Posted by: marilynshowalter | June 26, 2007

Playing Soccer on a Peruvian Plateau

Organized-market and deregulation enthusiasts like to claim that RTOs and retail deregulation are good for the environment because they will result in more green power. For example, as its 5th of “10 Reasons Why ISOs and RTOs are Good for North America,” the ISO-RTO Council explains that green power will be added to the grid because “ISO/RTOs level the playing field for diverse types of power plants to compete to bring the lowest cost electricity to consumers.”

But what if the playing field is artificially high? If market or auction clearing prices draw more money from consumers than necessary, most of which is not directed to green power, dollars that could be spent on green power (or on other needs of consumers) become unavailable. In a cost-based regulated system, on the other hand, the costs of (and regulated profit on) existing plants are covered but not exceeded. When new resources are added, new consumer dollars cover (but don’t exceed) the costs of the new plant.

There is evidence that some fields are up in the Andes, and a reader worries in the following Comment that even higher elevations lie on the hike ahead.

Please feel free to leave a comment. Name and email are optional.

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Responses

  1. As readers may know, one of the major sessions at the upcoming NARUC summer meeting is on the economic, financial, and political implications of a carbon-constrained world. I raise this topic here because a carbon-constrained world, and the much higher fossil-fuel prices that will go along with it (particularly for natural gas), will provide further evidence that deregulating electric generation prices in much of the US over the last ten years was folly. As we now know, as natural gas prices increase, the market clearing prices for wholesale electric generation also increase wherever deregulated market prices dominate. This is because natural gas-fired generation is usually on the margin most hours in these markets.

    The only way in which the US will even begin to approach achieving reasonable greenhouse gas emission targets, e.g. 80% cuts by 2050, is to increase the price of fossil-fuels via carbon taxes or auctioning CO2 emissions allowances. These increases will serve to substantially raise the price of all non-fossil fuel generated electricity, as well. This will provide further wind-fall profits to hydro, nuclear, and renewables generators…a poor use of limited societal financial resources during a time of economic crisis, which could be much better put to use directly to help meet the climate change targets for emissions reductions. For example, it would be clearly better to put these revenues directly to use to purchase additional renewable resources at cost, than to overcharge consumers for existing non-fossil electricity based on market prices.

    However, there is another type of crisis brewing even before climate change begins to significantly impact consumers’ pocketbooks. That is the coming crisis that will be produced by the world reaching global peak oil, and relatively soon thereafter, natural gas production. North American oil production peaked a long time ago, and natural gas production peaked in 2002. Once the oil markets react to a recognition that global peak oil production has been reached, oil prices could easily reach the $200 – $300 per barrel range, or three to four times today’s prices. Natural gas prices would follow. This would imply huge increases in the price of deregulated wholesale electricity, and would reinforce the resultant economic crisis for consumers, and for the economy as a whole. Because many experts are currently predicting that global peak oil production will be reached within five years, if it has not already been reached, NARUC (and other policy) discussions should be expanded to deal with the pending peak oil crisis as a related but somewhat separate topic from climate change.

  2. Hello. It is test.


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