Re: Phony deregulation - Fwd: James Bennett's UPI Column for 01-26-01

Date: Fri Jan 26 2001 - 22:32:02 MST

Russell forwards a column by James C. Bennett:
> In California, some dim bulb (so to speak) had the amazing concept of
> deregulating the prices power companies would have to pay to power
> suppliers for their power, without deregulating the price at which they
> could sell power to consumers. They were supposed to make it up by
> charging more to business customers, so that, in effect, businesses and
> (ultimately) their customers would subsidize the cost of energy to
> consumers. (This is exactly how phone service works in the US today).
> Unfortunately, this stealth tax did not work (partly because businesses
> just did not buy a large enough percentage of the power used in
> California) and the power companies are going bankrupt.

>From what I've read about the crisis, this is not why the price freeze was
put into place. It was actually done to benefit the utility companies,
to guarantee them profits. At the time of deregulation wholesale prices
had been low for decades, and the reason for deregulation was to bring
down retail prices, which had remained stubbornly high.

The utility companies were afraid that cutthroat competition would
drive down retail prices so low that they couldn't make a profit.
So they were protected with a price freeze. The freeze would last
until the utilities had made a certain amount of profit that would
compensate them for the costs imposed on them as part of deregulation.
Once this level of profit was reached the freeze would be over.

This worked as planned for the first couple of years but since 2000
everything has gone wrong. Demand has outpaced supply and as a result
wholesale prices have risen above retail levels, which no one imagined.
As a result the utilities are no longer making money, they are losing
it hand over fist, and the price freeze is no longer protecting them,
it is hurting them.


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