Cato Daily Dispatch April 26, 2001 http://www.cato.org/ http://www.cato.org/dispatch/04-26-01d.html
PRICE CONTROLS FOR A PROBLEM CAUSED BY PRICE CONTROLS
Responding to growing political pressure, federal regulators are ordering price caps during California electricity emergencies in an attempt and avoid severe price spikes this summer, the Associated Press reports. ( http://dailynews.yahoo.com/h/ap/20010426/ts/power_prices_7.html )
The Federal Energy Regulatory Commission voted 2-1 late yesterday to regulate prices whenever California's electricity reserves fall below 7 percent, triggering a Stage 1 power alert.
FERC chairman Curtis Hebert, a Republican, said the order seeks to "balance" the need to encourage investment in power plants and boost badly needed supply, but also protect against "unreasonable" prices when supplies tighten.
Of course, smart investors will have a hard time putting their money into a venture whose prices and profits can be limited by the government. In "Power Economics," ( http://www.cato.org/dailys/03-29-01.html ) Jerry Taylor and Peter VanDoren explain that regulators "think that the 'right' price for electricity (and thus, the maximum legal price during power emergencies) is not at the intersection of supply and demand, but at the actual cost of generating electricity." A special Web site about the Western electricity crisis is available at www.cato.org/electricity.