September 02, 2003

FERC Deals With Cal. Energy "Withholders" a "Joke" Says Krugman in NYT

Columnist Paul Krugman of the New York Times styles as a "joke" the FERC-energy companies settlement in the California energy crisis in "Another Friday Outrage" on 9/2/03. According to Krugman, most experts agree that during 2000-2001, energy companies manipulated prices through "economic withholding" keeping capacity offline to drive up prices above competitive levels. Yet the settlement is far lower than the impact on ratepayers for two reasons, he says. First, it is easier to prove an industry pattern than intentional withholding by a particular player; an "accidental" shutdown looks much like an "accidentally on purpose" shutdown. Second, because withholding drives up prices generally, all companies (not just those responsible) profited from others' manipulation.

Krugman's solutions? One, make the continental electrical transmission system (for which no one seems responsible) robust. Two, assign a watchdog with more power than FERC has today. Three, make sure the watchdog is independent of the energy companies. What qualifications has Krugman (Professor of Economics and International Affairs at Princeton University) to advise us? More than a few: Paul Krugman Biography

Posted by dougsimpson at September 2, 2003 10:57 AM | TrackBack