Archive for July, 2009

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FirstEnergy seeks switch from Midwest ISO to PJM

July 31, 2009

Michael Giberson

Platt’s reports:

FirstEnergy will switch its Ohio electric transmission assets from the Midwest Independent Transmission System Operator to the PJM Interconnection with its other transmission assets, the Akron, Ohio-based company said Friday.

“Aligning all of our transmission assets with PJM will provide customers with the benefits of a more fully developed retail choice market and enhanced long-term planning that supports construction of new generation when and where it is needed,” said Anthony Alexander, FirstEnergy’s president and CEO. “In addition, PJM supports incentive-based demand response and energy efficiency programs that give customers more control over their energy use and encourage peak load reductions that drive down prices for customers.”

Most of FirstEnergy’s transmission assets in Pennsylvania, and all of those in New Jersey, already operate in PJM. FirstEnergy’s American Transmission Systems subsidiary, which includes transmission assets within the service territories of Ohio Edison, Cleveland Electric Illuminating and Toledo Edison, currently operates within Carmel, Indiana-based MISO.

See also the FirstEnergy news release.  A few things stood out in this brief story:

While RTOs integrate transmission system operations with a wholesale power market, FirstEnergy emphasized customer benefits from “a more fully developed retail choice market” in its statement.  Since the retail choice markets connected to the FirstEnergy transmission grid are and will remain regulated by the Public Utilities Commission of Ohio, it is interesting that FirstEnergy claims a difference based upon wholesale markets.  Electric power economists as well as federal and state industry regulators ought to be interested in these wholesale-retail power market interactions; I think the area is under-understood.

The statement’s reference to “enhanced long-term planning that supports construction of new generation when and where it is needed” appears to refer to PJM’s RPM market (revised generation capacity market which started in 2007).  FirstEnergy is suggesting the “enhanced long-term planning…” will provide customers with benefits, so is a reason to join PJM.  On the other hand, Duquesne Light claimed the RPM market as a reason it wanted to switch from PJM to MISO, as the increased costs to customers would be too high (Duquesne subsequently chose to remain in PJM).  So are consumers better off or worse off because of the RPM market?

And finally, the remark that “PJM supports incentive-based demand response and energy efficiency programs” that will drive down prices for consumers. I’m sure that MISO also “supports incentive-based demand response … programs,” after all, that the politically correct attitude for regulated entities in the electric power industry.  Good demand side market participation is key to getting markets to work well.  If PJM does it better than MISO, then I’d be interested in learning just how PJM is better.

Of course, talk about better this and lower that at best just part of the story. Presumably FirstEnergy would not pursue the change unless it expected to profit from the change.  Nothing wrong with that, but consumers will want to be sure that any additional profits come about because of better service and operating efficiencies available to the company.

NOTES: “RTOs” are “Regional Transmission Organizations,” the FERC-regulated managers of transmission systems with integrated energy markets.  The two RTOs in the story are PJM (which initially covered most of Pennsylvania, New Jersey, and Maryland, but now extends to much of Ohio, the Chicago area in Illinois, and Virginia), and MISO, the Midwest Independent Transmission System Operator.

Posted in Electricity, Energy markets | Tagged , , | 4 Comments »

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Refinery outages generally have small effects on gasoline prices, GAO says

July 31, 2009

Michael Giberson

A study by the Government Accountability Office has concluded that gasoline refinery outages tend to have small effects on prices.  While large scale weather events like Hurricane Katrina and Rita did result in large prices increases, such events are rare, the study said. In other findings:

  • Typical unplanned refinery outages tended to increase the cost of branded gasoline by 0.2 cents and the cost of unbranded gasoline by 0.5 cents. (During unplanned outages, branded stations, which are more likely to have long term supply contracts, are served first, while unbranded stations, more likely to not have long term supply contracts with a distributor, find themselves having to scramble a bit more for supplies.)
  • Typical planned refinery outages tended to have no effect on prices at all, likely because planned outages are reasonably scheduled during low demand periods, and the refiner can build inventory in advance of the outage to help maintain supply.
  • Price increases were larger for some special blends of gasoline targeted to smaller markets, since there will be fewer alternative sources of supply in the case of an outage.  As before, prices were much higher for unbranded gasoline than for branded gasoline in areas requiring special gasoline blends (for example, in Tucson, AZ, unbranded stations showed price increased of 4.1 cents per gallon, while branded station prices were up 1.3 cents per gallon due to a refinery outage).

The GAO study examined weekly data on wholesale prices for 75 cities, January 2002 through September 2008. During the period there were about 1,000 planned outages and 1,100 unplanned outages.

The GAO also concluded that there were gaps in federal data collection efforts which have limited the Department of Transportation and GAO efforts to analyze petroleum markets and related issues.

(The link above is to the 48-page pdf version of the report. Sometime soon the GAO will post a summary of the report on this webpage.)

Posted in Energy markets | Tagged , , | Comments Off

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Wind energy code of conduct for New York

July 30, 2009

Michael Giberson

The office of the attorney general of the state of New York announced yesterday that a total of 16 … wait, make that 17 wind power companies have signed onto the state’s new “Wind Industry Ethics Code.” The news release indicates that the main point of the industry “ethics code” is to prohibit conflicts of interest between municipal officials and wind companies and establish related public disclosure requirements. Concerns about improper conduct had spurred an investigation by the attorney general’s office last year.

Why this requires an “industry code of conduct” I don’t know. Seems like local government officials should already be subject to laws and policies prohibiting them from using governmental authority to secure private benefits. Offering bribes or similar inducements to public officials is also likely already illegal in New York.  So what’s so funny about wind power development in New York that it requires a sub-industry specific code of ethical conduct?

The first news release issued yesterday said 14 additional companies had signed the ethics code (that is in addition to the two companies that signed last year after coming under investigation by the state). By the way, the news release said, the attorney general’s office was continuing its investigation by serving a subpoena on Reunion Power, which “has not agreed to sign the Code.”

A few hours later a second news release announced that, surprise!, Reunion Power had agreed to sign the attorney general’s ethics code. The second news release quotes the attorney general, “Accordingly, with this development, virtually the entire wind industry (17 of 17 major companies) has agreed to this new standard of transparency and accountability.”

So the 17 companies faced a choice to either (a) sign on to a statement that makes the attorney general look like a champion of good government, or (b) become the target of a potentially costly publicly-disclosed state-funded investigation into company activities.

I don’t know about accountability, but I’d say the attorney general’s actions are pretty transparent.

(HT to Wind Power Law Blog.)

Posted in Electricity, Liberty, Politics, Regulation | Tagged , , | 2 Comments »

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Do school buses use more energy than the likely alternatives?

July 30, 2009

Michael Giberson

At Freakonomics, a Q&A with Christopher Steiner, author of $20 a Gallon.

Haven’t read the book, but my present question has only to deal with an issue raised in the Freakonomics Q&A: the energy economics of school buses.  Freakonomics asks how higher fuel prices would affect the way children get to school. Steiner replies:

How you live largely depends on where you live. For people who live in walkable communities, life at $8-per-gallon gas will be far easier. Their kids will just hoof it.

What most kids won’t be doing, though, is riding a school bus every morning. Just last year, when gas was $4, school districts across the country made huge cuts to busing programs. Maryland’s Montgomery County, outside Washington, buses 96,000 children to school every day, burning 3.3 million gallons of diesel fuel a year. When the price of gas goes up a penny, the county is out another $33,000. So the price of that program would increase nearly $20 million in a world of $8 gas. School board officials last year authorized Montgomery [County]’s superintendent to increase the maximum walking distances for high school students, which were set at two miles. Generally, students who live within the limits are expected to find their own way to school.

In a future of $8 gas, those limits will go up across the country. In fact, it’s possible that places such as Montgomery County would cut busing almost completely. Capistrano School District in California’s Orange County dumped 44 of its 62 bus routes when gasoline spiked, saving the district $3.5 million.

We led me to wonder about how the Montgomery County change affected the overall fuel consumption and fuel expenses for residents in the County. Say the maximum walking distance increased from 1 mile to 2 miles.  I suspect that many of the affected students taken off of the bus system switched to private automobiles.  So instead of a 30-student bus trip, assume some new walkers, some carpoolers, and so single-vehicle trippers, and probably an additional 10 to 15 vehicle trips twice a day for each bus eliminated.

Obviously the change will reduce the fuel use and total costs of the school district and increase the fuel use and costs of the student’s families.  My untested hypothesis is that the increase in fuel use and fuel costs of families will exceed the savings in fuel and fuel costs to the school district — i.e., the policy change reduces overall economic surplus — and my question is, “Why can’t families and school systems capture the potential gains from trade available by covering the additional school bus fuel costs?“

[MAKE YOUR PLANS NOW: Steiner offers career advice a later in the Q&A: "When gasoline reaches $8 per gallon, energy-related startups will form the new craze. That’s where the hot jobs will be. IPO’s, wild sums of venture money, 23-year-old C.E.O.s — all of it will be resurrected from that movie called 1999."]

Posted in Energy markets, Politics | Tagged , | 1 Comment »

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Why is selling bottled tap water odd?

July 30, 2009

Lynne Kiesling

Over at Marginal Revolution, Tyler notes that someone is purifying, bottling, and selling New York City tap water, at a price lower than competitors. He then observes “I suspect this will seem odder to you, the older you are.”

I have never understood why so many people find the idea of selling bottled tap water “odd”. When you buy bottled water, you aren’t just buying water, you’re also buying three other features: portability, convenience, and some quality assurance. Portability is obvious. Convenience arises as a value when shops selling water are more widespread and accessible than water fountains. Quality assurance matters if you are concerned about whether impurities or minerals from the pipes affect the content or taste of the water.

So when you buy bottled tap water, you aren’t paying for water, you’re paying for portable, accessible water of a particular quality. How is that odd?

Relatedly, David Zetland has a recent post on the economics of the airport security water ban. Even if you can bring an empty water bottle through security, finding water fountains in terminals is difficult, and warm water in bathroom sinks deters filling your bottle there. Consequently, sales of bottled water in terminals increase. His punch line:

The costs of the ban on liquids are falling on customers; the benefits are falling on airports, vendors and bottled water companies. With these incentives — and lobbying realities — we are unlikely to ever see a return to the good old days (allowing people to carry water). I guess that the terrorists have won :(

Posted in Economics | Tagged | 3 Comments »

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Power from the wind: the view from 1909

July 29, 2009

Michael Giberson

The Financial Times Energy Source blog unearths a recommendation from 100 years ago to try wind power “in view of our diminishing returns of coal and petroleum.”  Practical issues are discussed, storage issues seen as important.

Also at Energy Source, “The murky task of curbing speculation.”

Posted in Uncategorized | 1 Comment »

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Blog recommendation: Structured Thinking

July 29, 2009

Lynne Kiesling

I would like to bring the blog Structured Thinking to your attention. Structured Thinking captures the ideas of a group of folks at Pacific Northwest National Laboratory who do a range of energy-related and building-related research. For example, one recent post highlights a topic of great interest to me: behavioral economics and “keeping up with the Joneses” in energy efficiency. They are a welcome addition to the energy research and policy discussion!

Posted in Economics, Electricity, Energy markets, Environmental policy | Tagged , , | Comments Off

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Wind power: My advice to free market critics

July 29, 2009

Michael Giberson

I have a longish guest post, “Windpower: Focusing the Criticism Away from NIMBYism and Aesthetics,” up at Master Resource, Rob Bradley’s free market energy blog.  In general, in the post I offer advice to free-market-oriented critics of wind power, urging them to focus on the distortionary policy problems and to stay away from arguments that seem to encourage more unprincipled policy intervention into markets.

Here is the somewhat dry introduction to the essay:

Market-oriented policy analysts have not been shy about cataloguing the problems surrounding windpower development. But in the enthusiasm to oppose the government interventions accompanying wind generation, market-based analysts sometimes have strayed beyond principled defense of markets and unwittingly offered support to anti-market NIMBYism and other meddlesome sentiments. Policy analysts examining wind power issues should consider more carefully which issues ought to be pursued through the policy process.

I run through a list of frequently made anti-wind power complaints – too costly, unreliable, uses too much land, etc. – and try to explain where the policy issues are, and, especially, where they are not.

Read the rest at Master Resource.

Posted in Economics, Electricity, Environmental policy, Liberty, Politics | Tagged , | 4 Comments »

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The wind industry loves to fret

July 28, 2009

Michael Giberson

“Still, the wind-power industry loves to fret,” writes Keith Johnson at the WSJ‘s Environmental Capital blog, “Now, the worry is about a slowdown in manufacturing which could put thousands of ‘green jobs’ at risk—unless Congress offers even more support to the wind industry in the form of tougher renewable-energy standards.”

Of course “fretting” is an industry lobbyist’s job.

You might think it is the job of the wind energy trade association to help create a healthy wind power industry.  It is, to a point, but if the industry were too healthy, it wouldn’t be so worried about the loss of federal policy support (and then the industry wouldn’t need to spend quite so much on lobbying the federal government).

Posted in Electricity, Politics | Tagged , | Comments Off

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Balancing swings in power from wind farms on the Bonneville Power Administration grid

July 28, 2009

Michael Giberson

From the Yakima Herald-Republic, “Ebb and flow of wind power stress NW power grid,” a report of the challenges in keeping the Bonneville Power Administration (BPA) transmission grid balanced when power output from wind farms varies quickly:

In the space of one hour last month, electricity generated at wind farms in the eastern end of the Columbia River Gorge shot up by 1,000 megawatts – enough to power some 680,000 homes.

Less than an hour later, it plummeted almost as much.

Sitting in front of 10 computer screens in a fifth-floor room of the federal Bonneville Power Administration headquarters in Portland, Kim Randolph had to react quickly.

Working from a keyboard, she diverted millions of gallons of water away from massive turbines spinning in Columbia River dams and sent it around the dams.

The 17-year veteran power operations specialist remembers how fast she needed to work as a wind storm caused generation to peak and fall three times over eight hours.

“You have to get it in hand and get it in hand very quickly,” she said.

Getting it in hand is a balancing act. It means balancing the power generated by 31 dams, a nuclear power plant and now wind farms in order to send a stable flow of power into the BPA’s 15,238-mile grid across the Pacific Northwest.

It also means balancing the grid’s needs against those of fish and commercial river traffic on the Columbia River.

Getting power from wind, which can vary greatly, is complicating that balancing act.

The article provides some background on wind power development in the Pacific Northwest and the difficulties the BPA is having managing some of the more extreme variations in output.  One of the points made later in the article is that independent (non utility) power generators in the area have long felt that BPA needed to update its transmission grid and interconnection rules.  The relatively rapid development of wind power has helped push BPA to work a little harder on these issues.

But the thing that really struck me when reading the article was the manual intervention to keep the system in balance.  Given the complicated balancing act – varying wind power, varying consumer load, and hydro power availability limited by current fish and commercial river traffic – wouldn’t it make more sense to have these things automated? (Likely they do for operations within some range, but maybe the automation can’t handle more extreme variations.)

Another issue raised late in the article concerns a controversial three-strikes-you’re-out rule to be implemented this fall for wind generators that don’t respond to requests for curtailment from BPA, and a related proposal to allow wind power generators to pay fossil-fueled power plants to curtail in place of a wind power farm.  A less cumbersome and more transparent approach is available in regions with independently-operated energy balancing markets, which provides an economical way to identify which units to curtail when supply and demand threaten to move out of balance.

RELATED: A BPA press release from July 21, 2009, said the agency proposes to increase rates for energy customers by 7 percent on average.  Also, “BPA’s relatively new rate for wind integration services has been reduced substantially from the initial proposal due primarily to efforts from the wind power industry to improve their operational practices.”

Also, a “BPA and wind power” story from The Oregonian, with more emphasis on BPA’s proposed rate increases for wind power generators and other details on rule changes. The Oregonian article suggests that the wind integration rates were reduced (from a nearly 300 percent increase to a mere 90 percent increase) largely due to a “firestorm of criticism.”

More information on BPA and wind power (from BPA).

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

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