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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: Joe Lyddon who wrote (52080)	6/7/2001 12:04:51 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 57584

Joe and All, the immediate cause of the California energy shortage and resulting high prices is NOT lack of supply but lack of supply during critical peak demand periods. Queueing theory, which is part of the operations research engineering discipline, shows that when you get sudden peak demands over a long period, which cannot be met by existing facilities, then the average price of electricity (or other commodity) rises. I repeat: Peak demand raises not only peak prices but AVERAGE prices. If several power generators went down for maintenance during a certain period, it is likely that peak demands could not be met by the rest of available power sources. Data being gathered by California's PUC and others indicates that "maintenance" time on certain power plants supplying California earlier this year was three times more frequent than normal. Coincidence? Many people who understand the causes of power outages and rolling blackouts don't think so. There is plenty of blame to go around here: The poorly designed CA deregulation law; possible intent on the part of energy providers to create an artificial shortage, all the while knowing that such shortages would raise AVERAGE prices. And finally, there is a failure to implement conservation measures, which are the only short term effective preventive solutions. People who are concerned about high prices, rolling blackouts, and long term energy needs are being misled if they believe that the problems are caused by simple lack of supply. That is a simplistic and unrealistic assessment of a problem that cannot be solved by merely increasing supplies. The same is true for the gasoline shortages, though the trend toward higher fuel consumption vehicles has certainly made the problem worse. Again, the key here is that peak demand shortages lead to an increase in prices for AVERAGE demand. Art Bechhoefer