Archive for December, 2009

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Texas retail electric rates remain higher than neighboring states

December 14, 2009

Michael Giberson

Over the weekend the Fort Worth Star-Telegram published a long story detailing views on outcomes in the restructured Texas retail power market.  The newspaper story might be read as a kind of rejoinder to the view Lynne expressed as she announced the availability of the book on the Texas power market that she edited with Andy Kleit.

This morning Lynne said the book “explores how Texas’s groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States.” I wonder what it meant by the word “model”; I’m not aware of any other state that has chosen to follow the Texas path (at least none so far). In any case, for Texas to become a model, an analyst will have to overcome the perception that the Texas approach has simply caused the state to shift from being a low cost producer to a high cost producer.

Lynne also said: “The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.”  The Star-Telegram story is no simple-minded hit piece, and it perhaps reveals some of the depth of the reporting that it provides a bit of commentary on each of these five points.

[ASIDE: I'm not sure I'd claim, as the last of the five points does, that "operation of the [ERCOT] transmission grid has been changed to maximize its efficiency.” ERCOT’s zonal congestion management has contributed to additional costs, which are ultimately paid for by consumers. But, as market monitor Dan Jones is quoted as saying in the newspaper story, “Further improvements in ERCOT operation of the power grid next year should make the system more efficient.”]

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

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U.S. government becoming clean energy venture capitalist

December 14, 2009

Michael Giberson

The Wall Street Journal summarizes the news that you already know: the U.S. Department of Energy has become one of the biggest financial forces in the clean energy innovations business.

The DOE hopes to lend or give out more than $40 billion to businesses working on “clean technology,” everything from electric cars and novel batteries to wind turbines and solar panels. In the first nine months of 2009, the DOE doled out $13 billion in loans and grants to such firms. By contrast, venture-capital firms — which have long been the chief funders of fledgling tech firms, taking equity stakes in the start-ups that will pay off if they go public — poured just $2.68 billion into the sector in that time, according to data tracker Cleantech Group.

My gut reaction to this news: it can’t be good.

Of course my gut reaction here my be no more a reliable guide to action than Leon Kass’s repugnace or Michael Sandel’s outrage. Is there data or history available that could calm my troubled nerves? I’m not in principle opposed to government funding for basic or even applied research, but I believe we are well beyond those limits. Here is part of the problem created:

“The existence of an 800-pound gorilla putting massive capital behind select start-ups is sucking the air away from the rest of the venture-capital ecosystem,” said Darryl Siry, former head of marketing at Tesla Motors Inc., a San Carlos, Calif., company that got a $365 million DOE loan in June to build high-end electric cars. “Being anointed by DOE has become everything for companies looking to move ahead.”

The result is that developments in applied clean energy research become focused around the ideas of a handful of people involved in the US DOE’s “deal teams.”

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

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New book — Electricity Restructuring: The Texas Story

December 14, 2009

Lynne Kiesling

I’m pleased to announce the publication of a book on electricity restructuring in Texas that I co-edited with Andy Kleit. Electricity Restructuring: The Texas Story is unique among applied regulatory analyses in several ways, most notably that half of the authors are not academics, but are instead the actual policymakers who worked directly on the institutional design of what is currently the only deregulated electricity market in the United States. From the press release:

In the early 1990s, the U.S. electricity industry was plagued by cost overruns and stagnant productivity. Many states turned to deregulation to promote innovation and cut costs, a strategy that had worked for the telecommunications, trucking, natural gas, and airline industries. Yet, after the California energy market’s infamous meltdown in 2000-2001 triggered the recall election of Governor Gray Davis, deregulation lost popular and political support. Plans to introduce competition and retail choice in electricity markets were stalled or abandoned nationwide–in every state but Texas.

This volume explores how Texas’s groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States. The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.

The success of electricity restructuring in Texas proves that deregulation is both feasible and potentially effective. State policymakers’ commitment to competition, decentralized coordination, and ongoing market analysis have made Texas’s electricity industry the most competitive in the country. Electricity Restructuring: The Texas Story offers a unique set of guidelines for deregulation done right.

Posted in Books, Economics, Electricity | Tagged , , | Comments Off

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Modern Manners Guy on gift etiquette

December 13, 2009

Lynne Kiesling

I love the little bite-sized podcasts from Quick and Dirty Tips, and one of my favorites is Modern Manners Guy. My favorite thus far is his “get out of the way” podcast with its set of examples of being more attentive, thoughtful, and considerate with respect to your physical presence; one of my pet peeves is to be driving, or in a shop, or on a sidewalk around people who are so absorbed in what they are doing that they are paying no attention to what is going on around them, and in the process they move (or stand still!) in ways that interfere with others around them:

Although you certainly can’t prevent this situation every time, there are some general practices that will keep everyone moving with the flow which will, in turn, keep tempers down. …

I’ve said it before. You should just get ready because I’m going to say it again and again. The world isn’t all about you, or me for that matter. Manners are the realization of that statement. Manners are about putting others first; there are little things you can do that can brighten someone’s day and these little things are often so inconspicuous that folks don’t even realize you put them first.

And if there were a pile of mannerly things to do, moving out of the way would be right up on top of that pile.

He’s also got a very timely episode on gift-giving etiquette. Very helpful for someone like me who is awkward and self-conscious when it comes to gift giving!

Posted in Miscellany | Tagged , | Comments Off

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KP facelift

December 12, 2009

Lynne Kiesling

Every year around this time, my inner aesthetic gets restless and dissatisfied with the KP design. So you’ll notice a few changes around here, including a new custom graphic that I made out of a cool piece of clip art I found. I like this new graphic; it symbolizes complexity, decentralized coordination, and emergent self-organization to me, and those are the broad conceptual themes that I believe undergird the content here.

Tweaking will continue, particularly with some of the colors and the main column width, so if you have any comments on readability etc., please share them!

Posted in Uncategorized | 8 Comments »

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Somin and Lambert on the responsible use of the precautionary principle

December 12, 2009

Lynne Kiesling

The East Anglia CRU leaked climate research emails and the Copenhagen climate meeting are reviving old discussions about the precautionary principle. The precautionary principle has much in common with Pascal’s Wager. Two new analyses this week have caught my eye, the first from George Mason law professor Ilya Somin. Somin argues for consistency in the application of the precautionary principle — if we are going to apply it to inform environmental policy, we should also apply it to our analyses of the likely economic and environmental consequences of the policies we apply:

One major problem with most invocations of the precautionary principle is that people tend to apply it to whatever danger they want to prevent, but largely ignore it in considering the potential dangers created by the policies they advocate. For example, Dick Cheney applied a version of the principle to the threat of terrorism, arguing that even a small chance of a catastrophic terrorist attack justified taking sweeping measures to eliminate it. At the same time, he tended to ignore the potential dangers of the anti-terrorist measures themselves. Similarly, environmentalists apply the precautionary principle to global warming, but not to the risks created by policies intended to alleviate global warming.

If we have to take seriously the dangers of a global warming catastrophe, we should give equally serious consideration to the risks on the other side.

As usual, his analysis is thoughtful, and I encourage you to read it.

A second post that caught my eye is from Missouri law professor Thom Lambert, who makes a similar point:

The problem with the precautionary principle is that it’s literally non-sensical. It says, “If there’s a course of action that involves threats of harm to human health or the environment, take precautions against it.” The problem is that precaution-taking itself threatens harm to human health and the environment. When we devote resources to avoiding one risk, we divert those resources from some other welfare-enhancing use. When we turn away from a cheap risk-creating technology to a more expensive technology that creates less direct risk, we raise the price of the technology and of any goods or services the technology produces. Poor people will be even poorer. And poverty creates grave threats to human health and the environment.

Thus, it’s not enough to look only at the benefit side of precaution-taking. Because tradeoffs are inevitable, we should also consider the costs of precautions against anthropogenic global warming. In a series of Wall Street Journal op-eds, Bjorn Lomborg has detailed some of those costs: less money for sea walls, storm warning systems, and solidly constructed homes in India and Bangladesh; less money for food, medical treatment, and HIV drugs in Ethiopia; less money for fighting malaria in Zambia; less money for schooling and transportation in Vanuatu.

I tend to agree with Somin and Lambert that the precautionary principle is not a good guide for making policy; note also, as Somin does, that this is also Cass Sunstein’s position on the regulatory relevance of the precautionary principle. Now is a good time to be revisiting and rethinking the value and the universality of the precautionary principle as applied to environmental policy.

Posted in Economics, Environmental policy | Tagged , | 2 Comments »

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ERCOT begins to settle accounts based on data rather than guesses

December 11, 2009

Michael Giberson

Okay, so my title above is a little over dramatic, but the essence of the title remains.  Previously, lacking high quality interval data on retail consumption, ERCOT has been allocating charges to retail energy suppliers based on load profiles – not exactly guesses, more like informed guesses.  As distribution utilities in the competitive parts of the Texas retail power market begin to install smart meters, it becomes possible to measure actual customer use and therefor a retail supplier can be charged for how much its customers actually used in each 15-minute interval.

Here is the ERCOT announcement of its initial efforts to settle wholesale accounts with retail suppliers based on the suppliers’ customers’ actual consumption – note especially the last paragraph:

ERCOT Launches Financial Settlement Process for Smart Meters

The Electric Reliability Council of Texas (ERCOT) began a major step toward implementation of the “smart grid” this month by launching a new system of wholesale settlement for advanced metered customers based on their 15-minute electricity usage.

“Wholesale settlement using 15-minute interval data for retail customers is a major step in connecting the retail electric market with the wholesale market,” said Betty Day, ERCOT director of markets.  “This is an important piece of the smart grid of the future.  By creating a platform for the interaction of electricity supply and demand at the retail level, this helps to realize the full potential of advanced metering.”

ERCOT performed the first wholesale settlements using actual advanced metering data on Monday, Dec. 7.  As of Wednesday’s settlements processes, more than 26,000 accounts had been successfully settled using advanced meter data.  The total is expected to surpass 50,000 by next week.

ERCOT, grid operator for most of the state of Texas and administrator of the wholesale and retail power markets, was charged by the Public Utility Commission of Texas with developing a system of wholesale settlement for customers who are receiving new meters under the PUC-approved advanced metering infrastructure deployment.

Advanced metering deployments are underway in the service territories of Texas’s three largest investor-owned transmission and distribution utilities: Oncor, CenterPoint and American Electric Power.  A fourth utility Texas-New Mexico Power is developing its deployment strategy now.   By 2014, nearly 7 million retail customers in Texas will have advanced meters installed that will record their energy usage every 15 minutes around the clock.

“Making 15-minute data available to customers is a powerful tool for understanding how we use electricity,” said Day.  “But actually settling the customer on that usage at the wholesale level is the catalyst for retailers to provide incentives and tools for those customers to use their energy more efficiently and lower their electric bills.”

Wholesale energy settlement is the process of matching financial debits for retailers’ purchases of wholesale power to credits for the generators who sell that power through the ERCOT energy market.  Since the ERCOT market opened in 2002, all residential and small commercial customers have been settled on statistical estimates of their usage – called load profiles.

Over time as the meters are deployed, 15-minute settlement will replace the use of load profiles in the ERCOT retail market — effectively taking the estimation out of the equation.  This will allow both customers and retailers to benefit financially from lowering energy usage during high-price periods.  Retail products that take advantage of this new technology may include time-of-use, critical peak, or real-time price options, and load-control devices that allow customers to reduce energy consumption remotely or automatically based on price signals.

I see the ERCOT changes as allowing for the approach to demand response advocated by James Bushnell, Benjamin F. Hobbs and Frank A. Wolak in their recent Electricity Journal article, “When It Comes to Demand Response, Is FERC Its Own Worst Enemy?” If FERC is its own worst energy on demand response, it may turn out to be that ERCOT is FERC’s best friend on the topic.

(HT to Eric Schubert. Thanks!)

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

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Repugnance, outrage, and other moral excuses

December 11, 2009

Michael Giberson

Bryan Caplan, in How Wise is Repugnance?,  questions Leon Kass’s argument that “repugnance is the emotional expression of deep wisdom.” (From Kass’s essay, “The Wisdom of Repugnance.”)

Kass runs through a list of things that he thinks the reader will accept as obviously repugnant (incest, bestiality, mutilating corpses, cannibalism, and so on) and wants to use the reader’s reaction to establish the principle that repugnance is a good guide to morality.  For Kass it seems a short step to assert the cloning and cloning-like activities are also repugnant, and having concluded that repugnance is a good guide to morality, he offers that cloning must be immoral.

Caplan identifies a hedging statement made by Kass which, if considered at all, serves to unravel the Kass position: “Revulsion is not an argument; and some of yesterday’s repugnances are today calmly accepted — though, one must add, not always for the better.”

Caplan writes:

It’s quite an admission.  Even if his last clause is dramatic understatement, Kass still acknowledges that calm acceptance of yesterday’s repugnances is sometimes for the better.  And on reflection, that list is very long: vaccination, girls, dissection, religious toleration, kissing, C-sections, inter-racial marriage, paying for parking, colonoscopies, amputation of gangrenous tissue (double yuck), sex, Indian food, male nurses…  Some of these continue to disgust me – I feel faint if I even look at a syringe.  Still, if I think I need a shot, I try to calm down and do what I think - not feel – is the right thing.

My point is not that repugnance is less than 100% reliable.  100% reliability is a silly standard.  My point is that repugnance is habitually unreliable.

The Kass rhetorical approach reminded me of Michael Sandel’s argument in the opening chapter of his book Justice.  Sandel wants to pick out particular emotional responses and privilege them as of moral significance, but he doesn’t explain why some emotional responses point to “a moral argument worth taking seriously” (in his example: outrage at price gougers), while other emotional responses don’t (like anger at a referee that missed a call during your child’s soccer match).

In effect, for Kass and for Sandel, they want to let emotions be a guide to morality.  Realizing, of course, that not every feeling of repugnance or outrage is worthy of moral endorsement, they are left with no more than a claim that at least their own emotions are reliable in this regard.

As I said earlier in a comment on Sandel’s point, “the list of things causing outrage is long and various: alphabetically – alcohol, bigamy, cannibalism, … , same sex marriage, taxation, usury, vivisection, X-rated movies, Yankee imperialists, and zone pricing. In each case I suspect a moral sentiment is involved, at least for the outraged persons, but we need not rush to the conclusion that society should affirm the associated (claim of) civic virtue.”

Posted in Miscellany | Tagged , , | 3 Comments »

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The Benefits of the proposed Tres Amigas interconnection

December 10, 2009

Michael Giberson

Both of the Tres Amigas filings at FERC (see background) provide summaries of the anticipated benefits of the proposed interconnection between the Eastern, Western, and ERCOT interconnections.  Each of the five kinds of benefits listed below seem plausible to me.  While estimating the size of the benefits would require a lot of hard work, given the scale of the project and other generation and transmission projects under consideration for the surrounding area, it seems likely that the benefits will be substantial.

To a degree, of course, the investors in Tres Amigas hope that the project will capture some of the value created in the form of profits.  But to a degree such a project should inherently produce spillover benefits in the form of more efficient energy generation and lower cost provision of reliability services.  (A recent working paper discussing the economic effects of the NorNed interconnection suggests that in the NorNed case the interconnection produced mostly private benefits to the investors. I think there is reason to believe that the Tres Amigas case is different, but the point is worth further examination.)

Here is the version of “The Benefits of Tres Amigas” section appearing in the jurisdictional filing (the version in the transmission rate filing is essentially the same; emphasis added):

Tres Amigas will advance the public interest in several important ways. First, a new power marketing hub will be created in proximity to large amounts of existing and potential renewable generation, providing the developers of renewable (and other) generation expanded markets in which to sell their power. Tres Amigas will permit renewable generation being developed in each of the Eastern Interconnection, ERCOT and WECC to be delivered to markets that are currently only minimally accessible. This will enhance the value of new generation, creating additional incentives for its development. This benefit is particularly important because Tres Amigas will be located adjacent to areas of the country that have been identified as among the most promising from the standpoint of developing renewable wind, solar and geothermal power.

Second, marginal prices for energy in the three interconnections, which typically diverge because the markets are electrically separated, will move closer together, allowing electricity to be produced more efficiently and saving electric consumers large amounts of money. For example, the Petitioner’s studies show that marginal energy prices vary significantly between the Southwest Power Pool (in the Eastern Interconnection), ERCOT and the WECC at this time. Our studies show that energy prices vary by more than $50 per MwH in over 2,000 hours per year between the CAISO and ERCOT, over 1,600 hours per year between ERCOT and the Palo Verde hub, over approximately 1,500 hours per year between SPP and the CAISO, and over approximately 800 hours per year between ERCOT and the SPP. Accordingly, significant opportunities exist to produce power more efficiently.

Third, opportunities will exist to “firm up” intermittent and variable renewable energy by taking advantage of geographical diversity and onsite battery technology at Tres Amigas. Studies have shown that the quality of intermittent and variable renewable energy can be enhanced by aggregating sources from geographic locations that may experience high winds or sunshine at different times. In addition, Tres Amigas will expand the geographic reach of markets generally, offering additional opportunities to take advantage of load and resource diversity.

Fourth, the value of transmission investments made in the regions around Tres Amigas will be enhanced by allowing power to move more freely between the interconnections. Tres Amigas will permit power to move to and from different markets, expanding the potential use of the existing transmission grid and expansions thereto. Tres Amigas should provide system planners new opportunities to improve the efficiency and reliability of the electric system at a lower overall cost.

Fifth, electric system reliability in the area around Tres Amigas will be improved because Tres Amigas will connect the three asynchronous grids at a robust station with back-up power and voltage source converter technology that will provide substantial reactive power to the transmission system in each of the interconnections. This is particularly important because Tres Amigas will be located in a remote area, where a strong source of reactive power is necessary to support both new transmission and new renewable generation. Tres Amigas will allow more renewable generation to be interconnected in this important region and reduce the investment cost associated with transmission development in the area.

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

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Steve Landsburg’s questions to Oberlin honors students

December 9, 2009

Lynne Kiesling

Interesting … via Mark Frauenfelder at Boing Boing, links to the two parts of Steve Landsburg’s 10-question exam to determine the honors eligibility of Oberlin economics majors for honors. Oberlin always solicits questions from an outside expert, and Landsburg has posted them on his blog, The Big Questions. I also recommend his blog for general economics reading.

Some of these questions are difficult, good mental checks and challenges. He has started posting solutions to some of the questions, and promises more soon.

Posted in Economics | Tagged | 2 Comments »

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