The foundation of the Smithian economic model is that the market allows both allocative and productive efficiency. Such a market, now the standard for industries such as telephone companies, airlines and trucking, achieves this by forcing producers to compete to offer their good for the lowest price, thus saving consumers money. This, however, has not been the case for the business of generating electricity. After opening to competition over a decade ago, a truly competitive market for electricity production has yet to develop.
Advocates of the new system, such as Joseph T. Kelliher, the chairman of the Federal Energy Regulatory Commission, hold that eventually “market discipline will deliver the best prices.” Some argue that change can already be seen. Mark L. Fagan conducted a study that concluded that the new system often produces better results. Fagan argues that in 12 of 18 states that restructured, “prices were lower for industrial customers than they would they would have been under the old system.” Proponents of this system, however, seem to be quickly losing support to those who want to return to an updated version of the old system, in which states had rate-setting power.
Critics of introducing competition into the utility industry believe that the new system is not effective and, among other things, “can be manipulated to drive up prices, with the increases passed on to consumers.” Furthermore they argue that companies that produce electricity can withhold or limit it, further lifting prices. Many places, such as Baltimore, have already begun to experience heavy rate increases. Wary of these increases six states, including California, have suspended or delayed transition to the competitive system. Regardless of the debate, as of now, the market structure that led to “unambiguous drops in the prices of telephone calls, air travel and trucking” has yet to work its magic for electricity.
by Carter Mann, Christopher Hildner, and Bradley Fromm
Article: http://select.nytimes.com/gst/abstract.html?res=F30C11FE35540C768DDDA90994DE404482
Subscribe to:
Post Comments (Atom)
1 comment:
I would be interested to find out why support is swinging back towards the old system. It seems to me that a competative system would provide the best possible prices, but that new firms would have to incur large entry costs, considering the amount of infrastructure which is needed to create and provide energy. Over time I believe that competition would be able to flurish though, which would be very good for consumers. The authors of this blog seem to favor the competative system as well, and I would agree wholeheartedly.
Post a Comment