Raymond,
In your post to portage who wrote (1092) Friday, Feb 15, 2002 You referenced rapmaine.org [selection below: whitpine]
Concentration and the Sustainability of Market Power in Public Utility Industries:
Hi portage,
The above referenced Issue Letter is the work of a Professor Emeritus who seems to see through the games the power marketers are playing quite clearly. If only FERC had as honest an assessment to make...... [Raymond Duray]
[whitepine: selections from] Concentration and the Sustainability of Market Power in Public Utility Industries, Harry M. Trebing, Professor Emeritus and Senior Fellow, Institute of Public Utilities, Michigan State University
However, if one loooks [sic] at the domestic long distance telecommunications market, where 20 years have elapsed since the Execunet decisions opened the market to entry, high concentration still persists. Currently, AT&T has approximately 60 percent of the market, MCI 20 percent, Sprint ten percent, and WorldCom seven percent. Similarly, 12 years after privatization and liberalized entry in the UK, British Telecom still has 89 percent of the local market and 78 percent of the national telecommunications market. Clearly market concentration is a persistent problem, and it is premature to dismiss it as irrelevant or vulnerable to erosion over time in the absence of further investigation.
There are at least eight adverse effects associated with tight oligopoly in public utility industries.
1. Prices will not track costs. Instead, prices will tend to reflect corporate strategies and the bargaining power of individual players.
2. Profit levels will be higher than those that would prevail under effective competition or capable regulation.
6. Oligopoly pricing can lead to price rigidity for many services when costs fall, so that consumers of these services will not participate in attendant savings.
Your affirmation of Prof. Trebing’s positions has several problems:
a. market concentration in telecom (assuming Prof. Trebing’s data is accurate) has not created abusive market pricing power. I think this obvious to all those with lower long-distance rates and to holders of telecom stocks!
b. Items (1-2) of Trebing is contradicted by realities of prices in the CA energy market. Thus, it is impossible to argue market pricing power in CA is a result of maniacal, oligopolistic power companies. In fact, just the opposite is true, though the executives and stockholders of power companies certainly wish otherwise!
c. Item 6—Oligopoly pricing power doesn’t seem to exist in CA. The decline in prices, as I previously observed, is proof to the contrary.
Furthermore, from biz.yahoo.com [copied below] it certainly seems the last line is quite simple to understand!
January 31, U.S. price cap had little impact on Calif power-report
Washington, Jan 31 (Reuters) - Wholesale electricity prices eased in California last summer due to conservation efforts and a slowing economy, not because of a price cap imposed by federal regulators, the Federal Energy Regulatory Commission said on Thursday.
FERC adopted a temporary $92 per megawatt hour cap on spot market prices in California last June after the state was hit with a tenfold increase in prices, rolling blackouts and the bankruptcy of a major utility. In a report requested by Congress, FERC analyzed the economic impact of its price cap on Western utilities PacifiCorp (NYSE:PPW - news), Avista Corp (NYSE:AVA - news), Sierra Pacific Resources Corp (NYSE:SRP - news), Montana Power Co (NYSE:MTP - news), Enron Corp's Portland General, Puget Sound Energy Inc, Idaho Power Co and Nevada Power Co. The agency collected data from the eight utilities, which resold their surplus power in the spot market, for the period of June 20 through Nov. 30 of 2001.
The average price for power re-sold into the spot market was about $35 per megawatt hour during that period, far below the $92 price cap, the report found.
``The report concludes that a wide variety of factors other than the price cap, such as conservation efforts, a downturn in the regional economy, and adequate supply given low demand, affected sales prices in both the spot and non-spot markets,'' it said.
During the five-month period, four of the utilities told FERC they lost $67 million to $310 million in sales of their surplus power on the spot market. Two others said they had net revenue of $61 million to $105 million for the period. The final two utilities either did not have any spot market resales or did not provide the data to FERC. The report did not identify the utilities' names in connection with specific financial data.
FERC, under the leadership of former chairman Curtis Hebert, reluctantly adopted the price cap in June only after months of pressure from lawmakers, consumer groups and industrial plants. Spot market prices briefly rocketed as high as $400 per megawatthour in May 2001 amid predictions of a hot, difficult summer in California.
But those dire predictions did not come to pass, and spot market prices fell throughout the rest of the year.
``The price cap had little, if any, influence on the price levels at which the Western utilities were able to resell surplus energy from their long-term contracts,'' the report said.<
Now, you might counter that David Fabian, a former employee for Enron's trading unit who wrote the company's trading software for electricity and natural gas sales is proof that Enron controlled prices. "I never witnessed this but this is what the traders talked about," Mr. Fabian told Dow Jones Newswires. "I spent a lot of time with traders writing the software programs and they discussed how they could use tricks to get high prices for electricity.”
For the sake of argument, assume Fabian revealed the true essence of Enron’s tricks. The problem remains, why don’t these ‘price-gouging’ capitalist monsters continue to employ their tricks to keep prices high? The answer, of course, is that there is sufficient—though not perfect—market competition and consumers have alternatives. The lower prices consumer’s pay are the most powerful facts.
I suggest you read Cartels in Action or James S. Martin’s All Honorable Men. |
