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Technology Stocks : Intel Corporation (INTC)

INTC 36.78

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Nov 26 3:59 PM EST

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To: Harry Landsiedel who wrote (125844)	1/23/2001 5:03:42 PM
From: Saturn V	Read Replies (2) of 186894

Ref OT "where the free market system went bad " The California utilities were partially deregulated to take advantage of the free markets. But unfortunately the implementation was flawed and the State is suffering. Prior to deregulation there was a surplus of power, and short term power was available cheaper than long term power . The utilities were responsible for forecasting electricity demand, and they were responsible for either putting up power plants or signing long term contracts. The utilities made sure that they had an adequate power reserve to take care of dry seasons or other unanticipated problems. The idea of deregulation was to take advantage of the free market and the cheap plentiful short term power. The capacity planning was left to the free market. Unfortunately the "free market" did not put up power plants fast enough in the absence of long term contracts. I believe that the financial risk in putting up a power plant solely for short term power is too great for any power generator. However the risk is far less for long term contracts. Had California utilities been allowed to use greater amount of long term power, we would not have the present crisis. Let me explain the risk for putting up a power plant without a long term contract. Think what happens in the event of a power glut. Then on the spot market , the producer with the lowest marginal cost of generating power will be the survivor, and the producers with the high cost of marginal power generation will have to shut down. Thus it only makes sense to go into business for short term power, if you put up a plant with a low marginal cost of generation. The power plants with low marginal costs are hydroelectric or nuclear. These are not politically acceptible today. Gas is in. But gas has a higher marginal cost, but reasonably low capital cost. Thus gas power plants are suited for long term contracts. Even with hydro electric and nuclear the capital requirements are so massive that no will take the risk without some kind of customer commitment. Too many power utilities went broke in the 80's with surplus power generation capability. Washington state stopped the construction of two nuclear plants, and took billions in write-offs. The free markets can be more efficient. However one wrong move, one bad judgement call and all hell breaks loose.

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