Archive for April 16th, 2009

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Flawed report, subsequent debate should advance understanding of NYISO market

April 16, 2009

Michael Giberson

In New York, a debate over the NYISO market design initiated by a report by Robert McCullough and committee hearings in the state legislature.

The initial McCullough report asserted that the NYISO’s use of a uniform clearing price auction (the report calls it a “market-clearing price auction”, but “uniform clearing price” is technically more accurate) resulted in $2.2 billion in excessive charges for power customers in the state. I think the polite response is that McCullough’s analysis and conclusions are not well thought out. See NYISO external market monitor David Patton’s testimony to the state legislative committees for a good explanation of the economic analysis of the uniform clearing price issue.

NYISO contracted electric-power-economics heavyweight Sue Tierney to write an analysis of the McCullough Report, and Tierney’s assessment readily knocks down many points of the initial McCullough Report. The New York Public Service Commission also produced a counter-analysis of the first McCullough Report.

Perhaps to no one’s surprise, McCullough struck back with another report, this one mostly directed at points made by Tierney and then providing additional analysis on “hockey stick bidding” in the NYISO market.  McCullough also advocates for greater market transparency.

McCullough’s work often strikes me as more founded in political opportunism than economic analysis – the economics equivalent of ambulance chasing – but I think McCullough gets off a few good responses to Tierney in this second report. I’m a fan of increasing ISO market transparency, too, so I’m inclined to favor McCullough’s positions on those issues.

While the report that sparked the exchange was badly flawed, I think the ongoing debate will prove productive. (At least so long as the New York state legislature doesn’t muck things up by trying to put McCullough worst ideas into law.)

NOTES:

The Public Utility Law Project of New York (PULP) has been following the issue, see the blog posts here and here for their views and many related links. Also, see related news stories on this list managed by PULP. Stories by the Times-Union newspaper also cover the activity, here and here, and related blog posts here and here.

The NYISO is the independent power system and power market operator for the electric power industry in New York. I realize that not all of our readers instantly recognize the acronym or know what the ISO does. Someday I’ll get around to writing a good, basic explanation of what these markets are and why they work the way they do. (Does such an explanation already exist somewhere online? If you know of one, post a link in the comments and save me the trouble of writing one myself.)

Posted in Electricity, Energy markets, Regulation | Tagged , , , | 2 Comments »

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Lobbying pays — is anyone surprised?

April 16, 2009

Lynne Kiesling

Perhaps the only thing surprising about the research described in this Washington Post article is how demonstrable and quantifiable the effects are:

In a remarkable illustration of the power of lobbying in Washington, a study released last week found that a single tax break in 2004 earned companies $220 for every dollar they spent on the issue — a 22,000 percent rate of return on their investment.

The study by researchers at the University of Kansas underscores the central reason that lobbying has become a $3 billion-a-year industry in Washington: It pays.

I like the way Mr. Coyote put it:

We have a sense that there is more corruption than ever in politics, but I think its demonstrably true that people and politicians are not any more or less evil than they were 100 years ago.  The only difference is that the sums in play from political influence are so much larger.  Its a concept I try to explain to people all the time.  The way to fix corruption in politics is not through campaign finance reform, it is through reducing the size of government.  Because no matter what restrictions one puts in place, if we set up a system where it pays to invest in politicians, then people will find a way to do so.

Yes. This statement is a variation on my oft-made claim that the way to reduce corruption, lobbying, wasteful rent-seeking, and the inefficiency and distortion that political processes induce is to remove as many important decision from the political process as possible.

Posted in Economics, Politics | Tagged , | 4 Comments »

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Uneconomical cogeneration

April 16, 2009

Michael Giberson

Cogeneration plants, which use a fuel source to produce both electric power and useful heat, can be very efficient projects. Whether particular projects are efficient will depend on the implementation, of course, and whether projects are profitable will depend on fuel and other costs and the revenues from selling power and heat.

From Syracuse, New York, the story of Project Orange illustrates some of the things that can go wrong on the business side of a cogen venture. My conclusion, based only on this and a few other news stories, is that the venture was well designed for the policy and regulatory foundations in place when the project went into operation in 1992 (especially, a PURPA-based contract to sell power to the local utility and a 40-year deal to sell cheap steam to Syracuse University), but regulatory rules-of-the-road changed.  The project wasn’t prepared to accomodate the changes. Litigation ensued.

Posted in Electricity, Energy markets, Regulation | Tagged , , | Comments Off

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