AEP Power Rate increase....

[RichlandsAlum 678]

[ QUOTE ]

But, since when has creating a bureaucratic mess solved anything???

 

Um….never

 

[/ QUOTE ]

 

I'm not exactly sure what you mean by the term "bureaucratic mess." Do you really have some insight into the issue, or are you just parroting a catch phrase that you've picked up somewhere?

 

In terms of the government's role, the Commonwealth (until very recently) had policies in place to cap rate increases which seemed to benefit all parties involved. The corporations themselves are for-profit entities with shareholders who expect a return.

[RichlandsAlum 678]

[ QUOTE ]

all i know is that there is no way it should cost me $200 a month for electricity...

 

[/ QUOTE ]

 

How much "should" it cost?

 

No flame implied. I'm just curious here.

[Lance 228]

[ QUOTE ]

[ QUOTE ]

all i know is that there is no way it should cost me $200 a month for electricity...

 

[/ QUOTE ]

 

How much "should" it cost?

 

No flame implied. I'm just curious here.

 

[/ QUOTE ]

 

I'd say about half of that would be reasonable...$100 to $125...it was about $85 before the rates went up if that gives you any idea...i'm not opposed to paying what is fair...i just don't see $202.85 a month as being fair...$30 or $40 a month more in a "rate increase" is more than fair to AEP...bills being more than twice what they were 5 months ago is not...just my opinion.

[RichlandsAlum 678]

[ QUOTE ]

 

I'd say about half of that would be reasonable...$100 to $125...it was about $85 before the rates went up if that gives you any idea...i'm not opposed to paying what is fair...i just don't see $202.85 a month as being fair...$30 or $40 a month more in a "rate increase" is more than fair to AEP...bills being more than twice what they were 5 months ago is not...just my opinion.

 

[/ QUOTE ]

 

I completely understand where you're coming from.

 

As I posted elsewhere in this thread, this problem is kind of unusual in that it is somewhat market driven. Boiling it down, the supply of electricity has remained fairly stagnant (no new power generating facilities to speak of have been constructed in about 30 years) while the demand for it has spiked significantly. It's a simple matter of economics.

 

Unfortunately, the net effect of deregulation is that we're going to pay whatever the generating companies decide to charge us until competitive new facilities are up and running. Since those are pretty capital intensive, don't expect to see any kind of relief in the market for at least another 5-7 years. Honestly, the "best" case scenario right now is that consumer prices will remain fairly constant for a couple of years.

[Lance 228]

yeah..bottom line is...it still sucks.

[buzzsawBeaver 12]

the big problem is these types of rate increases are done by any business that can get away with it anymore, and a lot of other costs go up to offset others, ect., and these companies don't care about how before long the common american citizen becomes a lot poorer, and they don't realize how much they harm this country and weaken it. Islam is a threat but you count on this, america will fall from within, companies such as aep being greedy aren't going to be the actual fall of america, but they will be another brick in the wall so to speak. But the big shots at aep and these other companies don't care about how much harm they do to america or how many people are harmed, the big shots will be wealthier and won't be phased by economics like most people will. By making people poorer they make people dependant and icreasingly dependant on who, the government, which leads to bondage, "historically".

Historically, there are about 7 major steps from the rise of a great nation to it's fall and the 2nd to last before bondage, the fall, is dependancy.

Reads like a lot of extremists hot air, so nothing to be concerned about. Except 1 of the big latter steps before dependancy is something like arrogance or overconfidence.

Complete ignorance is about what a lot of america lives in, not all but a lot.

Speaking of the great and powerful nation, hopefully everyone's watching closely as democrats and the senate are doing everything in their power to surrender a war to our enemies by '08.

It was sep. '08 but apparently they're becoming even more courageous and hoping to have us tuck our tails and run by march '08.

Off subject with that and off my sopabox for the time being.

[Lance 228]

yeah...back to the topic...the rate increase still sucks...lol.

[dcecilgolf 11]

Yes, they do suck, but life isn't fair.

 

I honestly have no information on this certain circumstance; I have never paid the power rate bill in the house, so I wouldn't really pay attention.

It may have been mentioned once in the house, so forgive me if I have no idea what I am talking about.

 

 

sooo.... The market determines the price, bottom line.

If the prices rose, then it is because they were forced to because the market demanded it.

 

A free market is something I believe in...so I favor deregulation.

 

If the government regulates AEP and the price they charge for power, then they in turn may not make a profit.

People complain about the crappy service and whatnot, which may be a result of AEP not having enough money to hire the manpower to service the people it serves.

 

Federal gov. regulation is not good for businesses or the people the business's serve.

[buzzsawBeaver 12]

it's a double edged sword when it's a matter of government regulation.

[dcecilgolf 11]

I have a very hard time in some cases of finding a good side to regulation.

[buzzsawBeaver 12]

granted, but it's a matter or what's the answer to preventing companies from charging outrageous amounts for services such as electricity, or products, such as oil, the country overall seems to be dependant on. The government shouldn't be the answer but in my opinion the results of that is the american people and the country will be harmed because of these companies. To me it's simply a lose lose situation for the overall population itself.

[dcecilgolf 11]

I know this is an old/sore topic, but does anybody know the specific guidelines for the deregulation?

 

I am trying to figure out if the GA actually deregulated or just re-regulated.

[Hacker 82]

Deregulated in 2001 or 2002. Reregulated in 2007

 

Not all legislation works out as it was intended. I think is is a hoot to deregulate something that works like a regional cartel anyway.

[dcecilgolf 11]

Do you know the specifics of the "deregulation" in 2001?

[Hacker 82]

The basic concept was that each individual and business was going to be free to purchase power from any willing supplier at a negotiated price. The problem came that few companies were willing to come into one company's service territory to poach customers, for fear that the same thing would happen to them.

 

With businesses unwilling to compete, the consumer was left with no alternatives. (Sort of like what has gone on for years with your local phone company.)

[dcecilgolf 11]

It makes absolutely NO sense at all that companies would be 'unwilling' to compete. That is completely contradictory of the free market system.

There has to be more to the "deregulation" than what you said Hacker.

 

What is the negotiated price?

Is this a price set by the company or by a government regulatory agency?

 

I am just curious because I forgot I had a few Public Policies Economics books that touched on the regulation/deregulation issue.

 

I am just curious to see how much our situation in VA was like the situation in California where they said it was deregulation, but they just actually changed a few regulations to make it appear as deregulation. In fact all they did was contradict the already regulated agency in areas that hurt everybody involved.

[BigD4VT 11]

[ QUOTE ]

It makes absolutely NO sense at all that companies would be 'unwilling' to compete.

 

[/ QUOTE ]

Sounds like collusion to me

[dcecilgolf 11]

Thanks for the Word of the Day Big D, haha.

 

col·lu·sion n.

A secret agreement between two or more parties for a fraudulent, illegal, or deceitful purpose.

 

But back to the story, there would have to be some underlying store of why businesses would be 'unwilling' to compete.

I have never heard of one instance where that has ever been the case, big business 'poach' customers all the time, and then laugh at the other company just for kicks.

[GMan 3,569]

[ QUOTE ]

col·lu·sion n.

A secret agreement between two or more parties for a fraudulent, illegal, or deceitful purpose.

 

 

[/ QUOTE ]

 

Example...the "BIG" oil companies...

[RichlandsAlum 678]

As I mentioned previously, this issue is complicated.

 

One of the main complications is that electricity is a good that very few people can or would choose to live without. The standard model of competition allows that less successful competitors essentially die off and go away. The problem with competition among electric utilities is that even the less successful competitors have customers who are dependent upon the service they provide.

 

To speak bluntly, Southwest Virginia isn't a particularly desirable market area. If AEP were to go belly-up, it's unlikely that many companies would be interested in taking over the service territory. The ones who might step up would probably be bottom feeders.

 

The cable industry might be the closest comparison, but it's still not really close.

 

I'm no tree hugger, but the only shot that consumers have to control costs is to find ways to use less energy. The whole deregulation argument is simply one facet of an enormously complex issue, and it's probably not even the most important one at that.

[Hacker 82]

You're right about the cable companies being a good analogy. Each cable company has a "non-exclusive" franchise to serve a given community. This means any company can in theory come in and build their own system and compete.

 

The reality is that it never happens, even in communities with crappy systems that are begging for competition. The big companies have "gentleman's agreements" not to compete.

 

We love to talk about the free enterprise system, and the benefits of competition, but the truth is many industries prefer the monopoly model. (Ask Bill Gates)

 

Oh and Drew deregulation of electric utilities nationwide got shot in the butt by the Enron debacle.

[dcecilgolf 11]

This is what got me thinking on the GA's choice to re-regulate.

It is an excerpt from "The Economics of Public Issues- Thirteenth Edition"

http://wps.aw.com/aw_millbennor_econpublic_13/

 

Sorry if some of the words are a little off, I just scanned the book into the computer and then had it converted to words.

 

13

Lights Out in California

 

In the summer of 2000 things started to get very strange in California's electricity market. First, wholesale electricity prices soared to ten times previous levels, even as retail prices stayed un¬changed, pushing two of the state's three large electric utilities into financial ruin. Then the electric companies started turning the lights outâ€â€electricity services to large blocks of customers were simply turned off for several hours each day. And finally, the government of California decided to get into the electricity business, buying it on the wholesale market and selling it at retail for prices that didn't come close to covering costs. Plenty of people, in California and elsewhere, thought this mess was caused by a failure of the market system. In fact, nothing could be farther from the truth. The real culprit was the attempt by California's governor and legislature to circumvent market forces. Let's see why.

We must begin with a look back in time. Historically, electricity in this country has been supplied by regulated monopoliesâ€â€firms that are granted the exclusive right to sell electricity in part or all of a state, but at prices that are regulated (decided upon) by an agency of the state government. The rationale for this arrangement has been technological constraints that led to economies of scale in the industry: costs have been lower when one firm supplied the electricity than when several firms competed to do so. But with only one firm in the market, there would be an incentive for it to raise prices well above costs. To ensure that the savings of the scale economies were achieved and passed on to consumers, states have thus allowed firms to be monopoly suppliers of electricity, but limited the prices they have been permitted to charge.

In recent years, rapidly advancing technology has virtually eliminated the huge economies of scale that once dominated this

 

 

industry. Small plants can now generate electricity much more

cheaply than before; efficient high-power transmission lines enable firms to compete effectively with those in other states; and

communications and computer advances have made it possible to

coordinate the production and distribution of electricity across

dozens or even thousands of different firms across the country. As a result, interest has grown in reducing the amount of electricity

regulation in the U.S., i.e., opening up markets to competition, in

the hopes that electricity bills could be lowered as more firms

competed for the business of consumers. This process, called

"deregulation," was the path along which California seemed to

start in the 1990s. Unfortunately, although California used the

term deregulation to describe the actions it took, the label bore almost no resemblance to reality. In fact, the new rules imposed by

the state are better described as "re-regulation."

What California called deregulation was a combination of three policies. First, the state cut legally permissible retail electricity prices by 9% and then forbade firms from raising prices to customers, regardless of costs. Second, in a move that actually did resemble true deregulation, the state allowed wholesale electricity prices to move freely in response to market forces. Because California electric companies were on balance net importers of electricity from producers in other states, this meant that the wholesale costs of California electric companies were free to fluctuate, even though their retail prices were fixed by law. The third component of California's plan was to require utilities to sell off much of their productive capacity and simultaneously prohibit them from using long-term contracts to buy electricity on behalf of their customers. Instead, California electric utilities were required to buy electricity on a day-ahead basis in so-called "spot" markets at whatever prices happened to be each day.

This odd combination of rules was cobbled together by California politicians in their efforts to get consumers and producers to agree to deregulation. Consumers, suspicious of the long history of monopolies in this market, wanted assurances they wouldn't get stuck with higher bills when deregulation went into effect; thus the state cut retail prices and locked them in at the lower level. Producers hoped that wholesale prices would go down and wanted to be able to capture all of the profits if they did so; hence, the state freed wholesale prices to move in accord with market forces. And finally, politicians and regulators in California wanted to encourage new firms to supply wholesale electricity to the state; to encourage utilities to buy from newcomers, the state forbade long-term contracts that might have discouraged new firms from trying to crack the market.

There was actually a chance this system could have worked if things had gone just right. What the state needed was a combina¬tion of stable demand in California, to keep consumption from growing too much, and low wholesale electricity prices, to keep the utilities' costs down. Fortunately, for the first two years of the plan, these conditions were met. Unfortunately, in 2000 the state's luck ran out: as we'll see below, demand in California rose, supply was reduced, and the restrictions the legislature had imposed on the market prevented it from mitigating the effects of either. The result was catastrophe.

Electricity consumption is importantly affected by both weather and business conditions. In 2000 the California economy was booming, pushing up the demand for electricity, and adverse weather conditions in the state helped fuel demand even further. With retail prices fixed by law, there was nothing to choke off con¬sumption. On the supply side, a substantial portion of the electricity in the West comes from hydroelectric sources, which of course ultimately rely on accumulated rainfall. Gas turbines burning nat¬ural gas are also used to produce electricity. As it turned out, drought in the Pacific Northwest combined with rising natural gas prices to produce a surge in wholesale prices.

Ordinarily, California suppliers would have purchased insur¬ance against such an event by entering into long-term contracts at prices mutually agreed upon ahead of timeâ€â€prices that weren't subject to the day-to-day fluctuations of the volatile spot market. But of course such contracts had been made impermissible in California, forcing the utilities to buy at wholesale prices up to ten times higher than their long-term average. Just as important, in a truly deregulated market, higher wholesale costs would have been partially passed on to consumers in the form of higher retail prices. This in turn would have reduced quantity demanded and also dampened the financial losses for the utilities. But of course retail prices were fixed by the state. Hence the utilities suffered huge losses; moreover, to mitigate those losses they started rationing consumers in the only way left to themâ€â€by turning out the lights in a series of rolling power blackouts, literally not supplying successive blocks of customers with electricity for hours at a time. Even so, two of the biggest utilities in the state were pushed into financial ruin.

Faced with the prospect of having no utilities around to supply electricity, the state decided to become a middleman itself. It began buying wholesale electricity from outside the state and then selling to California consumers at the below-cost retail prices it had man¬dated. The financial drain eliminated the state's budgetary surplus and ultimately has saddled its citizens with $7 billion in debt.

Where did things go wrong? Almost everywhere, but there are two elements of California's supposed deregulation that are particularly relevant. First there was the state's prohibition against long-term contracts. Electricity consumption is highly sensitive to weather and business conditionsâ€â€both of which are subject to considerable uncertainty. Private firms have strong incentives to make the best possible forecasts of the future, because if they are correct they earn large profits, which quickly turn into large losses if they are wrong. Ordinarily, firms minimize their expected costs by using a blend of measures: long-term contracts to guard against price increases and spot contracts to take advantage of price reductions. California rules prevented utilities from doing this, driving up their risks and ultimately their costs.

Just as important was the legal ceiling on retail electricity prices. A crucial function of market prices is to encourage consumers to alter their consumption patterns in response to changes in the true cost of goods. Thus, when the opportunity cost of goods rises, high prices will correctly induce consumers to use less. Alternatively, when the true cost of goods falls, low prices will correctly induce consumers to take advantage by using more. In this way we make the best use of our scarce resources. But in California, the upper limit on retail prices meant that when the cost of supplying electricity soared in 2000, consumers had no incentive to curtail their usage. With no other means of rationing customers, the utilities were compelled to resort to inefficient non-price rationing devicesâ€â€in this case rolling power blackoutsâ€â€that are commonplace when governments interfere with market prices.

Few things in life are without irony, and California's energy crisis was no exception. By the spring of 2001, the rains had returned

to the Pacific Northwest and natural gas prices had begun to fall, in both cases pushing wholesale electricity prices down sharply. But during the height of the crisis, the California state government had chosen to use long-term contracts to acquire the electricity it was selling to consumersâ€â€the very same long-term contracts it had prevented private firms from using. With the decline in wholesale prices in 2001, this left the state government buying power at far more than current spot market pricesâ€â€and left the taxpayers paying for the failure of their politicians to truly deregulate.

 

 

 

DISCUSSION QUESTIONS

1. In the midst of California's crisis, Governor Gray Davis said,

"If I wanted to raise prices, I could solve this problem in 20

minutes." Was the Governor correct in saying this? If so, why

didn't he do it?

2. Are customers better off with low electricity prices most of the

day and no electricity some of the day than they would be with

high prices all day? How does your answer depend on (i) how

long the electricity is off under a price control regime, and (ii)

how high prices get when they are allowed to move up?

3. The events in California illustrate that the choice of making

purchases through the spot market versus using long-term contracts can have important effects on profitability. Is there any

reason to believe that private sector firms might do a better job

of making this choice than would legislators or other government agents? Can you think of a way to test your conjecture?

4. Electricity prices are typically regulated so that electric utilities are limited in the amount of profits they can make. Does

this limit on profits likely affect the way these companies do

business? For example, would it affect how careful they were

about choosing between spot market purchases and long-term

contracts? Would it affect the unionization rate or the rate at

which cost-saving technologies are introduced?

[BLU 10]

[Lance 228]

i heard today that they might have to start credits back soon? Anyone hear anything on this or is it just a rumor...looked around on the local websites and i didn't find anything.