Lynne Kiesling is a very smart professor/blogger/editor. I have reluctantly crossed pens with this formidable intellect before about the energy situation in California. In direct opposition to her market analysis, I continue to maintain that greed and criminal behavior are at the heart of the energy price shocks we experienced in 2000-2001. I believe the long term contracts that help drain our budget daily were unfairly influenced by the blatant and adjudicated exercise of market power by El Paso and many of the generators such as Reliant, Dynegy, and others. Now that you know our respiective biases I can get to the point.

In a piece today Professor Kiesling takes a righteous 2x4 to Cruz Bustamante's proposals to regulate the gasoline industry as a utility. Towards the end of her piece she trys once again to lay the fault for the electrity crisis at Gray Davis’s welcoming door by refusing to acknowledge the violations of laws, trampling of universally accepted ethical business practices, and complete disregard of a host of regulations guiding the honest operation of California's energy market. Clearly, Gray Davis failed to act when San Diego was melting down in June of 2000, but by the end of that year he was in full-voiced outrage against Enron and the other suppliers. He was speaking the now-acknowledged truth when he called the energy companies criminals and justifiably condemned FERC for failure to enforce just and reasonable rates as required by law. California's electricity consumption was barely increasing year to year, but the rates jumped irresponsibly high.

She also implied in her article that no refineries have been built since 1976 because of environmental regulation. As she well knows, refiners are willing to acknowledge the role of industry profitability in preventing new refineries from being build. Tight markets suit them just fine. A fact that Cruz Bustamante knows just as well as the CEOs of big oil. The essential truth of what Cruz was speaking is that these enterprises are too important to the daily life of all our citizens to be anything but a utility. Where we can possibly find common ground is in the use of the market to help solve the problem in ways that satisfy both the public and the oil industry.

I agree strongly with Lynne that price controls on gasoline are a terrible idea. What I'm willing to entertain, and hope she would too, is the notion that public incentives via tax or subsidy might economically reward the refiners for building modest increases in production and storage capacity that they could use to buffer the crisis events that have sent prices rocketing in recent times. I'm sure the public and big oil can mutually arrive at a market price agreement that would give us more stability in supply and price. What better use for a fair market mechanism could there be than to use public wealth to purchase the abandonment of shortage as a pricing tool for the oil companies? There are always going to be price shifts in the oil industry due to longer term fluctuations, but surely it makes sense for each of us to pay a fifteen or twenty dollar subsidy to encourage the oil companies to hold an extra week's worth of gasoline in storage for each of us.
posted by Dave on 9:57 PM | 0 comments link

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