1) It gets energy consumers to think more seriously about limiting their exposure to volatility by hedging.

2) It sends short-term price signals that help deal with short-term supply/demand imbalances.

3) It motivates producers and consumers to think about storage options

Price stability takes away a lot of the anxiety that, if properly channeled, motivates buyers and sellers to protect themselves. When government gets involved, there's a real risk that sellers will focus on pleasing their regulators rather than focusing on customer needs. Similarly, when buyers depend on government action to protect them from market risk, the result is often special carve-out provisions that put the interests of narrow constituencies ahead of the common good.

I think government's involvement in energy markets needs to be limited to an oversight role that ensures fairness, transparency, and very severe punishment for manipulation and violation of the rules.

3) it's

I agree with Mr. Ellis' point that government's role should be to look for market abuses. Unfortunately, our current government too often confuses unfettered volatility with these abuses and fails to step in where appropriate. Encouraging greater investment in deregulated markets requires just as much consumer confidence as it does investor confidence, and the FERC seems to have ignored this condtion.

I would agree that short-term speculation is skewing US market volatility. However, the ability to moves markets is likely to encourage - not discourage - speculative action. THE SOURCE of the cause is not as critical as the result - though I would argue that companies not in the energy business are even more likely to seek regulated markets if they believe speculators have the upper hand.

Price stabiity has both costs and benefits. Federal wellhead price controls resulted in stable natural gas wellhead prices and in natural gas shortages. State regulation of utilities results in rate stability and, as you stated, some "funky" (but politically correct) cost allocation distortions. Deregulation, to the extent that it has actually been permitted to occur, has reduced some of the traditional stabiity which resulted from regulation. Restructuring, to the extent that it has actually been permitted to occur, has further reduced traditional stability while adding significant flexibility to the restructured markets.

I believe we make the mistake of assuming that, since we can purchase energy on the spot market, we must therefore do so. There is still no law against customers and suppliers entering into long term energy contracts, when it is in the interests of both parties. Firm supply contracts plus firm transportation contracts equals stable price and reliable delivery, probably at prices very similar to rates resulting from the traditional ratemaking process.

There is also nothing to prevent customers from exploring for and developing their own natural gas supplies and arranging to have the gas transported to them. This approach internalizes the E&P risk, but also the potential rewards.

Customers today can opt to take as much price and delivery risk as they wish, or to minimize their risks in a variety of ways. This "brave new world" is not as simple as the old regulated environment, but it sure allows customization of service and price.

You know I agree with the premise that efficient markets make for more efficient choices - though sometimes the definition of "efficient" requires more work than just throwing the doors open. The problem I was focusing on is that an open market with high volatility may be considered much less attractive for the energy user than a regulated market next door. If the inefficiency costs are - for the consumer - considered to be a lower risk than the volatility risks and cost, then investment may shift. You can customize all you want but have nothing if the customers go elsewhere or, potentially worse, the customers may say that they feel the costs of inefficiency in regulated retail rates - as opposed to wholesale - are considered lower than the operating, working capital and hedging risks. The market has proven that regulated retail rates can coexist with open market wholesale rates. That is the "risk" to open markets.

Moral of the story: Anyone who cedes pricing of their sales or purchases over to someone else, especially someone else who doesn't share their pain nor their success, gets what they deserve. The utilities, consumers, and producers wanted price transparency. They now have it at the cost of volatility. That was their bargain with the Devil.

PS: Where is the hue and cry for transparency in OTC basis (e.g. transportation) trading? I guess the utilities wanted transparency in what they buy, not what they sell........ or is it fool me once shame on you, fool me twice shame on me?

Backs up my impression of what is happening.