Energy Market Manipulation
Paul Krugman wrote a column that appeared in my London Free Press today.. he is a columnist for the NY Times and writes economic and financial viewpoints for them. I dont have an online link yet.. so I'm paraphrasing it as best I can and direct quoting where I can.
He talks about the fact that Power supplies have become fairly reasonable in California and prices have dropped dramatically: a year ago from 750$ US a megawatt hr and now going for less then 100$ sometimes less then 50$.
One reason for this: conservation - California users are using 5-10% less electricity then expected.
Another reason: natural gas prices have dropped.
The main reason tho? California;s power generators are back online. He then points out that in March, with a lot of the air condittioners turned off in the state, there should have been spare generating capacity. But mysteriously 15000 megawatts was unavailable - or 1/3 of the states capacity. Now, off-line capacity is down to less then 4000 megawatts. He asks the questions of why the state's plants are operating now and not back then....
The answer:
"Generators deliberately withheld electricity from the market in order to drive high prices even higher. Until recently, the evidence for this market manipulation was purely circumstantial, but it has now been reinforced by former employees of 1 generator"
The question then becomes why market manipulation stopped.. Public scrutiny, which ended up with federal regulators recently deciding on market price caps, "has convinced generators they had better behave themselves."
Natural gas coming down may be a similar story. One natural gas company apparently leased a big chunk of that pipelines capacity to a subsidiary, and that subsiduary was accused of using its control of the pipeline to withhold gas from the California market in order to drive up prices. An internal memo of the company was apparently leaked wher it stated the company had "the ability to influence the physical market to the benefit of any financial/hedge position". The company cliams this was taken out of context.. yet.. it seemed too much of a coincidence that when this lease expired at the start of the month.. natural gas prices immediately plunged 50%.
Krugman concludes that the big loser in all of this good news about the energy crisis in California easing is Dick Cheney... the main guy behind the Bush energy proposal, or as Krugman calls it, "the drill-and burn energy plan"
Cheney was the guy who dismissed conservation as being able to work, dismissing it as "a sign of personal virtue".... Cheney was also waving his hand away at people who thought price controls were the solution. Now of course, these very 2 things are turning things around in California. Conservation has indeed helped, and price controls and more importantly the threat of more government intervention have energy producers halting their market manipulation.
Krugamn concludes that: "Cheney, who prides himself on his tough-mindedness, was naively out of touch with reality. And the real realists were those silly people who thought that Californians could solve its crisis by saving energy and suing energy producers."
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There is obviously good reason and compelling evidence to conclude that the Bush Administration's energy policy is nothing but a sop to their Big Oil Friends.. and that Big Oil, if left with a laissez faire attiude and no regulatory controls or a watchdog federal body to keep an eye on it. as some of our conservative friends would have in teir version of a utopic world,, . would be gouging consumers left right and centre down in the US. |
