Without competition, funny things happen

Posted: Thursday, May 08, 2008

The consumer is inclined to purchase from whomever delivers a commodity at the lowest price.

In a competitive market, producers know this and endeavor to be more efficient. Efficiency decreases production cost and allows a producer to offer a commodity at a lower rate, thus making the product more attractive to the consumer.

This does not apply to the Juneau market as it relates to commercial electrical power. A noncompetitive condition exists, and the government is supposed to regulate the commodity. However, there is no incentive for the producer to deliver a low-cost product if the regulatory body allows a cost plus profit margin formula. Why would you care about lowering your production costs in this scenario?

If the producers don't experience the negative impacts of an inefficient operation, why would they concern themselves with the expense and effort of running it efficiently? This point was driven home when a natural gas supplier offered to provide the fuel to run the generators at a 30 percent reduction in cost and the management wasn't interested. Gee, I'm interested.

Funny things happen when there's no competition.

Another curiosity is that the regulatory body somehow thinks that the power producer shouldn't experience the negative impacts resulting from its lack of forethought and planning.

Juneau citizens and business, however, are expected to accept these impacts.

The question that I keep hearing is how can the government help the local power producer? How can we use public funds to offset its costs in hopes that perhaps the consumer will eventually see it? It's always under the veil of minimizing the impact to the end user, though. If it doesn't work out ... no big deal.

Since I really like it when my food doesn't rot and I'm able to flush my toilet, I suppose I'll do what everyone else is going to do and put it on a credit card. It's great when the lenders can profit from these circumstances too.

The regulatory body should dictate the cost at which the producers must deliver the product to their customers.

When the shareholders' dividends reflect an inefficient and/or poorly planned operation, they will hold accountable those who were responsible for the lack of profitability, and the problem will be fixed - or they'll continue to operate at a loss.

Maybe insurance would have been a consideration if the shareholders thought they might lose money without it? Just a thought.

Dan Worsham


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