Yale Economist Trashes Auctions; Would Disband FERC
There is zero probability the Federal Energy Regulatory
Commission can design a pipeline capacity auction that would
efficiently operate in the marketplace, according to an eminent
economist who suggested the best strategy would be to get rid of
Citing the example of the Civil Aeronautics Board that was
disbanded at the start of airline deregulation, Paul W. MacAvoy,
formerly dean of Yale University School of Management, told
Washington energy attorneys regulatory agencies should be "closed
down before the market becomes competitive, not after....You have
to cut them off now or they will never go away."
MacAvoy advised members of the Federal Energy Bar Assoc.
yesterday that what he called the "Moler phenomenon" of "managed
competition," named after the former FERC chairperson who was among
the speakers on the platform beside him, would not work. That
doctrine promotes "managing competition until there is enough," and
prompts the prayer "oh Lord, oh Lord, will there ever be enough?"
Natural gas prices would be fifty cents lower if FERC were not
still "managing the competition," MacAvoy said,
As for auctions, there are thousands of possible variations in
the way they can be structured and there is virtually no way FERC
could choose the "right auction" that would work and function to
efficiently allocate resources.
Commissioner Curt Hebert responded in a luncheon address, saying
that although industry has been sniping at FERC's proposal of an
auction, "they have offered no alternatives....and the issue of
market power must be addressed." For emphasis, Hebert repeated
"market power must be addressed."
Meanwhile, the industry was seeking a consensus at a Denver
meeting of the Natural Gas Council Friday on requesting another
extension beyond the current Jan. 22 deadline for comments on the
Commission's NOI and NOPR regarding proposed auctions and other
industry changes. While some industry segments were suggesting a
six-month extension, others were in favor of a shorter period. (A
report on their decision was not available at press time Friday.)
Sources said, however, that while an extension granted earlier had
been requested in order to give industry time to figure out how to
make an auction work, this one may be devoted to coming up with
MacAvoy's arguments against regulation also were rebutted in
part by Richard Meyer, senior regulatory counsel for the National
Rural Electric Cooperative Assoc., who questioned whether we can
"trust the marketplace to do the right thing" without some
regulatory oversight. He pointed to the consolidation among
industry players that tends to short-circuit competition. Also, he
said, most major marketers are staying out of the retail market
because it is a low-margin business, which means residential
customers will not reap the benefits of competition unless
marketers are forced to serve them. And he noted the
unpredictability of markets without caps as evidenced by last
summer's Midwest price spike.
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