Archive for January, 2010

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California’s solar hot water initiative

January 22, 2010

Michael Giberson

Yesterday the California Public Utilities Commission approved a program to subsidize installation of solar hot water heaters.  Green Inc. at nytimes.com provides a description of the solar hot water program.  The description emphasizes the goals of the program (reduce use of natural gas and electricity to heat water, primarily in order to reduce greenhouse gas emissions) and highlights the incentives offered to homeowners and owners of multifamily commercial buildings.  The description omits completely any description of who will fund the subsidy.  Fortunately, the story provided a link to the CPUC decision which provided the rest of the story.

Under the program, a Public Goods Charge will be added to the bills of natural gas consumers to collect $250 million fund for replacing gas water heaters with solar thermal water heaters.  An additional $100.8 million fund for replacing electric water heaters will come from California Solar Initiative money already being collected through a charge on electric consumers.

Analysis conducted for the CPUC determined the program was “cost effective for ratepayers and in the public interest,” as the state law requires, though that conclusion was disputed in regulatory proceeding. (Summarized here in the CPUC decision.)  In high gas cost scenarios the program was readily found cost effective, but the CPUC focused on the stable-gas-price “Business as Usual” scenario (as the worst-case or most conservative scenario from the point of view of cost-effectiveness).  Using a “society as a whole” perspective and the Business as Usual scenario, the program was determined to be cost effective if cost reductions of 16 percent relative to current costs can be achieved over the eight-year program duration.

Which kind of sounds like a conclusion that the program would not be cost effective.  However, the decision assures us, commission staff have examined the tools, materials and methods use to build and install solar hot water systems, and staff concludes “a 16% cost reduction is a reasonable expectation.”

I wonder if they considered the possibility of a low-priced natural gas scenario?

Posted in Electricity, Energy markets | Tagged | 3 Comments »

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Quick hits

January 20, 2010

Lynne Kiesling

Some drive-by blogging today:

-Although it is currently not commercial and does not look like it will necessarily put a big dent in greenhouse gas emissions, this copper material that binds to carbon dioxide to generate useful chemicals is very cool and promising. This is the kind of ingenuity and innovation that makes the future brighter!

-Arnold Kling and Nick Schulz have a great op-ed in today’s USA Today, in which they argue for privatizing airport security. Hear hear! Not to mention privatizing airports, introducing economic logic and institutional design to the allocation of gates and takeoff-landing slot pairs, …

-Don Boudreaux points out that the proposed new regulation of income tax preparers is completely and utterly preposterous. He characterizes it as yet another brick in the Wall of the Nanny State; I would add that the parties applying the mortar around that brick are precisely those who have substantial economic benefit from such regulation — the already credibly qualified income tax preparers. Bootleggers and Baptists, anyone? As Don points out, it’s a ludicrous myopia of political elites to believe that their “enlightened” hand of regulation would do any better job than the very real, very personal, very distributed and decentralized incentives that every.single.individual faces to minimize the taxes s/he pays while still abiding by the law.

-This Ars Technica article discusses some very cool experimental game theory research that identifies the imitative behavior that leads to the reduction of random strategies in evolutionary processes. Or, as they note, “This implies that in evolution, as one member of a species enjoys more and more success, its methods become hard to ignore for the others, which will eventually follow its lead.”

Posted in Economics, Technology | Tagged , | 2 Comments »

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The costs of policy uncertainty: Venezuela edition

January 19, 2010

Michael Giberson

Maybe there is more to this story than “no company with the least respect for stockholders money would invest in Venezuela these days”, but that might be a sufficient explanation.  From Bloomberg:

Venezuela’s Mariscal Sucre project, which has estimated reserves of 14.7 trillion cubic feet of gas, has failed to attract private interest after the government invited firms to make offers last week.Offers were to be made on Friday until midnight.

The government this month improved the conditions it was offering companies to help develop the project, but in the end nobody came forward, private sector sources close to the process said on Monday.

(HT NewsWatch: Energy)

Posted in Energy markets, Politics | Tagged | Comments Off

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Taking out a mortgage to buy LED lights for your home

January 19, 2010

Michael Giberson

A Financial Times article discusses advances in the application of LED technology, both for television and other display technologies and for general lighting applications.

Pete Moran of the DCM venture capital firm says LEDs have advantages such as longer life and greater efficiency compared with both incandescents and the energy-saving compact fluorescents with which consumers are currently replacing them.

“They contain no mercury, they’re inherently dimmable, the colour is more natural and you’ll put one in your house and never need to change the bulb,” he says.

In my experience compact florescent light bulbs didn’t always live as long as advertised and other bulb characteristics were less satisfactory as well: the color was sometimes less desirable and the bulbs usually not dimmable.

Like compact florescent light bulbs, LED lights have offered consumers longer-lived bulbs with lower energy costs at the cost of higher costs up front.  However, new LED lights are so long-lived (actually, projected to be so long lived) that one may be able to build new houses with all LED lights and have them last as long as a 30-year mortgage.  The higher up front cost of the lights would be factored into the cost of the home and become part of the amount borrowed, which would ease the consumer’s management of the investment cost, and the lower energy consumption over the life of the lights would help the consumer make the slightly higher house payment.

Elsewhere: Tom Konrad at Alt Energy Stocks likes LED manufacturers’ stocks, but thinks LED maker Cree, Inc. is now overpriced.

Locally (for me, anyway): Texas Tech University Nano Tech Center researchers are doing nanoscale research on LEDs, examining the limits of current LED technology in projection systems and developing ultraviolet LEDs, among other things.

Posted in Electricity | Tagged , | 2 Comments »

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Stretching the meaning of “price gouging” in Venezuela and Alaska

January 19, 2010

Michael Giberson

What does “price gouging” mean?  Commonly it is taken to refer to merchants raising prices substantially on necessities during emergencies.  Each of the three elements – substantial price increase, necessary items, emergency periods – is part of a proto-typical case of price gouging. However, the term is frequently also used in cases lacking some part of these three elements.

For example, Hugo Chavez told merchants not to raise prices after Venezuela devalued its currency, urged consumers to report “price gouging”*, and has now forced over 600 shops to close because of post-devaluation price increases.  (Link to news story; *I didn’t check the Spanish language sources, this is the term that has been used in English newspaper accounts.)

Venezuela has temporarily shuttered 619 retail stores for price-gouging in the wake of the devaluation of the country’s currency last week, official news agency ABN says.

[...] The Venezuelan leader had warned on Sunday that any price speculation by shopkeepers would trigger business seizures, and called on the National Guard to help people fight price hikes.

“To those gentlemen, let’s call them looters of the people… if they want to, go ahead and do it, but we’ll take their business and hand them over to the workers,” Chavez said on his weekly radio and TV talk show Alo Presidente.

The announcement sent crowds of shoppers to the stores to buy what they could at the old prices.

General price adjustments in response to changes in currency value do not resemble the proto-typical case of price gouging, but the term is tossed around anyway.

In Alaska, state politicians have been concerned by gasoline prices that have been among the nation’s highest.  The term “price gouging” is employed, though no emergency exists. It is just the case, apparently, that over time wholesale gasoline prices became higher relative to prices in the rest of the United States. An anti-price gouging bill sponsored by state legislators proposes to prohibit “excessive or exorbitant prices for heating oil, diesel, and automobile and aircraft fuel” without any restriction to emergency or post-emergency periods.

A quote from sitnews.com:

Several Democratic legislators on Tuesday applauded Gov. Sean Parnell’s attempts to hold down fuel costs for Alaskans, but urged the governor to go further, and join their efforts to end fuel price gouging in Alaska. The governor wants to extend the eight cent fuel tax suspension, but the Democrats’ proposal could reduce gasoline costs by as much as 54 cents per gallon.

“Alaskans are paying too much for gas,” said Rep. Pete Petersen (D-Anchorage) who is a sponsor of HB 68 which would prohibit refineries from charging excessive or exorbitant prices. “The real problem is that Alaska’s two major refineries have no competitors and can charge whatever they want.”

(Another news story reporting “price gouging” allegations. Link to state legislator’s press release alleging $189 million consumer cost due to price gouging.)

Usually, when anti-price gouging sentiment is formed into anti-price gouging law, each of the three elements of the description gets some attention in the law. (Though, as noted here before, the resulting laws are not always as clear as businesses would like.) The Alaskan legislators claim a general state government interest in preventing excessive prices not limited to emergencies because “Alaska has a unique Constitutional responsibility to ensure that natural resources are used to the maximum benefit of the Alaskan people.”

I’m no expert on the Alaskan state constitution, but either this logic is faulty or the state has a whole lot more anti-price gouging work to do.

Posted in Economics, Politics, Regulation, Uncategorized | Tagged | Comments Off

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R I making smart grid sense?

January 18, 2010

Michael Giberson

I noticed when posting the previous item that one of the subject tags in the Knowledge Problem system was “smart gird.”  Not “grid”, but “gird.”  A simple enough substitution of the “i” and “r”, and, apparently, pretty common online.  Google yields a plethora of “smart gird” results (although it first redirected me to “smart grid”, apparently assuming that was what I meant to search for).  Online I find smart gird workshops, smart gird management software, smart gird updates, smart girds making refrigerators smarter, and even smart gird augmented reality.

So far no one has secured “smartgird.com”, suggesting an unexploited opportunity to become the online portal to this growing, vast and varied smart gird world.

Here is an easy way for writers to check themselves: after typing the term smart grid, repeat the following phrase: “R I making sense?”  If the answer is “I R”, then you’ve got it backwards.

Posted in Miscellany | Tagged , | 3 Comments »

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Smart meter benefits for low-income consumers

January 18, 2010

Michael Giberson

Much of the smart grid promise (and hype) implicitly suggests that the benefits will be scooped up by high-income consumers.  Who else is going to be buying “grid aware” washer-dryer sets with built in wi-fi connectivity integrated into internet-linked home energy managements system?

Still, the benefits won’t be limited to big spenders hoping to manage their energy use a little better.  One example: a new prepaid electric power service product being developed by First Choice Power for offer in areas of Texas with smart meters installed. Prepaid electric service is frequently easier to manage for low-income consumers because it does not require the consumer to make a deposit or pass a credit check.

Prepaid service is already available in the Texas retail power market, but the existing services face several difficulties with standard meters.  Without constant metering and information flows to retailer and consumer, consumers are charged in advance based upon estimated usage — both parties to the service are left with a bit of risk.   The result is a product that is costlier for retailers to offer and more difficult for the consumer to manage.  As one consequence, prepaid service is the subject of significantly more complaints than standard consumer service in the competitive Texas retail power market. (See this earlier post for a related discussion.)

Excerpts from the company press release:

First Choice Power today announced that it has launched a prepaid electricity service called Control First™. The service allows customers to sign up for electricity service with no credit check, no contract and no costly deposit, eliminating barriers to switching as well as providing customers with complete control of their electricity usage and payments.First Choice Power is the first affiliated retail electric provider in Texas to offer residential prepaid service based on actual daily usage from an advanced or “smart” meter, unlike other providers in the market that bill estimated usage.

“Control First is the first prepaid product that really lets customers take control of their electricity costs and manage their usage,” said Brian Hayduk, president of First Choice Power. “This is the next generation of prepaid products giving customers more visibility, more flexibility and more information so that there are no surprises at the end of the month.”

…

“First Choice Power’s Control First is a true prepaid product,” Hayduk said. “With Control First, you decide how much you will pay and when to make your payments. With no minimum payment requirements, you have the flexibility to best manage your budget according to the amount of electricity you use.”

The offer will be made more broadly available later this year as more customers are able to take advantage of the smart meter-based service. There are about 800,000 installed smart meters in Texas, with stated plans by transmission and distribution companies to install an additional 1.6 million in 2010 with more added in subsequent years to total 5.7 million in 2013. Customers must have an advanced meter to be eligible for Control First.

And prepaid is not necessarily just for low-income consumers.  As Lynne discusses in a post on prepaid service, prepaid service can promote consumer awareness and control over energy use and help consumers to reduce energy use.

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

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Whitman and Worstall: apply “new paternalism” logic to policymakers too

January 18, 2010

Lynne Kiesling

Glen Whitman has been posting excerpts from his Arizona Law Review paper with Mario Rizzo on the “new paternalism” for a while, and his most recent discussion has to do with the paternalist policy recommendations around the human tendency toward hyperbolic discounting. Hyperbolic discounting means that individuals tend to place more weight on nearer-term outcomes than might be deemed “rational” by some expected-value-based model, and the corresponding paternalist policy recommendation is to force people into the intertemporal substitution that increases the purported future benefit. There’s an enormous literature on this idea, and applications of this idea in many areas (including vehicle fuel efficiency, in which some people claim that hyperbolic discounting is a “market failure” — a claim that drives me completely batty due to its lack of logical content!), well beyond what I want to discuss here and now.

Whitman is making a more pointed argument, and an important one — if we cede this kind of decision-making to centralized policymakers and allow them to exercise the coercive power to force individuals into particular forms of intertemporal substitution, on what basis are we making that decision? If individuals in their private roles engage in hyperbolic discounting, isn’t it also logical to assume that policymakers are prone to hyperbolic discounting? And if they are, what are the implications of that tendency for the efficiency and the morality of the legislated, coerced outcomes? His post goes through several reasons why we should expect policymakers to have shortened time horizons, and I encourage you to read it.

Tim Worstall puts it much more colorfully than I am capable of:

So we should be shepherded to the right decisions by those wise enough to know what the correct, non-hyperbolic, discount rates are. That’s basically the libertarian paternalism for you right there. And as Whitman points out, that’s just great but who are the people who will be taking these decisions about what is the correct discount rate?

Yup, politicians. And do politicians take decisions based upon the correct discount rates or are they also subject to this hyperbolic discounting? Was that howls of laughter I could hear? Splutters of indignation perhaps? For yes, of course, when we look at how politicians actually run any of the long term schemes which they currently have power over we see that they’re vastly worse at this than we little sheep are. Look at civil service pensions, roaring out of control as far as the eye can see into the future because years ago it was easier to buy political support or buy off industrial unrest by promising what could never be afforded. The untold off-balance sheet promises that have been made that will impoverish our grandchildren just to get one politico or another through a difficult election. The hocking of the future in that every few year electoral scramble to get the right bums on the right benches at Westminster.

For the failure of this libertarian paternalism, the hole in this argument about hyperbolic discounting, is that we as individual humans may well be imperfect: but those who would rule us are worse by this measure. I know of no adult who lives their life with a final horizon of only the next election and I know of no politican with a horizon of longer than that next election.

Hear, hear.

Posted in Economics | Tagged , | 2 Comments »

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Ignore the smiling photo – Arnold Kling is bitter

January 15, 2010

Michael Giberson

In the photo accompanying Arnold Kling’s EconLog post, he is smiling, but in his recent post “Market Failure” he does not sound like he is smiling:

I want to propose a new definition of market failure. … This post ties together a couple of recent bitter themes. It is not intended in any way to persuade people who disagree with me (if you disagree with me, you may just want to skip the post). It is simply a grand unified theory of my bitterness.

… Suppose that we have a group that wants enormous political power. The group rewards people who justify its power by calling them “experts.” It punishes those who question its power by dismissing them as “hacks.” If you want money and status, you want to be labeled as an expert. In order to be labeled as an expert, you produce analysis that justifies concentrated political power for the elite group.

This process is self-reinforcing. It is like the Harvard-Goldman filter. That filter says that only “reliable” people are allowed to be bank CEO’s or policymakers. A requirement for being “reliable” is sharing the views of other “reliable” people as to what constitutes reliability.

It is like the tenure system in academia. Who gets tenure? Above all, it is people who support the existing tenure system.

There is more – he ends by agreeing that “our moral rot is not as bad as it was in the Soviet Union” and” and he grants that he doesn’t “foresee gulags and mass murders,” but he also doesn’t come across as very optimistic about the direction of public policy.

All in all, Kling offers one of the most analytical and insightful rants that I’ve come across lately.

Posted in Liberty, Politics | Tagged | 3 Comments »

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Tesla!!!!!!!

January 14, 2010

Lynne Kiesling

I am, and always have been, a fan of Nikola Tesla, having most recently celebrated his birthday with a post here that included a link to the video of the O.M.D. song “Tesla Girls”. Now I find out that my appreciation of Tesla makes me a hip trendsetter! Who knew?

Today’s Wall Street Journal has an entertaining and informative article on Tesla’s resurgence, with the claim that Tesla’s ideas thrive in the 21st century while his arch-nemesis Thomas Edison is “so 20th century”.

But Tesla has been rediscovered by technophiles, including Google Inc. co-founder Larry Page, who frequently cites him as an early inspiration. And Teslamania is going increasingly mainstream.

An early hint was “Tesla Girls,” a 1984 single from the British technopop band Orchestral Manoeuvres in the Dark. Performance artist Laurie Anderson has said she was fascinated by Tesla. David Bowie played a fictionalized version of him in the 2006 film “The Prestige,” alongside Christian Bale and Hugh Jackman. Director Terry Gilliam described Tesla in a recent documentary film as “more of an artist than a scientist in some strange way.”

Tesla, in short, is cool.

He’s now even a character in a video game, which I guess is how you know you’ve really arrived in the 21st century! Oh, and the having an electric roadster named after you, and a line of computer chips, … geek mystique, indeed!

Posted in Economic history, Electricity | Tagged | 6 Comments »

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