Daily Archives: September 11, 2006

Judge Posner on Incentives and the Clean Air Act

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Michael Giberson

What makes an old power plant new again? It is a complicated question, possibly deeply philosophic and suggestive of a zen koan. Perhaps the answer is that there is no answer. Unfortunately, that answer isn’t good enough for public policy.

The Clean Air Act requires new generators to get permits, and even old generators need permits if they are expanded. For existing generators the distinction between old and new comes down to the dividing line between “routine maintenance” and “major modifications.” For years old power plants have been kept in service through generous helpings of what utilities have described as “routine maintenance,” perhaps at the expense of replacing the old generators with new, less polluting units. The Environmental Protection Agency has been arguing with utilities in the Courts about the dividing line; one such case is heading to the Supreme Court. Tracey Davis, on the Energy Legal Blog, notes that a similar case was the subject of Judge Richard Posner’s decision in August:

The Seventh Circuit in Cinergy sided with the EPA, reasoning that Cinergy’s interpretation of the NSR provisions would give utilities an “artificial incentive” to renovate a power plant and continue using it beyond its expected lifespan, rather than replacing it with a more environmentally friendly plant. According to Judge Posner, that incentive conflicted with the intent of the Clean Air Act.

Mass. Governor Urges Time-of-Use Rates

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Michael Giberson

No shameless self-promotion involved in this posting, but in otherwise related electric rate news the Boston Globe reports that Massachusetts Governor Mitt Romney is favoring a proposal to implement time-of-use rates for residential customers in the state. According to the article, the plan would have a higher afternoon rate between 2 PM and 5 PM.

Particularly during the summer, demand for electricity normally peaks during those hours. Because of the wholesale electric market’s unusual economics, prices can soar to 15 times normal levels during those hours. But except for some large business and industrial customers, utility rates remain constant every hour, so few customers have an economic incentive to conserve during the hours it would help most.

My initial sense was that afternoon peaks were often as late as 6 to 7 PM, but a brief examination of Massachusetts load data (available from the ISO New England here) confirms that summer peaks tend to occur from about 3 PM to 5 PM. Winter peaks come later in the day in Massachusetts, but summer peak demands are higher than winter peaks, even in New England.