Lynne Kiesling
Feel a bit adrift when confronted with the dizzying complexity of wine? Then John Cleese’s Wine for the Confused may help, and may make you laugh along the way.
Archive for July, 2009
Informal networks as social insurance
July 17, 2009Lynne Kiesling
Nancy Folbre has an interesting post about informal safety networks on the New York Times Economix blog. She observes that during economic downturns, those in need of assistance can avail themselves of either formal public assistance or informal assistance through family, friends, and social networks. This coexistence of public and private has been with us for centuries. One point she made that I found particularly insightful is that the composition of families and networks have changed in ways that have changed the extent to which the unfortunate can avail themselves of private, informal assistance:
But today, more than 30 percent of American households are nonfamily households (people living alone or with unrelated people), compared with 10 percent in 1940, the first year the Census collected this information. Many of these households are cohabiting couples who share expenses, but are not legally required to help support one another. And many live a long distance from their families of origin.
Family households have also changed: In 1950, 88 percent included married couples; by 2007, only 75 percent. Many more parents, especially mothers, are raising children on their own.
She does then, however, go on to say that “Participation in voluntary associations — a popular measure of “social capital” related to reciprocity — declined sharply during the Great Depression.” She could be incorrect in the direction of causality, thought, and it is entirely possible, indeed likely, that the New Deal government programs of the 1930s crowded out such voluntary associations.
Folbre does discuss crowding out in the current context, but she makes an observation that I find puzzling:
Crowding out has some positive effects. It reduces demands on family members who may be struggling economically themselves and makes it easier for them to provide the personal and emotional support that public assistance can’t provide. But policy makers should look for ways to make formal and informal safety nets strengthen one another, a topic I’ll explore next week.
Here’s my question: how do you know that spending government money on public assistance is a better use of resources than having the voluntary, mutual, shared bond bear the responsibility, despite the demands on those who may also be struggling economically? For that to be true requires two things: it requires that the net effect of the taxpayer transfer is positive (i.e., the benefit to the recipient is greater than the loss to taxpayers), and that the reduction in pressure on informal networks is larger than the taxpayer transfer. I’m not convinced that’s true, and I’m also sure that no one working on welfare policy takes into account that calculation, let alone making some estimate of the calculation.
And that doesn’t even take into account the moral hazard aspects of the problem (the incentive that public assistance gives people to engage in less job search effort than they would otherwise).
I look forward to hearing her ideas for how formal public assistance and informal private networks can reinforce each other — can be complements instead of (imperfect) substitutes.
FERC’s smart grid policy statement (and an aside on federal-state jurisdictional issues)
July 16, 2009Michael Giberson
Also emerging from today’s FERC meeting, issuance of the Commission’s smart grid policy statement. At present only a press release and the chairman’s statement is available, but likely the full policy statement and remarks by other commissioners will be posted on the FERC home page in the next few hours. I imagine our local smart grid expert will have something to say about the policy statement when she has time.
According to the press release:
The new policy adopts as a Commission priority the early development by industry of smart grid standards to:
- Ensure the cybersecurity of the grid;
- Provide two-way communications among regional market operators, utilities, service providers and consumers;
- Ensure that power system operators have equipment that allows them to operate reliably by monitoring their own systems as well as neighboring systems that affect them; and
- Coordinate the integration into the power system of emerging technologies such as renewable resources, demand response resources, electricity storage facilities and electric transportation systems.
The policy also provides for early adopters of smart grid technologies to recover smart grid costs if they demonstrate that those costs serve to protect cybersecurity and reliability of the electric system, and have the ability to be upgraded, among other requirements.
The commissioners’ remarks during the meeting today involved a lot of assurances to the effect that FERC was not impinging on state authority nor altering the traditional federal-state jurisdictional boundary.
Similar concerns on the part of state regulators were raised in response to FERC actions on demand response, and a demand-response-related FERC order issued today similarly involved the offering of assurances to state regulators that the Feds are not crossing established jurisdictional boundaries.
Of course it is a slightly different issue whether established jurisdictional boundaries should be maintained. For the most part, however, this is an issue for the Congress to decide, not the Commission. In the present cases – smart grid policy, demand response – FERC is reacting to the obvious real-time linkage between consumer action and wholesale market performance, the latter an area obviously in the federal bailiwick. If there is any erosion of state regulatory control, and I’m not saying that there is, the official story is that it is only a consequence of the FERC pursuing its statutory responsibilities.
(If I were a state commission interested in protecting my current regulatory jurisdiction against a FERC merely “pursuing its statutory responsibilities,” I’d be doing everything I could to encourage the development and deployment of low-cost energy storage devices on the grid. Once a local distribution company can cheaply store electric power, then the tight link between real-time consumer action and wholesale market performance is broken, and consumers not big enough to play in the bulk power markets become solely state-level regulator concerns again.)
FERC directs New York power system operator to fix “loop flow” scheduling problem
July 16, 2009Michael Giberson
Today the FERC approved public release of the results of an internal staff investigation into allegations of “loop flow”-based market manipulations in the New York ISO market (see links below):
In this order, we authorize the public disclosure of the attached Office of Enforcement Staff Report (OE Report) addressing its non-public investigation of alleged market manipulation in the placing of circuitous schedules in the Lake Erie region. … For the reasons discussed below, we adopt the OE Report’s findings and conclusions that there was neither market manipulation nor tariff violations on the part of the entities placing these schedules. In addition, we have decided not to take further action on certain other tariff violation claims….
Generally speaking, the order indicated that the staff found no tariff violations nor market manipulation, but rather that certain market participants were simply reacting to market signals which induced them to schedule certain transactions from New York into PJM over ‘circuitous schedules’. (Strictly speaking, since charges for export transactions are often set administratively rather than by markets, I’d say market participants were opportunistically gaming the mixture of regulated rates and market prices offered up by the system.) FERC also directed the NYISO to develop a long-term solution to the problem within 180 days, and indicated that should the NYISO not file a solution that the FERC would take additional action.
The basic issue here arises because of the differences between how power transactions are scheduled for commercial purposes and how power actually flows between separately managed but interconnected power markets. A trader scheduling a power flow between New York and adjacent PJM could choose between a direct path or a more roundabout path (scheduling from New York through Ontario and the Midwest ISO, and entering PJM from the west). The choice of direct or indirect schedule doesn’t affect the actual power flow, just how the trader gets charged for the use of the transmission system.
When congestion costs became high in the NYISO system, it became cheaper for the trader to schedule a trade over the indirect path. In the distinction introduced above, I’d say that charges for use of the direct path are more market-based, while trade over the indirect path mostly reflects regulated rates for export transactions. The problem arises because the trade will exacerbate the congestion problem in the system, but the trader will not be charged for all of the added costs. Instead, the costs get averaged into the bill of all system users.
While the actions apparently did not violate the NYISO tariffs or the commission’s market manipulation standards — I’m not an expert on those issues so I’ll take FERC’s conclusions on that issue — the indirect schedules clearly constitute an example of opportunistic behavior that should be discouraged. Opportunism in this context can be described as action which increases the profit of the trader but reduce the overall gains from trade (i.e. economic surplus or social welfare) produced in the market.* Because the indirect scheduling method reduced the costs paid by the trader, but caused the system as a whole to operate less efficiently, it is an opportunistic behavior.
It is an appropriate goal for public policy and the market operator to seek to deter opportunism in markets, so even in a case where no tariff violations were found it is clearly appropriate for the NYISO to revise its rules to prohibit such actions.
NOTES: Links to the FERC press release and order including staff report. This issue was previously discussed here, see my initial analysis and subsequent comments here and here.
*And therefore I think the term “gaming” appropriate. The definition of opportunism used derives from Amitai Aviram’s “Regulation by Networks,” BYU Law Review (2003), Aviram cites to Robert Cooter, “The Theory of Market Modernization of Law,” International Review of Law and Economics, (1996).
World’s first utility-scale, zero-emissions hydrogen power plant?
July 15, 2009Michael Giberson
The Associated Press is reporting that a New Mexico company, Jetstream Wind (WARNING: annoying animated introduction accompanied by equally annoying dramatic soundtrack), has broken ground on what it claims will be “the world’s first utility-scale, zero-emissions hydrogen power plant.”
According to the company website, their plan is to use renewable energy to produce hydrogen, and then burn the hydrogen to generate electricity. The news story says the plant will “generate enough electricity to power about 6,000 homes.” I’m not sure what that translates into in terms of actual electric capacity, but the company website suggests its plans are for a 10 MW capacity unit.
The website admits that, “the hydrogen production process is typically quite costly due to the great amount of electricity required in the electrolysis process, [but] Jetstream Wind Inc. can power its H2 production facilities with renewable energy, making the process extremely cost-effective.”
If that kind of claim doesn’t have you scratching your head and saying, “What the …?”, then you haven’t been paying attention.
Given that, in most installations most of the time, renewable power sources other than large-scale hydro are more expensive than your typical fossil-fuel sourced electricity, what that company seems to be saying is, “we are taking a ‘typically quite costly’ process and making it even more costly by relying on expensive renewable sources of power.” How do you get “extremely cost-effective” out of that?
The main values produced here, if any, are in reduced emissions and as an energy storage system.
To the extent the system allows wind power or solar to displace coal-fueled power, for example, local air pollution and greenhouse gas emissions will be reduced. The extra cost of the hydrogen system can be seen as a way to “purchase” the associated environmental benefits.
Excess wind or solar power production can be used to generate hydrogen which is stored and can be used to produce electricity when needed. Low-cost off-peak generation can be shifted to higher-value on-peak power, or the hydrogen-fueled generator could be used to provide energy balancing, voltage control, and other high-valued ancillary services to the transmission grid. The extra cost of the hydrogen system may be worthwhile as a way to capture these additional values.
My general sense of things it that there are probably cheaper ways of achieving the environmental benefits and providing ancillary services to the transmission grid, but what do I know? I didn’t see any information on the financing of the $219 million project now underway in Truth or Consequences, New Mexico.
If they are investing their own money, I wish them the best of luck.
Five Guys in Lubbock: The new best burger in town
July 15, 2009Michael Giberson
Five Guys Burgers and Fries opened today in Lubbock.
For over 10 years I lived a few miles up the road from the original store in Arlington, Virginia. It was out of the way for me, too small, almost always crowded and peanut shells littered the floor. It was always worth the trip when burgers were called for. The new store in Lubbock is larger, brighter, and cleaner, but otherwise they have reproduced the atmosphere and food quality of the original.
I may be biased, but as of today I’d say Five Guys has the best burger in town.
More on the FTC and Western New York Gasoline prices
July 14, 2009Michael Giberson
Following up on the earlier post, a recent FTC document details the agency’s activities addressing the oil and gas industry during the first six months of 2009.
Of the investigation into gasoline prices in Western New York, the FTC said:
The Commission’s work involving oil and natural gas also includes the examination of possibly anticompetitive conduct by firms in these industries. A prominent example of this type of activity was the Commission’s investigation of gasoline prices in Western New York and Vermont that began during the fall of 2008. Alerted both by Congressional expressions of concern and by its own Gasoline and Diesel Price Monitoring Project (described in more detail, infra), the Commission conducted a detailed examination of the reasons for higher-than-expected gasoline prices in and around Buffalo and in Northern Vermont. Following a six-month investigation, the Commission found substantial evidence that the prices were unlikely to have been caused by law violations. In response to Members’ requests, the Commission also noted various possible proposals that have been raised in the public discussion on addressing concerns about gasoline prices.
So the FTC clearly states it has conducted an extensive, six-month investigation that “found substantial evidence that the prices were unlikely to have been caused by law violations,” but so far as I have been able to tell the end result was just a letter sent to a few members of Congress, not a publicly-released written report as called for by the interested members of Congress.
Kidney markets and exchanges
July 14, 2009Lynne Kiesling
I see that Mike and I are both reading Market Design today … I liked Al Roth’s post on Virginia Postrel’s kidney exchange article in the Atlantic that came out last week. In addition to his highly complimentary commentary on Virginia’s article, which I recommend, he reviews some of the other press coverage of kidney exchange institutions and finds that coverage … confused.
Roth has done a lot of work on kidney exchange, and this post is a good introduction to that work.
Who likes ticket scalpers?
July 14, 2009Michael Giberson
Al Roth at Market Design, directs our attention to The Ticket Economist:
Grownup economists recognize that there’s a place for secondary markets, but I wonder if a convention of ticket re-sellers doesn’t have something of the flavor of a sex-workers’ conference, in the sense that the participants are engaged in an industry that is often viewed as repugnant, and which is hemmed in by legal constraints that are sometimes ignored.
My attention was drawn to the conference by one of the speakers, Christian Hassold, who I met when he did an undergrad thesis on secondary ticket sales. … [Hassold], who is now off in the entrepreneurial world, has continued to write about ticket sales on his blog The Ticket Economist.
He always seemed like the kind of guy you would like to take in a game with, and it turned out that he’s good at getting tickets too: his blog mixes reviews of news and scholarship with some practical advice: see e.g. Buying from a Scalper? Five Do’s and Don’ts, and Bargaining for Tickets on the Street. [Links in original.]
Hassold highly recommends a paper by Phillip Leslie and Alan Sorensen: “The welfare effects of ticket resale.”
Never did see that FTC report on Western New York gasoline prices
July 14, 2009Michael Giberson
In October of last year, Congressman Brian Higgins sent a letter to then FTC chairman William Kovacic requesting an investigation of gasoline prices in his home area of western New York. Historically, prices in Buffalo and surrounding areas have been below the average price in the state, but beginning around the time of Hurricane Ike in mid-September and continuing until late November, 2008, prices in western New York were higher than the state’s average and even higher than in New York City.
Higgins became dissatisfied with the FTC response (or lack thereof) and joined with Sen. Charles Schumer to reiterate a call for an investigation into the region’s anomalous gasoline prices. When a new administration came to DC in early 2009, Higgins and Schumer issued a joint statement calling for the FTC to speed up the inquiry and make the results public.
In March, Higgins and Schumer met with new FTC chairman Jon Leibowitz to urge the agency move forward on the study. According to Schumer’s press release, “Schumer asked [Leibowitz] to conclude the study as rapidly as possible and ensure that FTC not only made the study public, but provided detailed solutions that could be implemented quickly.” A newspaper report said, “Schumer said the agency committed to releasing the results of its investigation when it is completed in a few months.”
The press release further stated:
Chairman Leibowitz acknowledged the unreasonably high gas prices in cities like Rochester and Buffalo and said his agency would look into possible zone pricing schemes and/or collusion, and will examine why gas prices didn’t fall as fast as they did across the rest of New York State. He pledged to conclude the inquiry as soon as possible and to work to find a way to make the findings public.
The press release concluded by emphasizing Schumer’s demand for a quick, comprehensive study, to be made public, in writing, with details on pricing and recommendations for policy responses. Higgins and Schumer had a second meeting with the Chairman in late April.
Mid-May, according to a statement on Rep. Higgins’s website:
In a report to Congressman Higgins the FTC indicated that while they “were unable to identify precise reasons why retail gasoline prices in some cities in Western New York…did not fall as quickly as prices in other Northeast cities…we note that prices began to fall soon after you raised public concerns about the elevated prices.”
Mid-May saw a few brief news reports (example) and Higgins’s statement on his website, but so far as I can determine no FTC report has been made public. Or, at least, no FTC report on New York gasoline prices in late 2008 appears to be posted on the FTC website, Sen. Schumer’s website, or on Rep. Higgins’s website.
The news report linked just above characterizes the FTC’s response as “a letter sent May 13 by FTC Chairman Jon Leibowitz to Higgins.” The article quotes from the letter (“unlikely that illegal conduct caused those price levels”), but a letter sent to a Congressman doesn’t seem like a comprehensive study made public in writing, as Higgins and Schumer had repeatedly requested.
(If you know where the report or letter can be found, let me know in the comments. Thanks.)
