Comments on: Darkness on the Edge of Town http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/ Out of the crooked timber of humanity, no straight thing was ever made Thu, 24 May 2012 06:17:10 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Prometheus 6 http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2272 Prometheus 6 Thu, 21 Aug 2003 17:43:52 +0000 http://crookedtimber.org/wp/?p=152#comment-2272 W. Kiernan: <i>Not only can it but it must assuming the customers are “rational,” that is, cheap. </i> That's a large assumption, one I can find little support for. People tend to buy based on desire rather than reason. If it weren't for the "Energy Star" marketing campaign no one would even look at energy efficiency ratings. Telephone and cable rates are a good example; people complain and still make the phone calls and buy those additional tiers of programming. Our use of electrical equipment just continues to increase, and the more efficient equipment costs more because increased efficiency <b>does</b> add value…and the most efficient equipment is priced out of the range of those who can least afford the price of energy. W. Kiernan: Not only can it but it must assuming the customers are “rational,” that is, cheap. That’s a large assumption, one I can find little support for. People tend to buy based on desire rather than reason. If it weren’t for the “Energy Star” marketing campaign no one would even look at energy efficiency ratings. Telephone and cable rates are a good example; people complain and still make the phone calls and buy those additional tiers of programming. Our use of electrical equipment just continues to increase, and the more efficient equipment costs more because increased efficiency does add value…and the most efficient equipment is priced out of the range of those who can least afford the price of energy.

]]> By: W. Kiernan http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2271 W. Kiernan Thu, 21 Aug 2003 02:58:43 +0000 http://crookedtimber.org/wp/?p=152#comment-2271 Prometheus 6 sez: <i>They suffer no loss by building sufficient capacity for optimum service because it’s a legitimate business expense that is taken into account when setting rates. It literally can’t drive prices, or profitability, down.</i> Not only can it but it must assuming the customers are "rational," that is, cheap. Suppose the local electric power vendor raises price by a significant amount, their customers will use less electricity; it changes the balance point toward where they'll spend more on new, more thermally efficient equipment. If profits are a fixed percentage of revenue, then they decline too. Upthread about five minutes ago I was wondering where one finds the market force in a monopoly for a necessary good. Hey, I'm no economist, it's not obvious to a layman. Thanks for helping me figure it out. Prometheus 6 sez: They suffer no loss by building sufficient capacity for optimum service because it’s a legitimate business expense that is taken into account when setting rates. It literally can’t drive prices, or profitability, down. Not only can it but it must assuming the customers are “rational,” that is, cheap. Suppose the local electric power vendor raises price by a significant amount, their customers will use less electricity; it changes the balance point toward where they’ll spend more on new, more thermally efficient equipment. If profits are a fixed percentage of revenue, then they decline too. Upthread about five minutes ago I was wondering where one finds the market force in a monopoly for a necessary good. Hey, I’m no economist, it’s not obvious to a layman. Thanks for helping me figure it out.

]]> By: Prometheus 6 http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2270 Prometheus 6 Tue, 19 Aug 2003 19:38:35 +0000 http://crookedtimber.org/wp/?p=152#comment-2270 Lorenzo: <i>Any generating capacity beyond the bare minimum necessary must go idle or drive down prices with no benefit in sales volume, therefore it is in the rational self interest of electricity producers not to invest in expensive to build, and costly to idle power generation plants that can do nothing but hurt profits past the bare minimum necessary for current conditions.</i> We're talking about a regulated monopoly, with a fixed rate of return. Whatever their operating expense, a percentage is to be added on. They suffer no loss by building sufficient capacity for optimum service because it's a legitimate business expense that is taken into account when setting rates. It literally <b>can't</b> drive prices, or profitability, down. Lorenzo: Any generating capacity beyond the bare minimum necessary must go idle or drive down prices with no benefit in sales volume, therefore it is in the rational self interest of electricity producers not to invest in expensive to build, and costly to idle power generation plants that can do nothing but hurt profits past the bare minimum necessary for current conditions. We’re talking about a regulated monopoly, with a fixed rate of return. Whatever their operating expense, a percentage is to be added on. They suffer no loss by building sufficient capacity for optimum service because it’s a legitimate business expense that is taken into account when setting rates. It literally can’t drive prices, or profitability, down.

]]> By: Prometheus 6 http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2269 Prometheus 6 Tue, 19 Aug 2003 16:08:18 +0000 http://crookedtimber.org/wp/?p=152#comment-2269 rvman: <i>In what universe have cable systems been deregulated? </i> In the universe where the Telecommunications Act of 1996 was passed. I quote from <a href="http://ftp.fcc.gov/cgb/consumerfacts/cablederegulation.html"> The FCC's Deregulation and Cable FAQ</a> <i>As part of the Telecommunications Act of 1996, Congress deregulated most aspects of cable rate regulation. The Federal Communications Commission (FCC) no longer has the authority to accept or resolve complaints about cable rates.<br /><br />Who Regulates Rates?<br /><br />Your local franchising authority (LFA), which is the local city, county or other governmental organization authorized by your state to regulate cable television service, still retains the authority to regulate the rates for the basic services tier. The basic services tier is the service tier that contains your local broadcast, public, educational and government channels. However, if the FCC has found that effective competition exists in your community, the LFA may not regulate the rates for even the basic services tier. In addition, the rates of certain small cable companies are not regulated.<br /><br />The rates for any tier of service other than the basic services tier, and for any pay-per-channel programming (for example, a premium movie channel) and pay-per-program services (for example, pay-per-view sports events) are not regulated. Your cable company is free to charge an unregulated rate for these services. However, in general, your cable company may not require you to purchase any additional services other than the basic services tier in order to have access to pay-per-view events or premium channels offered on an "a la carte" or individual basis. On the other hand, there is no law that requires a cable company to allow you to select and pay for only the channels that you like from a tier of service.</i> As for telephones, I quote a <a href="http://www.consumersunion.org/telecom/sixthdc202.htm">2002 report by the Consumers Union</a>: <i>Local telephone charges have increased 17 percent since the Telecommunications Act became law.(3) Local phone bills are expected to go up another 5 percent in July 2002 as the result of ongoing deregulatory policies at the Federal Communications Commission (FCC) to raise subscriber line charges.(4) <br /><br />In 1996 there were eight major companies providing local phone service, each to a different area of the country. Today those eight companies have shrunk to four as a result of massive consolidation. The two biggest companies, Verizon and SBC, each control 30 to 40 percent of the nation's local phone business. Local phone monopolies have skillfully used their size and influence to avoid opening their markets to competitors as the Telecommunications Act intended.<br /><br />Meanwhile, the nation's largest long-distance providers - AT&T, MCI Worldcom, and Sprint - have either raised or are planning to raise their basic long-distance rates in coming weeks to as much as 35 cents a minute during the day from about 26 cents a minute in 2000. They are also raising evening rates from about 16 cents a minute to as much as 30 cents, and weekend rates are rising from about 12 cents to as much as 19 cents.(5) These price hikes come at the same time that long distance companies are saving $3 billion a year for the cost of connecting calls to their customers. Long-distance companies have largely failed to expand their business into local phone markets, except in New York where regulators have intervened to promote competition and reasonable prices.<br /><br />Technically, in the six years since the Telecommunications Act became law, long-distance rates have dropped 14 percent.(6) However, that figure hides the inequitable distribution of costs and benefits to consumers. When long distance companies lowered their per-minute rates, they increased their monthly fees. Some of the most popular calling plans charge a few pennies for each minute of long distance calling. But the plans also charge a tall stack of fees, including monthly service charges, universal service fees, and in-state service fees for people in certain states. At least one company has even started charging a fee for its property tax.<br /><br />The increase in fees has left many consumers paying more, not less, for long distance</i> On the impact on consumers of deregulation in general, I refer you to <a href="http://www.consumersunion.org/telecom/dereg602.htm">Consumer Reports</a>, where you ca download a pdf named <a href="http://www.consumersunion.org/pdf/cudereg.pdf">Deregulated</a>. <i>"Our research concluded that while consumers have made some gains under deregulation, on balance they've lost ground. Service has typically deteriorated. Consumer rights have sometimes suffered. Claimed price cuts are often not all they seem. And when free markets have gone bad, deregulated industries have seen no contradiction in getting multibillion-dollar government bailouts," reports Jeff Blyskal, Associate Editor at CR.</i> rvman: In what universe have cable systems been deregulated? In the universe where the Telecommunications Act of 1996 was passed. I quote from The FCC’s Deregulation and Cable FAQ As part of the Telecommunications Act of 1996, Congress deregulated most aspects of cable rate regulation. The Federal Communications Commission (FCC) no longer has the authority to accept or resolve complaints about cable rates.

Who Regulates Rates?

Your local franchising authority (LFA), which is the local city, county or other governmental organization authorized by your state to regulate cable television service, still retains the authority to regulate the rates for the basic services tier. The basic services tier is the service tier that contains your local broadcast, public, educational and government channels. However, if the FCC has found that effective competition exists in your community, the LFA may not regulate the rates for even the basic services tier. In addition, the rates of certain small cable companies are not regulated.

The rates for any tier of service other than the basic services tier, and for any pay-per-channel programming (for example, a premium movie channel) and pay-per-program services (for example, pay-per-view sports events) are not regulated. Your cable company is free to charge an unregulated rate for these services. However, in general, your cable company may not require you to purchase any additional services other than the basic services tier in order to have access to pay-per-view events or premium channels offered on an “a la carte” or individual basis. On the other hand, there is no law that requires a cable company to allow you to select and pay for only the channels that you like from a tier of service. As for telephones, I quote a 2002 report by the Consumers Union: Local telephone charges have increased 17 percent since the Telecommunications Act became law.(3) Local phone bills are expected to go up another 5 percent in July 2002 as the result of ongoing deregulatory policies at the Federal Communications Commission (FCC) to raise subscriber line charges.(4)

In 1996 there were eight major companies providing local phone service, each to a different area of the country. Today those eight companies have shrunk to four as a result of massive consolidation. The two biggest companies, Verizon and SBC, each control 30 to 40 percent of the nation’s local phone business. Local phone monopolies have skillfully used their size and influence to avoid opening their markets to competitors as the Telecommunications Act intended.

Meanwhile, the nation’s largest long-distance providers – AT&T, MCI Worldcom, and Sprint – have either raised or are planning to raise their basic long-distance rates in coming weeks to as much as 35 cents a minute during the day from about 26 cents a minute in 2000. They are also raising evening rates from about 16 cents a minute to as much as 30 cents, and weekend rates are rising from about 12 cents to as much as 19 cents.(5) These price hikes come at the same time that long distance companies are saving $3 billion a year for the cost of connecting calls to their customers. Long-distance companies have largely failed to expand their business into local phone markets, except in New York where regulators have intervened to promote competition and reasonable prices.

Technically, in the six years since the Telecommunications Act became law, long-distance rates have dropped 14 percent.(6) However, that figure hides the inequitable distribution of costs and benefits to consumers. When long distance companies lowered their per-minute rates, they increased their monthly fees. Some of the most popular calling plans charge a few pennies for each minute of long distance calling. But the plans also charge a tall stack of fees, including monthly service charges, universal service fees, and in-state service fees for people in certain states. At least one company has even started charging a fee for its property tax.

The increase in fees has left many consumers paying more, not less, for long distance On the impact on consumers of deregulation in general, I refer you to Consumer Reports, where you ca download a pdf named Deregulated. “Our research concluded that while consumers have made some gains under deregulation, on balance they’ve lost ground. Service has typically deteriorated. Consumer rights have sometimes suffered. Claimed price cuts are often not all they seem. And when free markets have gone bad, deregulated industries have seen no contradiction in getting multibillion-dollar government bailouts,” reports Jeff Blyskal, Associate Editor at CR.

]]> By: rvman http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2268 rvman Mon, 18 Aug 2003 22:03:09 +0000 http://crookedtimber.org/wp/?p=152#comment-2268 >At best it merely restructures the monopoly (the >telephone and cable systems are good examples of >this) In what universe have cable systems been deregulated? Regulatory capture is not the same as deregulation. As for telephone, long distance has dropped from $0.67 per minute in 1980 to $0.14 now. And how many competitors are there? It isn't like "deregulation" means the regulators go away. Texas "deregulation" didn't mean there is no longer a Public Utility Commission. It just means they have a lighter hand at the wheel. The Texas PUC's electricity market "rules" run 2 inches thick, with another several inches of rules at ERCOT (Texas' ISO). Most of those inches are rules applicable primarily to "deregulated" companies. Believe me, Cato may be asking for a free market when they ask for deregulation, but they aren't getting it. California didn't just turn off the lights at their PUC and say "have at". They very carefully regulated how and where power would be sold. Which created a highly artificial and easily gamed "market" which both Enron and company, and the California utilities, manipulated repeatedly. The FERC study of the California market splits the blame about equally between the utilities, the power marketers, and the folks who wrote the law. >At best it merely restructures the monopoly (the >telephone and cable systems are good examples of >this) In what universe have cable systems been deregulated? Regulatory capture is not the same as deregulation. As for telephone, long distance has dropped from $0.67 per minute in 1980 to $0.14 now. And how many competitors are there? It isn’t like “deregulation” means the regulators go away. Texas “deregulation” didn’t mean there is no longer a Public Utility Commission. It just means they have a lighter hand at the wheel. The Texas PUC’s electricity market “rules” run 2 inches thick, with another several inches of rules at ERCOT (Texas’ ISO). Most of those inches are rules applicable primarily to “deregulated” companies. Believe me, Cato may be asking for a free market when they ask for deregulation, but they aren’t getting it. California didn’t just turn off the lights at their PUC and say “have at”. They very carefully regulated how and where power would be sold. Which created a highly artificial and easily gamed “market” which both Enron and company, and the California utilities, manipulated repeatedly. The FERC study of the California market splits the blame about equally between the utilities, the power marketers, and the folks who wrote the law.

]]> By: David Yaseen http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2267 David Yaseen Mon, 18 Aug 2003 19:52:37 +0000 http://crookedtimber.org/wp/?p=152#comment-2267 If the (U.S.) airlines were so successfully deregulated, why have we (U.S.) taxpayers had to <a href="http://www.heritage.org/Press/Commentary/ed050503.cfm">bail them out</a>? Will we be repaid? At what rate of interest? Personally, I might have freely decided to put my money somewhere with a higher rate of return. I look forward to the energy bill to see what forms will be advanced of giving energy companies the benefits of "free" markets while absolving them of the corresponding risks. If the (U.S.) airlines were so successfully deregulated, why have we (U.S.) taxpayers had to bail them out? Will we be repaid? At what rate of interest? Personally, I might have freely decided to put my money somewhere with a higher rate of return. I look forward to the energy bill to see what forms will be advanced of giving energy companies the benefits of “free” markets while absolving them of the corresponding risks.

]]> By: Lorenzo http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2266 Lorenzo Mon, 18 Aug 2003 18:00:18 +0000 http://crookedtimber.org/wp/?p=152#comment-2266 Power generation is also at the very least a natural oligopoly, if not a monopsony or monopoly. The barriers to entry are very high, and there is an active disincentive to build generating capacity (because the demand for electricity is very price inelastic). Any generating capacity beyond the bare minimum necessary must go idle or drive down prices with no benefit in sales volume, therefore it is in the rational self interest of electricity producers not to invest in expensive to build, and costly to idle power generation plants that can do nothing but hurt profits past the bare minimum necessary for current conditions. Power generation is also at the very least a natural oligopoly, if not a monopsony or monopoly. The barriers to entry are very high, and there is an active disincentive to build generating capacity (because the demand for electricity is very price inelastic). Any generating capacity beyond the bare minimum necessary must go idle or drive down prices with no benefit in sales volume, therefore it is in the rational self interest of electricity producers not to invest in expensive to build, and costly to idle power generation plants that can do nothing but hurt profits past the bare minimum necessary for current conditions.

]]> By: Prometheus 6 http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2265 Prometheus 6 Sun, 17 Aug 2003 14:40:31 +0000 http://crookedtimber.org/wp/?p=152#comment-2265 micha: That was indeed a balanced look at airline deregulation. I particularly liked this statement: <i>These problems drive home the lesson that the dismantling of comprehensive regulation should not be understood as synonymous with total government laissez-faire. The principal failures over the last fifteen years have been failures on the part of government to vigorously and imaginatively fulfill responsibilities that we, in deregulating the industry, never intended it to abdicate.</i> Based purely on observation, total government laissez-faire is a central part current deregulation philosophy ("philosophy" may not be the proper term). It's what makes me resist the plans of the deregulators as strongly as I resist the plans of the tax-cutters. Absolute deregulation tends to benefit the previously regulated monopolies because their position is already intrenched. At best it merely restructures the monopoly (the telephone and cable systems are good examples of this) and at worst it enables manipulation of vital markets that consumers have no choice but to participate in (the West Coast electrical market manipulation being the best example of this). micha: That was indeed a balanced look at airline deregulation. I particularly liked this statement: These problems drive home the lesson that the dismantling of comprehensive regulation should not be understood as synonymous with total government laissez-faire. The principal failures over the last fifteen years have been failures on the part of government to vigorously and imaginatively fulfill responsibilities that we, in deregulating the industry, never intended it to abdicate. Based purely on observation, total government laissez-faire is a central part current deregulation philosophy (“philosophy” may not be the proper term). It’s what makes me resist the plans of the deregulators as strongly as I resist the plans of the tax-cutters. Absolute deregulation tends to benefit the previously regulated monopolies because their position is already intrenched. At best it merely restructures the monopoly (the telephone and cable systems are good examples of this) and at worst it enables manipulation of vital markets that consumers have no choice but to participate in (the West Coast electrical market manipulation being the best example of this).

]]> By: Micha Ghertner http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2264 Micha Ghertner Sun, 17 Aug 2003 03:46:39 +0000 http://crookedtimber.org/wp/?p=152#comment-2264 <i>Can you name an industry that was deregulated that wound up with more players, more competition and lower prices?</i> Airline deregulation, although not perfect, has been pretty darn successful. <a href="http://www.econlib.org/library/Enc/AirlineDeregulation.html">Here</a> is a pretty balanced article on the subject: Can you name an industry that was deregulated that wound up with more players, more competition and lower prices? Airline deregulation, although not perfect, has been pretty darn successful. Here is a pretty balanced article on the subject:

]]> By: Micha Ghertner http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2263 Micha Ghertner Sun, 17 Aug 2003 03:40:44 +0000 http://crookedtimber.org/wp/?p=152#comment-2263 <i>Y’all need to listen to that dirtdigger extraordinaire, Greg Palast: <i> http://www.zmag.org/content/print_article.cfm?itemID=4051&sectionID=10 </i> Wow. Zmag presented as a credible source of information. Shall I counter with a link to the John Birch Society's website? Everyone who isn't in on the conspiracy knows that this blackout was a communist plot.</i> Y’all need to listen to that dirtdigger extraordinaire, Greg Palast: http://www.zmag.org/content/print_article.cfm?itemID=4051&sectionID=10 Wow. Zmag presented as a credible source of information. Shall I counter with a link to the John Birch Society’s website? Everyone who isn’t in on the conspiracy knows that this blackout was a communist plot.

]]> By: Snot Rocket http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2262 Snot Rocket Sun, 17 Aug 2003 01:46:21 +0000 http://crookedtimber.org/wp/?p=152#comment-2262 <i>Don’t make me laugh! You really are a presumptious fellow, aren’t you? What’s next - you’ll deign to teach me elementary microeconomics, reveal to me the secrets of balance-sheet analysis, or initiate me into the art of discounted cash-flow modelling?</i><p> OK, so I ask you. Please make your argument. A reasoned, considered message would probably be well recieved here. <p> I'm waiting.<p> </p></p></p> Don’t make me laugh! You really are a presumptious fellow, aren’t you? What’s next – you’ll deign to teach me elementary microeconomics, reveal to me the secrets of balance-sheet analysis, or initiate me into the art of discounted cash-flow modelling?

OK, so I ask you. Please make your argument. A reasoned, considered message would probably be well recieved here.

I’m waiting.

]]> By: Prometheus 6 http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2261 Prometheus 6 Sat, 16 Aug 2003 23:21:15 +0000 http://crookedtimber.org/wp/?p=152#comment-2261 jlowe: Can you name an industry that was deregulated that wound up with more players, more competition and lower prices? jlowe: Can you name an industry that was deregulated that wound up with more players, more competition and lower prices?

]]> By: JLowe http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2260 JLowe Sat, 16 Aug 2003 19:35:50 +0000 http://crookedtimber.org/wp/?p=152#comment-2260 The Cato Institute article isn't that bad, even if it comes close to advocating distributed generation (the utilities would hate that). I don’t think we’re deregulated enough. If there was more deregulation and everyone was a player in the marketplace, then we would all have to understand way more about our electricity than sticking a plug in the wall or flipping a switch. Developing the understanding of our electrical system would be somewhat difficult and time-consuming, and for most people, a real hassle. Perhaps then we all would stop using so much of the stuff. The Cato Institute article isn’t that bad, even if it comes close to advocating distributed generation (the utilities would hate that). I don’t think we’re deregulated enough. If there was more deregulation and everyone was a player in the marketplace, then we would all have to understand way more about our electricity than sticking a plug in the wall or flipping a switch. Developing the understanding of our electrical system would be somewhat difficult and time-consuming, and for most people, a real hassle. Perhaps then we all would stop using so much of the stuff.

]]> By: Walt Pohl http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2259 Walt Pohl Sat, 16 Aug 2003 15:14:15 +0000 http://crookedtimber.org/wp/?p=152#comment-2259 Abiola: I'm not objecting to your opinion. I'm objecting to the level of vituperation you have brought to almost every single post you made on this thread. And a link to the Cato Institute? There's someone with even less of an agenda than the Economist. :-) Abiola: I’m not objecting to your opinion. I’m objecting to the level of vituperation you have brought to almost every single post you made on this thread. And a link to the Cato Institute? There’s someone with even less of an agenda than the Economist. :-)

]]> By: eric http://crookedtimber.org/2003/08/15/darkness-on-the-edge-of-town/comment-page-1/#comment-2258 eric Sat, 16 Aug 2003 15:00:53 +0000 http://crookedtimber.org/wp/?p=152#comment-2258 If it was really a market failure, then we'd be seeing these blackouts all the time. It would be like Nairobi or something. If this morning's NY Times is to be believed, (and I'll leave you all to that one), the power flux that caused this was unprecedented, and caused the whole event to pretty much take place with 9 or 10 seconds. One of the engineers the Times talked to said he'd never seen anything like it. And I've got plenty of incentive to conserve. If I don't use power, I don't have to pay for it. It's pretty simple. If it was really a market failure, then we’d be seeing these blackouts all the time. It would be like Nairobi or something. If this morning’s NY Times is to be believed, (and I’ll leave you all to that one), the power flux that caused this was unprecedented, and caused the whole event to pretty much take place with 9 or 10 seconds. One of the engineers the Times talked to said he’d never seen anything like it. And I’ve got plenty of incentive to conserve. If I don’t use power, I don’t have to pay for it. It’s pretty simple.

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