Greenspan Unafraid Of Energy Price Caps; Calif. Problems Ease, Fed Chief Says
In a broad analysis of the state of U.S. energy markets, Federal Reserve Chairman Alan Greenspan last night disagreed sharply with the Bush administration's argument that capping spot prices for electricity in California would discourage construction of new power plants.</br></br>"Analogies to the economics of office buildings are evident," Greenspan said. "Few office buildings would be constructed in the absence of the ability to reach long-term leases. Short-term rental agreements are no more conducive to new office construction than spot prices for electric power are to the building of new power plants." A copy of the text was released in Washington.</br></br>California's energy problems appear to be easing, but they still represent a "worrisome situation for Californians, certainly," Greenspan said. "And because the state comprises one-eighth of our national [economy], it should be a concern for the U.S. economic outlook as well. Fortunately, the overall effects on the California economy, and on those of its neighboring states, seems to have been modest, at least to date."</br></br>Greenspan noted that large increases in the cost of gasoline and other petroleum products, natural gas, and electricity have hurt the U.S. economy in several ways. The most significant is the reduced profitability of non-energy firms, which has forced many companies to reduce spending for new plants and equipment.</br></br>"As best we can infer, a substantial part of the rise in the total costs of corporations between the second quarter of last year and the first quarter of this year reflected higher energy costs, only a small part of which companies apparently were able to pass through into higher prices" of the things they sell, he said.