Michael Pollak wrote:
> There are three other factors that this article leaves out that make the
> deregulation of energy look even more nuts.
>
> 1. It's legal to corner the market. When a generator goes out, or is
> stretched beyond capacity, the supplying company needs energy right that
> moment. But physically, there are only a few neighboring generators that
> can supply that power. If all of their free power has been bought by
> brokers that do nothing that buy and sell power (called "power
> marketers"), then they can charge you anything they want. And since the
> market if very small and transparent, that's exactly what happens. The
> change in prices are phenomenal. For example, during that recent
> unexpected spike of 90 degree weather in New York a week back, power went
> from $45 a kilowatt hour to $2,750 a kilowatt hour. And you can count on
> that happening every time a generator browns out. Synergy, one of the
> largest power generators in the country, lost $170 million in three days
> this way.
>
> Because of this, it is an open question whether marketization of the grid
> causes lower prices. In other words, it may be unseaworthy and cost more.
>
> 2. Power marketers do nothing but buy and sell power. All their profits
> come from arbitrage. And naturally, they short the market sometimes.
> And just as naturally -- especially when you factor in this spike behavior
> -- they can get caught drastically short. And even more naturally, when
> they can't cover their contracts, it causes an astonishing chain reaction
> through similarly situated marketers. On June 23rd, 1998, bankruptcies
> cascaded through the system like ice-9. They're still sorting them out.
>
> 3. A variation on that last bit is that when marketers don't short the
> market, they sometimes end up in possession of absurdly valuable power
> that they've contracted to sell at way below its market value -- e.g.,
> they've got contracts to sell power for $12 a Kwh that they could sell
> elsewhere for $3000 a kwh. The incentives to break their contracts on
> flimsy pretexts is huge. And once again, it causes chain reactions.
>
> Michael
>
> __________________________________________________________________________
> Michael Pollak................New York City..............mpollak at panix.com