they are producing a costlier product, the customer is
switching back to the cheaper brand. The state is not shutting down
the new companies. It is merely putting them on notice that it will
no longer purchase high-priced power when it can produce its own
power cheaper. Only power that is priced at what the state feels is
reasonable will be purchased by that customer.
In this instance, the state of California seems to be acting like any
other customer in a free-market environment. They are limiting the
price they are willing to pay, and they are switching from costly
producers to more efficient producers. Even when choosing between
regulated and deregulated industries, the free market chooses the
most efficient options. Too bad the new companies deliberately chose
profiteering over efficiency.
-- Harvey Newstrom <HarveyNewstrom.com>
This archive was generated by hypermail 2b30 : Mon May 28 2001 - 09:50:37 MDT