Tag Archives: markets

The Supreme Court and Utilities

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The Supreme Court on Monday upheld the federal government’s ability to spur incentives for industrial businesses, schools and other large energy consumers to reduce power usage at times of peak demand.

The court, in a 6-2 ruling by Justice Elena Kagan, said the Federal Energy Regulatory Commission acted within its powers when it issued an order in 2011 requiring higher levels of compensation for some power customers that agreed to reduce their electricity use.

The Court likely is right on this, in that FERC’s rule is within the confines of the underlying law. However, this still is the government picking winners and losers, and this still is the government dictating to private enterprise what it must do.

The corrective answers that are required, then, are two: one is to withdraw FERC’s authority to issue such rules, to rescind Congress’ delegation of such rule-making to FERC (such a rescission is required across the board, but that’s for another writing).

The other required answer is to alter the underlying law that the FERC rule was…fleshing out. It’s a law that is no longer necessary and that, as the FERC rule demonstrates, has become vulnerable to Executive Branch abuse.

That law is Section 201 of the Federal Power Act, which

empowers FERC to regulate “the sale of electric energy at wholesale in interstate commerce.”

Congress’ authority (not an Executive Branch agency’s) to regulate interstate commerce is constitutionally limited to regularizing commerce among the States, not to dictate the terms of that commerce. Of course, for Congress to recover this authority and its limits, a third required answer consists of correcting a number of Supreme Court mistakes regarding how far Big Government may reach inside any State to regulate commerce there.

Another Advantage

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…of low oil prices. Low prices are good for American consumers, especially in winter, when we not only have to drive, but we have to heat our homes.

Here’s an additional advantage, though.

But falling crude prices, US-led sanctions and diminished oil exploration threaten Russia’s oil industry and raise questions about its capacity to continue underwriting President Vladimir Putin’s ambitions at home and abroad.

Sanctions hurt Russia in a lot of economic ways, but that interference with Putin’s designs on eastern Europe can last only as long as the sanctions régime holds up. The falloff in exploration actually would work to Russia’s (and Iran’s) benefit, were it to last a long time, as that would diminish supply relative to demand, and so would raise oil prices.

That’s the kicker, though. Russia (and Iran) need $100+ oil in order to balance their budgets. Today’s $30 price, which I think will last at least into the intermediate future, if fracking and shale oil haven’t more permanently altered the supply availability environment, means that if Putin wants to continue his aggression against his neighbors, if he wants to continue to try to reconquer those nations and so reconstitute the old Soviet Union empire, he’ll have to borrow money to do so.

However, the only thing he has with which to repay such debt is revenue from oil and natural gas sales; the Russian economy is that dependent on extraction—it produces nothing else. At today’s prices, Putin will have to sell 3+ times as much oil as he would have had to just a couple of years ago. That creates a vicious circle: the more oil he produces and sells, the longer downward pressure on oil price continues.

And with Iranian production entering the market shortly, courtesy of Khamenei’s Best Bud President Barack Obama, those prices will be the recipient of additional downward pressure.

More Regulations

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Jason Godsil, founder and CEO of Godsil Motorcars, is building a new car that will run on natural gas; he’s in the design and prototyping stage. Joel Feder, of MotorAuthority, asked this question and got an answer that should be embarrassing to the Obama administration and its predecessors.

What’s the largest unforeseen issue you’ve encountered?

Crash tests and EPA certifications will need to be done but the level that will be required for a fully certified vehicle was an eye opener. … Do you want to use a custom headlight that isn’t used currently? Sure, we can look at that for $300,000. Do you want to have multiple options for seat belt colors? Sure, that will be $30,000 for the test of each color. It’s crazy! That is why other countries get some car models that are never for sale here in America.

Indeed.

There was this little tidbit in that conversation, too [emphasis added].

When do you realistically think the first production car will hit the street?

The ideal timeline is that we could debut a prototype, using the prototype engine we are working on now, in about eight-to-ten months after we finalize with our investment partners. With the development and testing of the powertrain and all the certifications that will be needed, we envision a production car hitting the streets about three-to-four years later.

This is just…amazing.

EU Stimulus

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Mario Draghi, of the European Central Bank, wants to keep stimulus efforts going, even with low oil and gas prices (even in Europe) having a dragging effect on inflation. Here’s the kicker, though:

Central bankers sometimes ignore falls in oil and food prices, arguing they are highly volatile and often beyond their influence because they are formed by global market forces. But Mr Draghi said the governing council is worried that a long period of low oil prices may lead to declines in the prices of other goods and services, and perhaps wages, through what central bankers term “second-round effects.”

I’ll disregard the premise that a long period of low oil prices is inherently deflationary, rather than just leading to a period of adjustment to a new, lower-cost equilibrium. My question for Draghi is what’s the down side of wages falling in a deflationary environment, even one that is merely a move to a lower-cost equilibrium?

Sure, no one likes to see a smaller paycheck, but this is a political question, not an economic one. However, if prices of goods and services are falling, no buying power is lost with that smaller paycheck. On the other hand, if wages don’t fall more or less along with those other prices, the outcome is a higher wage cost for the employer than the market value of what he and his employees produce. And that leads to job loss. Now we have a (new, relatively) high paycheck that has no value at all because the out of work ex-employee isn’t getting it.

Further, if I’m wrong, and a long period of low oil prices is, in fact, inherently deflationary, the producers can’t sell at all, as the buyers simply wait for prices to fall further before buying. If wages don’t fall commensurately in this environment, not only will jobs be lost, but many producers, unable to sell, will go out of business. And all of that company’s jobs will be lost.

In either case, employment is the second-round effect with which bankers like Draghi should concern themselves.

Job Security

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On the matter of competition and business imperatives, particularly involving big data, Margrethe Vestager, European Commissioner for Competition, had this to say at her speech to the Digital Life Design conference in Munich:

If a company’s use of data is so bad for competition that it outweighs the benefits, we may have to step in to restore a level playing field[.]

Continuing:

We continue to look carefully at this issue….

Never mind that they’ve found nothing:

this certainly doesn’t mean we never will[.]

There isn’t any wrong doing, but we’re going to keep looking for it, anyway. Because jobs. Because government bureaucrat jobs.