Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Exchanging the market for high prices and corruption

Jerry Stratton, November 8, 2009

What is with politicians trying to force consumers through a government-designed exchange to buy services? Everytime I read about the health insurance exchange that the Democratic plan sets up, I get flashbacks to the power exchange set up by California politicians in the late nineties.

Here in California the government “allowed” us to buy our electricity from individual providers instead of a single power company. But those providers were forced to buy all of their power through a single exchange at a single price. How was that supposed to help lower prices or increase service quality?

All an exchange does is ensure high prices and corruption. It increases costs by reducing choices, by increasing the number of middlemen—someone has to be paid to run the exchange and monitor the regulations—and it creates a single point of corruption. And because the exchange is just a series of regulations set up by the government, it inevitably fails at a crisis point.

When that crisis hit here in San Diego, power prices went crazy—and power wasn’t even “gravity-driven” before the power exchanges came into play. Rather than let us choose our power based on service, price, quality, or some combination, we had to go through a company that had to go through a PX that had to conform to strict government regulations. Consumers—those of us that actually had to use power—could only “negotiate” with companies that had no power1 to set prices or to give us what we wanted.

I remember looking into buying green power. There was a company that claimed to be green; it didn’t provide green power. It couldn’t—all the power was on the other side of the exchange and they weren’t allowed to go there. All they could do was promise to donate some part of their profits to green sources. That was the extent of consumer freedom under the power exchanges.

Like California’s power exchanges, health care exchanges add more regulations; these cost money to comply with. They add more middle-men; these cost money too. They mandate a one-size-fits-all pricing scheme; this increases prices for everyone who doesn’t need that size. It creates a system where we have little to no control over what services we buy. And it creates a massive single point through which all money flows. It’s going to attract corruption on a scale that will dwarf that of Enron’s traders.

March 4, 2020: California never had a free market power failure
San Onofre Nuclear Nipples: The San Onofre nuclear plant from I-5, March 5, 2012.; California; nuclear power; nuclear

A monument to regulatory sclerosis.

Now that California’s state-managed power grid is yet again failing, I hear again how deregulation failed back in 2000. But I was in San Diego, at the brunt of the damage. There was never any deregulation. There was never any attempt to bring a market economy to electricity in California. We never had a choice of power generator, nor did the people we bought power from. I remember looking at the various options we had, and looking at the mix between green and non-green power generation, compared to the average; every option, even options supposedly focused on green power generation, had exactly the same mix percentage-wise.

According to Green Mountain’s three-fold flier, what they did that made them green was donate to clean energy solutions. At the time I thought that was silly, but it didn’t occur to me it was indicative of a larger problem with the system. It was only afterward, when I learned how the system worked, how micromanaged it was by California, that I realized why power companies did it that way.

They had to. There was no market where Green Mountain could go buy green energy and sell it to me. Instead, we had an exchange run by California bureaucrats that funneled all the same power from one side, the electricity producers, to the other side, the electricity sellers. The politicians claimed it was a means of simulating a market economy, but if you looked at it, it was clearly designed to deny a market economy. Long-term contracts were forbidden. Negotiating prices was forbidden; well, technically not forbidden, but the power sellers didn’t get to pay the price they negotiated. The formula decided the price they were going to pay, and it was designed to run high. Everybody paid the same price, what the bureaucrats, not the end customers, decided was the market price. They used a formula that heavily weighted the highest bids, making it an easy system to manipulate.

This was what Enron did. They looked at the formula and manipulated the inputs to the formula, forcing all consumer-side sellers to pay high prices for power. They, of course, passed the formula’s costs on to us. That wouldn’t have worked in a market economy, because we could have chosen to switch to different power generators, and we’d have negotiated prices with them already anyway so that faking high prices wouldn’t have altered our contracts.

  1. No pun—the way that power exchanges were set up meant that we had rolling blackouts, where we literally had no power at all.

  1. <- Gerrymandering NY 23
  2. Health competition ->