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Politics : PRESIDENT GEORGE W. BUSH
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To: dave rose who wrote (132623)3/21/2001 10:58:57 AM
From: Roger A. Babb  Read Replies (4) of 769667
 
Dave, the basic problem with power deregulation is the large gap between the cost of power production and its value to the consumer. The cost to produce electricity is on the order of 3 to 5 cents per kwh. Consumers will not greatly reduce demand until at least 50 cents per kwh.

A regulated monopoly will be allowed a small, but certain, return on cost which results in a consumer price of about 7 cents. An unregulated monopoly will promptly raise prices to the customer value which explains the fact that market power prices on the California exchange are often above $400 per mwh (or 40 cents per kwh).

Nothing has changed on the cost side of the equation, all that power being sold in California for over $400 per mwh was generated for under $50 per mwh at the plant, the balance is market markup.

Yes, the shortages will go away if the consumer price is increased enough. But why should the consumers be forced to pay 40 cents for a 7 cent product?
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