Category Archives: Networks

Market Monitors in Electric Power Markets, II

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Michael Giberson

Not much analytical work has be published looking at the role of market monitors in regional power markets. One of the few pieces to be published in the trade press was an article by Prof. Robert Michaels in Public Utilities Fortnightly, “Watching the Watchers: Can RTO market monitors really be independent?“

Writing in 2003, Michaels calls market monitoring institutions (MMIs) a “a novel regulatory tool never before contemplated in legislation,” and says “no regulatory institution has ever achieved so much centrality with so little forethought.”

Market monitoring is generally presented as a pro-consumer institution that complements government regulatory oversight. Michaels said in the case of the California Independent System Operator and the now-defunct Calfornia Power Exchange, history suggests an alternative interpretation.

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The Role of Market Monitors in Electric Power Networks

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Michael Giberson

Economists have devoted a great deal of attention to market power in electric power markets in the somewhat general, structural sense, but very little of that work focuses much attention on networked-nature of the industry. The network matters a lot – that’s one of the views well articulated in the Thomas, et al., paper mentioned here last week – and it is the networked nature of the industry that accounts for the emergence of the institution of market monitoring in the integrated power markets.

The Federal Energy Regulatory Commission is hosting a technical conference April 5 to “explore the effectiveness of market monitoring both in performing market oversight and in serving a variety of interested stakeholders.” In a recent notice, FERC listed several questions it wanted panelists to address. The fourth question is where things really get interesting….

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Utility Competition Breaks out in Virginia

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Michael Giberson

There were several bits of competition-related news items in Friday’s Washington Post. Catching my interest were Steven Pearlstein’s column advocating against the XM-Sirius merger (See also Howard Kurtz article from Wednesday and Rob Pegoraro’s tech column on Thursday) and a story on the passage of a bill by the Virginia state legislature that would terminate the state’s botched attempt at restructuring retail electric power.

But the news that really caught my eye was an article suggesting that, in a small way, water utility competition was breaking out in parts of Fairfax County, Virginia. I live in the city of Falls Church, a small independent city of about 10,000 people surrounded on three sides by Fairfax County, with a population of about 1,000,000. The city of Falls Church runs its own water utility, and for a variety of historic reasons the city’s water utility also serves a significant portion of the population in parts of the county surrounding the city, including much of the fast growing area around Tyson’s Corner and Merrifield. As the article explains:

Governments at all levels often scuffle over water, but the disputes usually involve who gets to use it or who has to clean it up. Yesterday’s action by the city is unusual because it centers on who has the right to sell it.

“Yesterday’s action” was the filing of a lawsuit by the city against the Fairfax County water authority. Apparently the formal agreement between the city and the county, by which they had historically parceled out monopoly water utility territories, expired in 1989. Until recently the county continued to respect the historic boundaries, but now the county is engaging in “a deliberate and concerted action” (in the words of the lawsuit) to interfere with the city’s customer base.

And of course by “interfere with the city’s customer base” what the article means is that the county water authority was offering a developer a much better price than city water utility customers get.

While my short-term economic interests fall in with the city in this case – the city water utility generates a little money that supports the broader city budget and in theory keeps my city taxes lower than they otherwise would be – I couldn’t be happier to see utility competition breaking out in Virginia. Let’s hope it brings benefits to all the local water consumers!

UPDATE: Here’s the Falls Church News-Press article on the lawsuit.

Satellite Radio Merger: Antitrust Law in All Its Splendor to be Revealed

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Michael Giberson

XM and Sirius, two satellite radio networks, announced plans to merge yesterday. Amusingly, in the New York Times the story begins with “The nation’s two satellite radio services, Sirius and XM, announced …”, while in the Washington Post leads with ”XM and Sirius, the two satellite radio companies ….” In each case the hometown company goes first.

Both stories highlight the apparently high antitrust standard the two companies must overcome to gain approval for the merger. The Post:

The FCC bars a single company from controlling the satellite radio market, but FCC Chairman Kevin J. Martin recently noted that such rules can be changed. Martin said yesterday that the hurdle “would be high. . . . The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices.”

As the Times explains:

An army of merger and antitrust lawyers for both sides worked several marathon weeks of conference calls and trips to Washington to gauge the political climate for the transaction before opining that the deal should pass regulatory muster. Simpson Thacher & Bartlett and Wiley Rein are representing Sirius; XM is being advised by Skadden, Arps, Slate, Meagher & Flom; Jones Day; and Latham & Watkins.

Doesn’t it seem a little silly that federal regulators are suggesting somehow the world would be worse off with one satellite radio company (for the time being) where as of a few years ago there were none? Do consumers have a right to two money-losing national music, talk and news services? Doesn’t the FCC know that by raising barriers to exit, they create barriers to entry for some future satellite radio rival?

I’m not a subscriber to either service — in fact I just barely had a CD player put in to my car a few months back when I started commuting to an office. The CD player also plays mp3 files and has an audio imput so I can plug in an iPod. I don’t really need more options for in car entertainment, but I’ve been tempted to go satellite after conversations with a few passionate fans.

You know, just maybe if they called up Texas Fred, the Zydeco Cowboy and put him on coast-to-coast, I might have to do it.

Road Congestion Pricing in Stockholm

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Lynne Kiesling

Today’s Wall Street Journal has an article on Stockholm’s road congestion pricing pilot experiment (subscription required). Stockholm is a city of islands, so the road network is subtantially a set of bridges. Not surprisingly, congestion often ensues.

From January through July, Stockholm tested one of the world’s most sophisticated traffic-management systems as part of a plan to reduce gridlock, lower smog levels and improve quality of life in the city. Unlike most other traffic-control plans in place in cities such as London and Rome, Stockholm used a dynamic-pricing system in which drivers were charged different amounts depending on the time of day. If Mr. Astrom, for example, left the city center at the busiest time of the afternoon rush, from 4 to 5:29, he would have paid the equivalent of $2.76. But by waiting until 6:30 p.m., he traveled toll-free. “People changed their habits,” he said.

Traffic volume fell from 9% to 26% at the major tollgates.

The engineering to make this system work is substantial. IBM is one of the technology partners that developed the ability to identify a car within milliseconds at one of the 23 tolling gates around the city.

Mr. Westman [of IBM] worried that the system wouldn’t be able to identify cars in the harsh Stockholm winters because of all the salt, snow and dirt on the roads and vehicles. But the trial period went smoothly and the cameras functioned well in the winter months. IBM’s customer-service center, which anticipated 30,000 calls a day, fielded just 2,000 a day; and few appeals of charges were filed to the tax authorities.

Stockholm officials also found evidence of a basic tenet of economics: people change their behavior in the face of changes in relative prices. Take the case of public transportation, which is extensive in Stockholm.

The Stockholm trial produced another insight into a vexing traffic-reduction programs: getting people to use public transportation. Before the trial began, Stockholm spent about $180 million on improvements to public transportation. It bought about 200 new buses, and added rush-hour trains, express bus routes and more park-and-ride lots. But the changes had little impact on the number of people who left their private cars at home. In spring 2006, however, during the trial, use of all forms of public transportation jumped 6% and ridership on inner-city bus routes rose 9%, compared with a year earlier.

If the cost of driving to the consumer more transparently reflects the actual cost of an individual driving, at the margin that cost will change the behavior of those consumers who don’t value being able to drive at that time of day; they either time shift or take public transportation. People respond to incentives.

Stockholm is also using this experiment as an experiment in democracy: they are putting the congestion pricing to referendum. The six-month trial period has ended, and residents will soon vote in a referendum on whether or not to keep the system. Officials say that if a majority votes against the system they will dismantle all of the equipment in which they have invested, which was extremely expensive. But with the reduction in the peak/offpeak commute time ratio from 3/1 to 2/1, many Stockholm commuters are in favor of the system, as are cyclists, who enjoy a less stressful commute, even though the toll has induced more people to ride their bikes to work instead of driving.

Municipal WiFi in Tapei

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Michael Giberson

The NYTimes has a story on municipal WiFi, focused on Tapei, Tiawan. You get a sense of the story line from the title: “What if They Built an Urban Wireless Network and Hardly Anyone Used It?”

That such a vast and reasonably priced wireless network has attracted so few users in an otherwise tech-hungry metropolis should give pause to civic leaders in Chicago, Philadelphia and dozens of other American cities that are building wireless networks of their own.

Like Taipei, these cities hope to use their new networks to help less affluent people get online and to make their cities more business-friendly. Yet as Taipei has found out, just building a citywide network does not guarantee that people will use it…

“There is a lot of hype about public access,” said Craig J. Settles, a technology consultant in Oakland, Calif., and author of “Fighting the Good Fight for Municipal Wireless.” “What’s missing from a lot of these discussions is what people are willing to pay for.”

The problem isn’t technology, so much as business model, the story reports.

But even if Q-Ware meets its target this year, the company will need 500,000 users in a given month to break even, a target it is not expected to hit for several more years, according to Chou Yun-tsai, the chairwoman of Taipei’s Research, Development and Evaluation Commission, which oversees the WiFly project.

“It’s a huge task,” Ms. Chou said.

Distributed Network Innovation at MIT MediaLab

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Lynne Kiesling

Today is a dynamism day here at KP, whether it’s marketing or technology or business models. Business Week has an interview with Frank Moss, the new head of MIT’s MediaLab. He points out the importance of several things that I think are crucial for dynamic innovation: entrepreneurship, new models of collaboration and invention, and focusing on disruptive change instead of incremental tweaks:

How do you view the nexus between technology and entrepreneurialism?
It is hugely important. In fact, entrepreneurs are really the primary vehicle for innovation in our society. They’ve played an incredible role. Thirty years ago, the primary source for innovation was large corporate labs. That is where all of the money went. Then, 20 to 25 years ago, the source of ideas and creativity shifted to venture funds and startups.

Over the past 20 years, we’ve seen the economy and society change due to innovation from small independent efforts outside of corporate labs. Technology has enabled startups to have a big influence, and consequently they have had a tremendous effect in the technology scene today.

What role will startups play in the future?
I see tremendous economic growth from startups from 10 years ago. Entrepreneurs will go from the 1,000 startup ventures funded in the last 10 to 20 years to ideas coming from people working together in network-based environments, using computers to dream up innovations in a way they never did before. It could be people in developing countries with low-cost computers.

The Media Lab has given a start to many entrepreneurs. What would be your advice to would-be entrepreneurs in today’s environment?
Resist the current temptation to make incremental changes to attract funding. It might get you off the ground, but I don’t think it will get you very far. Today, the funding climate has changed. The successful (entrepreneurs) will look for fundamental disruptive change. I encourage them to take risks, rather than just polish the faucets. There will always be an appetite for game-changing technology.

Note in particular his focus on distributed, decentralized, networked innovation. This way of thinking about innovation taps in to the idea that creativity resides in many distributed individuals, and that a distributed network may do a better job of generating beneficial disruptive change than a centralized, coordinated, top-down lab approach.

I think it makes for an interesting challenge for an organization like MediaLab; at some level, it will be harder to direct and target resources on projects that are likely to be transformational, because so much more innovation will be distributed and not concentrated in big labs. At another level, though, MediaLab can seed particular projects or individuals who are working in a distributed network, and that bottom-up approach might be more likely to lead to successful disruptive technologies than the coordinated large-lab approach.

Thanks to Glenn Reynolds for the link.

UPDATE: Paul at Truck and Barter has a link-filled post on the same question, inspired by an article in the Economist on a recent AEA session on entrepreneurship. Note his link to Chris Coyne’s post at Austrian Economists, where he laments the absence of attention to Kirzner in the Economist article, a lament that I second.

EFF’S 15th anniversary: celebrate freedom

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Lynne Kiesling

This week marks the Electronic Frontier Foundation’s 15th anniversary. EFF is a tireless warrior for preserving and enhancing freedom as communication and information technology evolves.

Cory Doctorow has a Boing Boing post discussing EFF’s activities over the past 15 years:

This week marks the Electronic Frontier Foundation’s 15th anniversary — a decade and a half of changing bad laws, creating good court decisions, and building a technological civil liberties movement that now comprises dozens of organizations, activity all over the world, and millions of geeks with a burgeoning consciousness that the Internet isn’t free because of its nature: it’s been kept free by the struggles of activists and users who have fought back the forces of repression who would have tamed it and crimped it and rendered it little more than an AOL-1.0-style toy.

EFF is holding a commemorative blog-a-thon. Contribute your tales!

I have no activism story to tell, other than our continuing financial support of EFF. But as communication technology has evolved and become a more pervasive and valued dimension of my daily life, I treasure the freedom of online privacy, to blog, and to be free from government surveillance. These freedoms have brought about a flourishing of content, of substance, of culture, of community (and yeah, a flourishing of dreck, but that’s what filters are for, and it’s a small cost if it gets us all the other stuff).

For me, the freedoms that EFF fights to protect are a crucial set of rights in the fundamental property rights that allow free and responsible people to live together in civil society.


Blog-a-thon tag:

RAY GIFFORD ON BPL

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Lynne Kiesling

Catching up on my reading … Ray Gifford has a nice post on the role broadband over power lines can play in creating the distributed, interactive, active-demand-enabling, smart and resilient electric power network.

BPL potentially has a large role to play in enabling grid-friendly appliances and the customization of electric power service to heterogeneous customers. Say, for example, we want six-sigma power quality in the room in our house where our main computers and wireless router live, but are willing to pay less to get less reliable service throughout the rest of the house? BPL can help make that value proposition a reality. It also raises the opportunity to maintain sufficient flow to those appliances that need to have their clocks reset so that the clocks don’t go off, but you cut the remainder of the power.

Oh, by the way, it’s electricity goddess, not electricity geek. See if you can keep that straight [wink].

CONFLICTED ABOUT GROKSTER

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Lynne Kiesling

I don’t have much to say about Grokster because I’m of many minds about it. Turns out I’m not alone; Tyler says economists should feel conflicted about peer-to-peer file sharing.

One aspect of Tyler’s argument is what I call the “relevant and irrelevant externality” argument. Will file sharing reduce economic efficiency, leading to less-than-optimal amounts of music being produced? Depends on whether the externality created by the file sharing is relevant at the margin, and that’s where a lot of the discussion has been taking place. I am also glad that he points out that a shrinking music industry is likely to be consistent with increased efficiency, due to the effects of technological change and disintermediation.

One area where I’m not sure I agree with Tyler is the extent to which consumers are oriented toward new music and not toward older music. I have two caveats, one systemic and one short-run. I think there is always likely to be some subset of the population that goes back and “rediscovers” the music of earlier years, which is likely to create some demand for the backward “long tail” of older music. And in the short run, the transition from vinyl to CD to digital will keep the demand up for older music for consumers like me, who had lots of stuff on vinyl and never bought it on CD, but are now buying it digitally. I did this recently with Jesus & Mary Chain, Love & Rockets, and an early Love Tractor album.

This Information Week article mentions using micropayment-based peer-to-peer file sharing as an alternative market institution. The fertile innovation and plummeting costs of new technolgies continue to reduce the transaction costs in such a system, so it becomes more feasible all the time. So ways to innovate Grokster to be legal during this transition to a more disintermediated industry are feasible.

Speaking of disintermediation … it’s been a while since I’ve put in a plug for Magnatune, an online record company with a great portfolio of artists, good royalties to artists, and good prices to consumers.