Archive for February, 2010

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Happy 201st for Charles Darwin (and Abe Lincoln)

February 12, 2010

Michael Giberson

It’s the anniversary of the birth of Charles Darwin, which means it is Darwin Day!

Darwin Day is a recently instituted celebration intended to commemorate the anniversary of the birth of Charles Darwinon February 12, 1809. The day is used to highlight Darwin’s contribution to science and to promote science in general. Some may believe that Darwin Day also commemorates the passing of those who earned the Darwin Award.

It is also the 201st anniversary of the birth of Abraham Lincoln, but Abe was a politician, and more recent politicians have deemed it reasonable to officially recognize him and other presidents with a federal holiday later in the month. No more need be said here today.

So celebrate by testing a hypothesis, doing an experiment, or collecting some careful observations. In other words: Go do some science!

And cake. Have some cake, too.

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Are carbon credit markets inherently prone to fraud and manipulation?

February 11, 2010

Michael Giberson

The headlines about fraud in Europe’s carbon credit trading system (2010: “Fraud Besets E.U. Carbon Trade System,” 2009: “Europol: $7.4 Billion Lost from Carbon Trading Fraud in Europe“) seem to confirm what some critics of carbon credit trading have been saying all along (2007: “Carbon Trading Open Invitation To Fraud,” 2007: “The greenhouse gas emission trading scam“).  Are these news stories proof that the critics are right? Are carbon credit markets inherently susceptible to fraud?

Victor Flatt, at Flatt Out Environment, says no, these stories are just show the growing pains associated with a new market.

The fraud perpetrated on the EU exchange was basic garden variety thievery.  Criminals got access to an asset (carbon credits) and stole them. This could (and has) happened with many assets, and is a risk of electronic records and trading. … The one way that this can be attributed as uniquely related to the carbon market is that the entire trading system is new, and new systems present more opportunities for thievery, rent-seeking, and fraud. It seems clear that the security protocols on some of the EU country registries were not sufficiently strong or that market participants were not educated enough about the protocols of the exchanges to protect their security information from “phishing.” Luckily, the amounts in play were relatively small, they were quickly discovered, and this will provide lessons for future security upgrades.

So far the RGGI trading in carbon credit appears to be fraud free.  At least my searching through news reports and the market monitor’s statements doesn’t turn up any fraud complaints.

Market manipulation can be achieved without fraud, and whether or not the European market is susceptible to manipulation is not revealed by the above complaints.  Again, so far at least, the RGGI markets have not shown evidence of market manipulation.  (The RGGI design team did go to some lengths to design a market that would be difficult to manipulate.)

Of course, since these trading markets are essentially created by legislative action, they could be revised by legislative action.  The temptation to jump in and “fix” the market will rise any time enough legislators think that the prevailing carbon credit price is too high or too low.  Existing pollution credit trading programs in the U.S. have escaped such meddling mostly by being too small to be of much interest.  Also, they seemed to work so well that few people wanted to mess with them.  Carbon credit trading won’t be “too small to be of much interest,” so its best protection from after-the-fact legislative meddling will be to work so well than few people will want to mess with it.

That and, of course, continuing public support for the underlying science of climate change that is motivating efforts to control greenhouse gas emissions in the first place.

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Private management of the commons: Parking spots and Chicago snow

February 10, 2010

Michael Giberson

No doubt that since Elinor Ostrom won a Nobel Prize last year for, among other things, her work on decentralized approaches to common pool resource issues, a small legion of social science graduate students are looking for new cases of non-governmental management of common pool resources.

Here is an example supplied by Fred McChesney: on-street parking spaces dug out from the snow in Chicago.

Alex Taborrak notes the Washington Post reports that in Boston the city has codified a similar practice: if you dig yourself a parking spot in the snow, a lawn chair or trash can will render the space yours for up to two days.

Perhaps a comparison to reclaimed-from-the-snow parking space management practices in the Washington, D.C., area would be possible.  Given the amount of snow that has fallen in the capital area, you probably have a few weeks to collect the necessary comparative data.

ADDED: Pittsburgh offers another variant of  law and practice:

“Chairs and barriers of any type holding parking spaces on city streets are considered abandoned property and will be removed and discarded,” Pittsburgh Police spokeswoman Diane Richard told Channel 4 Action News in an e-mail.

See also the discussion by Pitt Law professor Mike Madison. HT for both links to Freakonomics.

So Chicago has an informal practice guided by custom and tolerated by the city; Boston has the practice codified into city ordinance; Pittsburgh has an informal practice which is actively opposed by the city; and Washington DC doesn’t get serious snow often enough to have a well developed custom.  Lots of angles to study.

What about Minneapolis and Milwaukee?  What about Seattle or Denver?  Any more reports?

STILL MORE: Via Market Design, where Al Roth dubs the practice “anti-social,” a Boston Globe story on claiming parking spots before the snow begins to fall, “Claiming a spot before shoveling? That’s not Southie.”

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PG&E spending big to protect its monopoly against municipal aggregation

February 10, 2010

Michael Giberson

For a number of years, state law in California has permitted cities or counties to arrange to become the electric power service provider for their areas – an arrangement where they would be responsible for acquiring the electric energy needed for consumers in their areas while the local utility would continue to operate the transmission and distribution.  (Consumer in the affected areas are allowed to opt-out, and stay with the private utility.) Only in the past few years have a few local government taken the “community choice aggregator”  idea seriously, and so only recently have the state’s privately-owned utilities worried much about the prospect of losing customer base.

San Francisco-based PG&E has initiated an effort to change the law so that local governments would need a two-thirds majority favorable vote from citizens in their communities in order to become a community choice aggregator.  Advocates of the local government-centered efforts worry that a two-thirds requirement will be insurmountable.  Details of the story are available at the Mercury News.  The state’s Legislative Analyst’s Office supplies a description.

Hat Tip for the link goes to Tom Fowler, NewsWatch: Energy, but he misleadingly styles the story as “California utilities spending big to block electric competition.”  For one, just a single utility – PG&E – seems to be involved. The state’s other investor-owned utilities appear not to be participating in the effort.  And the effort isn’t so much an attempt to “block electric competition” as it is an attempt by one monopolist to block other potential monopolists from horning in on its action.

Of course there has long been competition between private utilities and municipalities in the electric industry. According to Forrest McDonald’s biography of Samuel Insull, one reason Insull became an advocate of state-regulated private monopoly utilities in the late 1890s was as an effort to avoid municipalization of his companies.  Historically, municipalities were motivated by a hope of lower rates (at least that was usually the story for public consumption).  In the case of at least of few of the local governments exploring becoming an aggregator now, however, the announced motivation is to purchase a larger amount of renewable power, even though it can be more expensive.

As an aside: In parts of Texas with significant amounts of real retail electric competition, consumers can already choose the amount of their power that comes from renewable sources, with multiple companies offering contracts ranging all the way from 0 to 100 percent renewable energy content.

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By the way you look fantastic in your car of Audi plastic

February 9, 2010

Michael Giberson

Audi said its “Green Police” commercial, shown during the Super Bowl, was meant to be funny.  Turns out that neither the Plastics Division of the American Chemistry Council, nor at least some environmentalists, were amused.  I found the ad annoying – I’m not sure why – but anything that can unite the American Chemistry Council with at least some environmentalists has something going for it, right?  (More on the ad controversy at USA Today.)

The folks at the chemistry council set up a response website, Green Police Confused, pointing out how the extensive use of plastic in the Audi A3 TDI helped the car win the “2010 Green Car of the Year” award at the LA Auto Show.  Now that’s funny.

For your viewing pleasure, first the Audi ad and then a celebration of the plastics in Audi’s “Green Car of the Year”:

HT to Tom Fowler, indispensable at NewsWatch: Energy.

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Google Energy LLC files at FERC

February 9, 2010

Michael Giberson

First Google PowerMeter, then Google.org invests in renewable power R&D and now a Google entity – Google Energy LLC – files at FERC to become a wholesale power marketer. What’s going on?

At the EU Energy Policy Blog, Fereidoon Sioshansi examines “Power Marketer Google“:

Google has a habit of surprising its competitors. The fast moving company is known for launching into new forays not always knowing where it may end up. In this sense, it is not only the competitors who are trying to read what the company’s latest move may entail.

In early January, Google submitted an application to the Federal Energy Regulatory Commission (FERC) seeking approval to become a power marketer. There are approximately 1,500 entities in the US who have FERC’s blessing to operate as power marketers. Most are utility companies, power generators or pure traders, companies who buy and sell power at wholesale prices and serve as intermediaries between generators and large consumers. Some are large energy-intensive electricity users such as Alcoa and Safeway with hundreds of supermarkets across the country. But why Google?

Google is closed mouthed about its full intentions, only acknowledging that as a power marketer it could “better manage (electricity) supplies for its own operations” and have “greater access to renewable energy resources.” Both are reasonable reasons to seek official power marketing status….

The Google Energy LLC application does go on a bit about selling ancillary services, and the rate schedule submitted identifies a complete list of ancillary service products it wishes to be able to trade in the organized regional markets and with third parties in areas outside of the regional markets.  The seeming focus on ancillary services suggests some interesting possibilities: most of the regional markets provide some ability for large consumers to supply reserve services, for example, and increasing the availability of ancillary services would ease integration of renewable power to the power grid, something Google favors.

But actually the filing is just trying to be exhaustive in its listing of products that it may trade, either because Google doesn’t want to inadvertently reveal strategic plans or because they haven’t yet decided on a specific set of plans and so simply seek flexibility to pursue opportunities as they emerge.  And, in fact, it is fairly common for power marketers to submit relatively general requests for market-based rate authority. (I.e. compare the Google Energy LLC filing linked below to the quite similar filing of Monarch Global Energy, Inc., a generalized electricity services consultant, in ER10-583-001.)

So few clues yet as to Google’s plans and maybe Google hasn’t yet fixed on a plan. But it is an interesting move coming on top of the other energy actions the company has taken.  Competitors, potential trading partners, and electric power market geeks will be watching.

Links to Google Energy LLC’s filings at FERC:

UPDATED February 18, 2010: FERC has approved Google’s request for market-based rate authority. (See item E-18 on this summary of decisions and a related Dow Jones news item.)

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Georgia electric consumers want competition to help protect against higher prices, just like they have for natural gas

February 8, 2010

Michael Giberson

From WTVM-9:

Latrese Brown, a Cusseta [Georgia] resident, gathered a group of people who believe Sumter EMC is ripping them off. “Not only mine but my entire community light bills are outrageous high, they’re more than our mortgages, more than our rent, more than our car note,” complains Brown.

… The citizens of Cusseta went to their county commissioners Tuesday night and asked them to consider bringing in another company.

“You should be able to choose who you’re with, we choose our gas company, we should be able to choose who provides our lights to us because we want to choose our customer service.”

Notice what she said? “We choose our gas company, we should be able to choose who provides our lights …” Georgia is, I think, unique in allowing competitive retail natural gas suppliers to operate. Consumer Latrese Brown has experienced a competitive retail gas market and a regulated monopoly electric utility service, and she concluded she’d like to give competitive retail electricity a try, too.

Greg Crowder, vice president of marketing and administration at Sumter EMC says it’s not Sumter Electric calling the shots. He argues they have not increased rates and that the electric service act decided territories for electric companies.

“It was done to keep from duplicating efforts, two utilities running down the same road to serve the same customer then that’s inefficient,” says Crowder.

Of course Georgia is not overrun with multiple natural gas pipes running down the same road. A single natural gas pipeline company manages the distribution pipeline and provides delivery service.  Separately, about 15 or so competing retail natural gas suppliers offer consumers a variety of fixed-price or variable-price contract offerings and other terms.

It is not too complicated to have a single wire running down the street and yet multiple retailers delivering power over that single wire.

… And, the cause for the high bills is nothing more than the heaters reaction to the extreme temperatures, “the heating load is what caused the high bills, we’ve seen it before.”

The proximate cause of the unexpectedly high bills was the much cooler than normal weather experienced this winter.  Nothing unusual about occasionally experiences unusually cold weather. What seemed noteworthy about the news story was that consumers facing unexpectedly high bills were not demanding regulators take direct action to reduce electric rates.  Rather, they sought protection through competition, just like they already enjoy for retail natural gas prices.

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Tres Amigas wants to take cheap electric power away from hard-working Texas families

February 8, 2010

Michael Giberson

I spent the middle of last week in Austin at the University of Texas-Law conference on wind, solar and geothermal energy law, and as a side bonus got to hear some informal, Austin-based commentary on the Tres Amigas proposal to interconnect the Eastern, Western, and Texas electric grids. It will give you some idea of the thinking in the state capital that I heard the term “Dos Amigas” used more than a few times.

During the pre-conference “fundamentals” discussion, in response to a question that asked whether stronger transmission links to other states would help accommodate added growth in Texas wind power, a current member of the Public Utility Commission of Texas arose from the audience, climbed onto the dais, and took the microphone to say, among other things, “ERCOT is just fine the way it is.” The other main point of his comment was to suggest that the Southwest Power Pool, which has long covered the wind resource rich Texas Panhandle (with relatively weak links elsewhere, but a plan to beef up those links), would ably serve to sell the wind resource out of state while not compromising ERCOT’s jurisdictional status with respect to the feds.

Later in the conference a speaker offered a Texas policymaker’s view: ERCOT has its well-regarded CREZ plan to spend $5 billion on transmission enhancements primarily intended to allow wind generation in far west Texas, central west Texas, and the Texas panhandle to be delivered downstate to consumers in the Dallas, Houston, Austin, and San Antonio regions. If those lines link to Tres Amigas, then the prospect arises that consumers elsewhere will – in effect – “drink our milkshake.” Texas policymakers don’t want other consumers to drink our milkshake, especially after ERCOT consumers spend $5 billion to build there own transmission “straw” into the Panhandle region.  (Yeah, I watched “There Will Be Blood” a week or so ago, hence the milkshake and straw references. The presenter did not use this language.)

Peter Behr, writing for ClimateWire, has a more journalistic report on the debate over Tres Amigas. Behr reports that Occidental Petroleum – a large power consumer within the ERCOT region – has actively opposed the Tres Amigas project in filings at FERC, as has the Texas Industrial Energy Consumers. I haven’t read their filings, but apparently they believe ERCOT power prices will be higher on average with Tres Amigas than without, and as consumers they prefer lower prices.

In my opinion, however, they are more likely to get slightly lower (and somewhat less volatile) prices with better links to the rest of the grid.  That’s the way market expansion usually works.

Tres Amigas posts its FERC filings and related documents on its website. Here are links to a couple of the opposing views filed at FERC.  The “Supplemental Protest of Occidental…” includes the expert witness testimony that Behr discusses in his story:

Not all Texas policymakers oppose Tres Amigas. Member of Congress Randy Neugebauer (R-TX) sent FERC a letter indicating the project would encourage investment in renewable power and urging the Commission to give the project a “fair and deliberate view.”  And, as the ClimateWire story suggests, developers aiming to exploit the extensive power generation potential of the region are strongly behind the project.

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A disgusting display of bureaucratic force from the Chicago Department of Public Health

February 5, 2010

Lynne Kiesling

This is so vile, so disgusting that I am literally nauseated at my desk as I write. One of the ways that independent chefs, caterers and confectioners economize on their substantial fixed costs is by sharing kitchens. In Chicago, the business license treatment of such kitchens from the Chicago Department of Public Health has been uncertain: does the kitchen owner have to be the one with the license, or does each user of the kitchen have to have a separate license?

Last night, due to a paperwork miscommunication and Kafkaesque bureaucratic process of trying to sort this out, the Chicago Department of Public Health destroyed organic fruit purées that Flora Lazar of Flora’s Confections prepared over the summer and preserved to use in her much-touted and anticipated Valentine’s Day confections. These officials tore open the bags and bleached the food so that it could not be put to any use. I’m going to quote Chicago Tribune reporter Monica Eng here at length, because she was there, and her post illustrates exactly how senseless and appalling this destructive CDPH behavior is, but there is more at her post, including a depressing video of the CDPH officials destroying the food, so please do go read more there.

In a sad struggle that unfolded in a West Town kitchen Thursday night, Department of Health inspectors seized, slashed open and poured bleach over thousands of dollars of local peaches, pears, raspberry and plum purees owned by pastry chef Flora Lazar. She’d purchased the fruit from Green City Market farmers last summer and had planned to use it to make local fruit gelees for her business, Flora Confections.

More than $1,000 of food owned by the Sunday Dinner Club caterers was also destroyed by health department inspectors.

Inspectors cited no health problems with any of the food. They even encouraged Lazar’s son to eat the confiscated granola bars from Sunday Dinner Club. They only said the food was prepared by chefs who didn’t have the proper business licenses to prepare and sell it. …

The destruction of organic artisanal granola bars and local fruit from Klug Farm and Hillside Orchards is heartbreaking to any local food advocate. But for Flora Lazar, this setback, the week before Valentine’s Day is devastating.

“This puts me out of business for six months,” a despondent Lazar said. “I have done everything by the rules. Instead of making the food at home, which I could easily do, I sought out and rented space in a licensed kitchen. When they finally said we could apply for a separate license, I did that. I paid my $600 and invited the inspectors here today.”

If Lazar had been less transparent and left her cooler in her car during the inspection, she would probably be cooking today. Inspectors were mostly destroying food that had been prepared before their arrival. But she estimates that her honesty and attempt play by the rules just cost her $6,000 in revenue. She says the fruit purees, harvested at the peak of Midwest ripeness, are “irreplaceable.” …

But until recently the city had no clear policy regarding shared use kitchens, says Kitchen Chicago owner Alexis Levering. When she secured her latest space she said she confirmed with the Department of Licensing that it was zoned for shared use. The department further assured her that as the licenseholder, she would be responsible for any food safety issues associated with her clients, she says.

Later, though, Licensing said her clients would all need to apply for their own licenses, and with each application they’d need to get a new health inspection, giving the little niche kitchen exponentially more inspections than the busiest restaurants in Chicago.

But when Kitchen Chicago users went to the department, they were told again that they couldn’t apply for the license because it was at the same address as Levering’s license. The confusion continued for months until recently, Levering said, a department representative told her that now he would make sure that renters could apply for the licenses. He further told her, however, that any violations committed by one chef would mean a ticket for every cook who rents space in the facility, meaning possibly thousands of dollars reaped by the city for a minor infraction by one cook the others might have never met.

“That’s like giving everyone in the car their own ticket when a driver is stopped by the police,” she said.

This week, it seemed as if the kitchen was finally making progress with the department and, indeed, two of the businesses, Sunday Dinner Club and Flora Confections, had their license applications accepted, paid their fees and were told the inspectors would come Thursday.

The inspectors arrived at 9:30 a.m. and didn’t leave until nearly 5 p.m., when their final act was to destroy hundreds of pounds of local, organic, often unopened cheese, cassoulets, granola bars, frozen fruit purees, baking ingredients and more with a gallon of bleach.

Officials never said that the food posed a health risk. At best it was a victim of paper work confusion among city bureaucrats who couldn’t agree on a policy. But since no one at the city will comment on the situation, part of the story remains unclear.

Francis Guichard who is the CDPH food protection director called this morning to say that her inspectors could not allow the food to move from the building because they could not ensure where it was going. Licensing has still not commented on the issue.

At one point, one of the cooks suggested that the unopened food at least go to the Greater Chicago Food Depository rather than being destroyed. That request was denied. Watching the destruction of all of this perfectly edible food, you’d never know we live in a state where one out of 10 households doesn’t have enough food to eat.

The Health Department inspectors are expected back at the kitchen today to destroy the rest of the food they deem unlicensed.

These so-called “protectors of public health” destroy the inputs into an entrepreneur’s business in her busiest season, despite acknowledging that the destroyed food poses no health risk. These so-called “protectors of public health” destroy perfectly healthy food instead of even giving to hungry, needy people. On what grounds can these so-called protectors of public health have any legitimate claim to be doing valuable work on behalf of the people of Chicago? And I pay how many thousands of dollars in taxes every year to support this kind of wasteful, counter-productive, aggressive, megalomaniacal activity?

If these City of Chicago employees are indicative (and I think they are) of the attitude of city government toward entrepreneurship and toward the value of meaningless bureaucratic gestures that keep income out of the pockets of entrepreneurs and food out of the mouths of people, then I am truly ashamed and embarrassed to call this my home. It adds insult to injury that I pay such high taxes for the privilege of living in such a despotic city. Yes, I mean despotic; we Chicagoans know that there are many dimensions in which such a word is not hyperbole.

I also sympathize with the first commenter on Monica’s post:

And the Government still doesn’t think the Revolution is coming?

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Matt Welch on monopoly: Joseph Schumpeter, call your office!

February 5, 2010

Lynne Kiesling

Matt Welch channels his inner Joseph Schumpeter (and his inner Lynne, while we’re at it …) in his post this morning about the evanescence of monopoly. The grit in Matt’s oyster is yesterday’s NYT oped from former Microsoft vice president Dick Brass bemoaning Microsoft’s lack of an innovation-facilitating corporate culture. As someone who studies an allegedly monopoly industry in which the government-protected monopoly status has outlived the actual underlying economic justification for that status, this statement of Matt’s particularly resonated with me:

I’m more interested in a macro fact about monopolies: Namely, unless they’re either run or locked into place by government, they do not last. And even government-run monopolies produce mass consumer defections. … Companies that grow bloated on profits squeezed from a seemingly captive audience end up panicking when those consumers wriggle free to buy and even create competing products. Meanwhile, corporate cultures in (temporarily) uncompetitive industries are the very definition of non-innovative, even in technology companies.

This “macro fact” is one substantial reason why regulated electric utilities are fighting so hard to retain their retail market monopolies, because reducing the entry barriers to those captive customers would enable us to wriggle free. Removing that regulatory shield from Schumpeter’s “gale of creative destruction” would mean they would actually have to, you know, like, … come up with and market customer-focused value propositions so they could actually compete.

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