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14 Comments

  1. Back around 2002 or so I had the opportunity to give a headend tour (cable company equivalent of a telephone central office) to a group of investment bankers. One of them asked about our connection to the Internet. I quickly answered that we had an OC-12 (622 Mbps), and were happy to have it since it seemed our customers were always saturating our previous connections. Prior to the OC-12 we added DS-3 lines at a rate of about 2 per year, always waiting on the local Bell to get their end of the work finished. This would allow for a lot of growth both in customer count and bandwidth/customer used. I also mentioned that it was riding on 100% company fiber to the regional data center (RDC) in Pittsburgh, not leased from the local Bell. He then asked how many Internet customers we had, which at the time was about 10,000, most of them college students. “Overprovisioned!” he shouted. I asked him what he meant. “You don’t need an OC-12, that’s way too much bandwidth for this size system.” I again explained that it didn’t cost any more than any lessor circuit since we owned the path to the RDC, so why not plan ahead? He was hearing nothing of that. Since I wasn’t there to justify my company’s business decisions I let it go, but I also got a little taste of what it might be like when companies go to Wall St. for funding. Scarcity is a way to control price, and “good management” insures you have only what is needed for today, not what will be necessary for tomorrow.

    BTW, these days the minimum installation for any size headend is 10Gbps, with multiple 40Gbps becoming the norm in large metropolitan areas.

  2. I’m not sure how we fix Wall Street. President Obama did nothing. If Hillary Clinton becomes President, she will do nothing. A Republican President will do less than nothing (i.e. make it even easier to steal money). On the local level there are a few people — Senator Warren, for example. I guess we just keep trying and hope.

    1. @SteveK9

      I’m hearing lots of people mention Senator Warren as a possible contender. Ms. Clinton carries some serious baggage among the moderate to liberal wing of the Democratic Party – the one that is populated by people who like peace, not war and who like Main Street, not Wall Street.

  3. From the article: Enron-Style Price Gouging is Making a Comeback.

    Five weeks after the deal closed, Energy partners moved to shutter Brayton Point. Why would anyone spend hundreds of millions of dollars to buy the second largest electric power plant in New England and then quickly take steps to shut it down?
    Energy partners says in regulatory filings that the plant is so old and prone to breakdowns that it is not worth operating, raising the question of why such sophisticated energy-industry investors bought it.
    The real answer is simple: Under the rules of the electricity markets, the best way to earn huge profits is by reducing the supply of power. That creates a shortage during peak demand periods, such as hot summer evenings and cold winter days, causing prices to rise. Under the rules of the electricity markets, even a tiny shortfall between the available supply of electricity and the demand from customers results in enormous price spikes.

    So . . . the allegation is price fixing. The term “conspiracy theory” is thrown around as a pejorative, but there actually ARE such things as conspiracies. Assuming that it is a price fixing conspiracy, how do you PROVE it? Sadly, proving such a conspiracy requires more than reference to technical details of the plant and “Occam’s Razor”

    1. @Rick Armknecht

      So . . . the allegation is price fixing. The term “conspiracy theory” is thrown around as a pejorative, but there actually ARE such things as conspiracies. Assuming that it is a price fixing conspiracy, how do you PROVE it? Sadly, proving such a conspiracy requires more than reference to technical details of the plant and “Occam’s Razor”

      I wondered the same thing until I read this excellent, if lengthy, summary of the meaning and interpretation of anti-trust laws in the US.

      http://www.kirkland.com/siteFiles/kirkexp/publications/2354/Document1/Business_persons_guide.pdf

      Note: If time is limited focus on pages 4-7 regarding price fixing and agreements to limit supply.

      1. Thanks, Rod
        Looks like some whistle blowing is what is needed. I don’t think that antitrust penalties can provide a False Claims Act award to a whistle blower, though. Thus, a witness would have to be motivated by something other than money (simple decency would be nice, of course). Sen. Leahy has sponsored S.42, the “Criminal Antitrust Anti-Retaliation Act of 2013”, but Leahy has expressly noted that the legislation would NOT provide a financial incentive for whistle blowers.

        1. @Rick Armknecht

          There may not be a whistleblower provision, but there is a provision for treble damages for entities with standing that can show material harm from the market manipulation. At least, that is what my amateur legal training and rapid reading program tells me.

          1. Yes, Rod, treble damages are available in antitrust cases. Indisputable. Standing would not be as straight forward as some cases (probably a good candidate for a class action), but it would not be the big hurdle. Getting the evidence to win the case would be the hard part. You would need to show that the reason for the shut down of generating capacity was to raise electricity prices and not because of the Defendant’s song and dance about the decrepit state of the asset it had purchased 5 weeks earlier. That would most likely require a whistle blower.

  4. Its probably not going to be popular but if these plants are still viable for 5 or more years, and factoring in decommissioning to compensation, considering their environmental and strategic energy value, I think there is a good argument for at least temporary nationalization via eminent domain law. All things considered, probably an outstanding argument.

    That really should be the case for all energy assets.

    The market simply cannot be trusted to work in the timely, best interests of everyone and indeed in important matters it never really has been. In fact the market alone has a decided history of also working flat out against our best interests.

    Hopefully in the mpower case the feds had enough sense to acquire the patent rights for the amount of public funds invested and will make those public domain, at least. Worthless Wall Street types, living years off fed charity, certainly should not be able to walk in, ditch all the advancements and momentum gained from that hard work and cash that research in for personal profit when ever they please.

    1. Its time for a new age of public power projects, IMO.

      Instead of President Obama trying to privatize the TVA, the TVA needs to sell off all of its fossil fuel power plants in order to use that revenue to develop and produce small nuclear reactors including floating synfuel producing nuclear reactors for domestic use and for export.

      The TVA should also be allowed to purchase nuclear reactors anywhere in the country in order to stop the permanent decommissioning of nuclear facilities.

      Blindly trusting the corporations is a big mistake. They are using the leftist in this country as dupes to undermine the nuclear industry.The international Oil and Gas companies have no interest in seeing nuclear power succeed. And they are perfectly willing to put our coastlines underwater and acidify our oceans in order to make a quick profit.

      Marcel

  5. “The market simply cannot be trusted to work in the timely, best interests of everyone and indeed in important matters it never really has been. In fact the market alone has a decided history of also working flat out against our best interests. ”

    Good summary of a difficult problem. Not many people understand that “the free market” left to itself with no interference or restraint, seldom finds the optimum solution, all factors considered. In mathematical terms, the “free” market simply finds a local maximum based on the most heavily-weighted parameter. If that is price for a product or service, the market will move in that direction to the exclusion of all other factors unless there is a price weighting for those things, which isn’t always possible without the dreaded “interference with the invisible hand”. We’re seeing that scenario played out right now with nuclear plants, because there is no mechanism for placing a direct value on things like diversity of supply, reliability, energy security, etc. Another thing that gets out of sync are the time constants. Faced with a very elastic demand situation with relatively inelastic, brittle supply sources, price shocks and shortages are often inevitable.

  6. Thank you, Rod. I understand that they both had to go. It was worth it. Your blog doesn’t need nor deserve that kind of ignorant political slander, from either side.

  7. To WayneSW and John Tucker:

    “The market simply cannot be trusted to work in the timely, best interests of everyone and indeed in important matters it never really has been. In fact the market alone has a decided history of also working flat out against our best interests. ”

    That is a potent statement. It would be tantamount to heresy in certain circles. Yet when I see what has happened over the years and what is happening, it’s hard to argue with.

    No mention was made of Kewaunee. This is another facility that had years left to operate. It would have cost a billion dollars to replace. Like Vermont Yankee, it provided clean energy, good jobs and excellent tax benefits to the local area. It was good for people. This and many other incidents throws great doubt in simply trusting that the market will make the best decisions for people.

  8. It is a potent statement, and true. Over the years I have found that those who espouse an almost cult-like belief in “the free market” fail to understand or acknowledge two basic truths. First, there are some things that transcend the free market. There is simply no way to place a price on some things that we all value and acknowledge to be necessary for us to continue as a free people. Second, there has never been a “free market” in the idealistic sense of the words. All economies have been a mixed bag to varying degrees. This country has always had an underpinning of regulation and direction, minimal at times but still present, mixed in with entrepreneurism and corporatism. The degree to which the various factors are weighted can be the subject of reasonable debate among reasonable people, but the fact remains that “the free market” has always been somewhat of an abstraction.

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