Energy crisis stirs up bad vibes

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Energy crisis stirs up bad vibes

Wednesday, January 31, 2001

By BILL VIRGIN SEATTLE POST-INTELLIGENCER COLUMNIST

All right, that's it, time's up.

This '70s nostalgia binge was a lousy idea to begin with. Now it's gotten completely out of hand. A stop must be put to it.

It was bad enough to revisit, and revel in, the decade of bad hair, bad clothes, bad presidents, bad cars (the Vega, the Pinto and, one piece of rolling misery that I owned, the Horizon) and bad music (for two years running in the late 1970s, the highest-rated songs on American Top 40 were by Andy Gibb).

Now we are witnessing the revival of the energy crisis, and with it their corollary phenomena: the energy crisis conspiracy theory and the inept response of public officials.

You remember the energy shocks of the 1970s (and if you don't, lucky you) -- the shortages of gasoline, the soaring prices, the lines at stations, the even-odd-day schemes for gas purchases, the coal strikes, the dire predictions that all the West's wealth would be transferred to the Middle East.

You remember the official response to the energy shock -- cardigan-wearing Jimmy Carter proclaiming that the energy crisis was "the moral equivalent of war." Ridicule stemming from the observation that the acronym of "moral equivalent of war" was "meow" did not deter our president from pouring billions of dollars down the rat hole of alternative energy development (bought a gallon of coal-derived synfuel lately? I would hope not).

And you might even remember the conspiracy theories -- the stories of crude-laden tankers just over the Atlantic horizon, waiting for prices to get sufficiently high before unloading their cargo.

So now we have another supposed energy shortage -- the energy involved may be different, but just as 1970s music gets played on CDs rather than LPs, so, too, are the familiar themes of the 1970s energy crisis being now played on new instruments.

Hence we have proposals for massive state intervention in the power business, including massive reregulation and government ownership of generating facilities, just as we did more than two decades ago.

And we have conspiracy theories; boy, do we have conspiracy theories. To the Californians, this energy mess is just a greedy scheme by marketers to loot the public's pocket. To the utility industry, this is just a desperate attempt by government to hold on to whatever central-planning power it still has. To the Northwest, this is just an attempt by Californians to grab cheap electricity from us.

So we remember the 1970s -- but did we learn anything from them?

If we did, then what we learned is not to put our full trust and credit in conspiracy theories, but not to dismiss them entirely, either. And we should have learned that pell-mell dashes to government intervention are rarely a good idea -- but if we value our wallets, a little government oversight is a handy thing to have around, too.

It's hardly surprising that in a complex and confusing mess like the West Coast energy debacle, conspiracy theories would abound. Conspiracy theories are always popular because they answer all questions, explain all contingencies. If there are annoying gaps, why, that's because of the cover-up.

Every now and then, though, a conspiracy theory turns out to be true, or at least close enough to true to justify the public's increasing skepticism and cynicism.

Consider the related issue of whether the energy mess is symptomatic of too much deregulation, not enough or the wrong kind. A few weeks ago I heard a speaker at a local energy conference raise an interesting question: In an unregulated market, he asked, what is the incentive for power producers to build more capacity than is needed, a move that simply reduces the returns to those providers? Why not provide just under what is needed and create some scarcity value (which, in fact, is what the power producers and marketers in California are accused of doing, by making generation unavailable at times of high demand in a remarkable coincidence of maintenance outages).

The answer to that is greed. Greed creates cartels, but greed can break them. Greed motivates competitors to enter the market, which winds up driving down prices (even though that's not the intent). Greed motivated new producers to enter the oil market, and encouraged some of the cartel's own members to cheat by boosting production, thus breaking OPEC's choke hold on oil prices.

Or that's the theory, anyway. It sort of works in practice, but then in practice the conspiracy theorists aren't totally off base, either. You don't have to be so obvious as to hold clandestine price-fixing summits in smoke-filled rooms. Lots of industries are famous for sending nudge-and-a-wink signals to one another that it's time to raise or lower prices. Since the electric generating business has relatively high barriers to entry, it's not beyond the realm of possibility for power marketers to try gaming the system for higher prices and returns.

Greed works in the same way in the issue of planning and government involvement, even if there's no cartel. No real estate developer plans to build too many houses or office buildings; it's always someone else who failed to correctly forecast market demand and gluts the market and drives prices down and bankrupts some and creates wild swings between surplus and dearth.

Of course, most of us don't care if these swings occur among retailers of electronics, for example; most of us care immensely if it those swings occur among the retailers of electricity.

That, the government interventionists will argue, is exactly why electric utilities should not be treated like other industries, that the way to avoid this is through the old model of central planning and regulation, in which the utilities were expected to build sufficient generation to meet demand. In exchange, companies get a sufficient return on investment, and consumers get steady rates. For more on why central planning is no more guaranteed to produce the proper balance than the open market, see Exhibit A: WPPSS. Or for a more contemporary example, see Exhibit B: California.

This "crisis" will eventually get resolved, although we may not like how long it takes or how much it costs. We might save ourselves a bit of both by casting a wary eye at the pronouncements of either the unified-theory conspiracists or the "open market if it kills us" crowd. Avoiding the mistakes of the 1970s is more than just a matter of remembering them. Those who fail to learn from them are condemned to a fate not unlike being bound in a macramé plant hanger and swatted repeatedly with a copy of "Jonathan Livingston Seagull."

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattle-pi.com. His column appears Mondays and Wednesdays.

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-- Martin Thompson (mthom1927@aol.com), January 31, 2001


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