Aug 18th WSJ on the blackout

[Eugene Coyle]

Aug 18th WSJ on the blackout I often compliment Rebecca Smith of the WSJ on her coverage of the electric power industry.  She  wrote the front page blackout story on Monday, August 18th but not up to her usual standard.      There is a hint of a perspective in the fourth paragraph where state-regulated utility regulation is called "old fashioned," a pejorative descriptor, rather than an alternative like "traditional" or, going the other way, "time-honored regulation."     A little later the Journal asserts "Few in Washington or at the state level want to return to the days when local utilities served only local customers."  That is clearly wrong.  The vigorous national campaign to preserve PUHCA and the widespread and overwhelming public preference for regulation as opposed to deregulation demonstrates that the majority, rather than the few, want "old fashioned regulation."     But the important error to note is the following:     The Journal asserts  "Wholesale markets in theory allow power to shift to areas where it is in highest demand and should foster competition that drives down prices."      That "theory" is, and has repeatedly been shown to be, false.  For the latest demonstration, see Debunking Economics by Steve Keen as well as his website, www.debunking-economics.com where he elaborates.  See also my own papers, for example PRICE DISCRIMINATION, ELECTRONIC REDLINING, AND PRICE FIXING IN DEREGULATED ELECTRIC POWER (APPA, 2000) in which I reject the theory and go into the long list and history of distinguished economists, liberals and conservatives from Keynes to Telser who have intellectually destroyed the conceit that wholesale markets in electric power will foster competition.  See also "Economists' Stories, and Culpability in Deregulation" in the October 2002 Electricity Journal where I again show the emptiness of the supposed "theory."      Professor Hogan, on the Journal's editorial page on this first Monday after the blackout, mentions the "intended wholesale electricity market."  Wholesale markets cannot work in electric power, yet economists are like the Bourbons, of whom Talleyrand remarked "They learned nothing and they forgot nothing."  The claim that wholesale markets in electricity can foster competition should be confined to the Journal's notorious editorial page and kept out of the news columns.     That the theory doesn't work is demonstrated by Ms. Smith herself, later in the story.  The companies that intended to build power plants in California "... now can't raise the money to plunge ahead ... "  And "Several of what had been the most aggresive merchant-power companies -- those that sell power to any big buyer, whether a utility or a factory -- are now among the worst off financially."  Good theorists foresaw this --- I wrote about it myself in 1994, 1996, 2000 and 2002, as well as in between, and cited others more famous and distinguished than myself.     There is more in the WSJ story to discuss, but the notion that somehow, someday, wholesale electricity markets will bring competition and drive down prices should not be in print in respectable newspapers. Gene Coyle