Archive for May 21st, 2010

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Cogeneration vs. monopoly electric utility service, circa 1909

May 21, 2010

Michael Giberson

The Isolated Plant magazine published “A letter from a New York Correspondent,” in their August 1909 edition:

Mr. Editor:

From the viewpoint of one of the “common people,” the recent issues of your magazine have been striking fire with every telling blow…  The following incident is mentioned as a bit of local history.

Two downtown office buildings adjoining each other on the same side of the street, and carrying the same class of tenants, were not operating under sufficiently even costs.  One of them had its own electric power plant and the other used Edison service.  The man who operated his own plant even had a little power to spare and closed a two years’ contract with the other agent to supply the latter’s building with light at a rate considerably lower than the street service.  A contractor installed a 3 inch loricated conduit carrying three double braid conductors between the generator switchboard through the foundation wall to one side of a three-pole double-throw service switch previously installed.

This switch had been used to supply Edison break down service when the building operated its own plant.  The wiring was installed in full accord with the National Code as adopted by the N. Y. Board of Fire Underwriters, and a certificate of approval was received from the city department.  The contractor received a “violation,” however, from the Fire Underwriters, and any attempt to secure a committed statement from the latter board as to the code rule violated was futile.  This was evidently somewhat peculiar, the contractor had performed his work according to the rules of the board as publicly printed and circulated, yet a certificate of approval was withheld, and he could not receive his payment for the work.  The inspector was called on, he was non-committal … the Chief Inspector was non-commital … [The] Superintendent … quite abrubtly stated that his board would not approve the running of an electric power service through a party line; this ruling being the result of an agreement between his board and the N. Y. Edison Co.

Neither contractor nor agents could understand how any such mutual agreement could affect the fire risk….

The N. Y. Edison Co. also got busy after the contractor and threatened to send him to jail for “interfering with their meters,” which of course was not the case and the contractor was not molested; threat was also made to discontinue the [Edison Co.] service to the elevators, but it also passed over.

Both buildings secured independent insurance, the contractor got his money, and each agent fulfilled their two years’ agreement.

C. J. H.

At a time when cogeneration, smart grids, and decentralized energy resources are creating challenges around the fringe of standard regulated retail power service, it is interesting to see how the battled played out a century ago, when state regulation of monopoly regulated utilities was new and competition between central station power and the isolated plant was ongoing.

The Isolated Plant magazine has been digitized by Google Books.  See also the related post of a week ago, “The central station and the isolated plant.”

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Orlando wants to discourage high gas prices near the airport

May 21, 2010

Michael Giberson

News headlines say, “Orlando wants to prevent gas price gouging,” though the practice Orlando politicians want to stop isn’t price gouging, per se. Rather, the target of the proposal is gasoline retailers near Orlando International Airport who charge substantially higher gasoline prices than neighboring stations. The proposal would require gasoline stations near the airport to post prices in a standardized manner.

Normally, competition between gasoline retailers keeps prices from getting too far apart in a region because at least some customers engage in comparison shopping.  Not all customers will comparison shop, and not even all price-aware customers will switch brands or delay refueling for a few pennies a gallon, so retail gasoline markets usually sport a range of prices.

But most of the time the difference between high and low is on the order of 15 or 20 cents a gallon.  A station near the Orlando airport has had gasolines prices that almost doubled the prices of other gasoline retailers in Orlando (for example, as noted here before, prices at $4.99 a gallon with competitors asking $2.59 to $2.75 a gallon).

It is an interesting little business niche.  Likely most of the sales go to tourists returning a rental car to the airport before hopping a flight home.  Likely the tourists are in a rush, they want to refuel near the airport to avoid paying a refueling charge, and they don’t have a good idea on where to buy cheap fuel around the airport. The price isn’t posted on a roadside sign, but the tourist likely assumes, based on general market experience, that the price isn’t too far out of line with neighboring stations.  Many start pumping the gas without checking the price on the pump – a few gag at the price but pump anyway – and a very few get back into the car and go in search of cheaper fuel.

The principled libertarian in me objects to imposing the price posting requirement as an infringement on the station owners’ freedom to operate his business the way he sees fit.  The consequentialist in me, though, finds it hard to oppose the proposal.  It seems a relatively targeted proposal to help consumers avoid paying the high prices that otherwise flourish in this little niche.

Maybe I should worry not so much about this narrowly targeted proposal itself, this minimalist nudge, but rather I should worry about a government that wants to expand its authority over voluntary deals between retailer and consumer.  Is this the sort of nudge that eventually shoves society onto a slipperly slope down the road to serfdom?

The principled libertarian in me objects, but the overwhelming majority of the voices in my head say the benefits of this proposal will exceed the costs: targeted in scope and aimed at helping the consumer make an informed choice. Why not?

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