From: hal@finney.org
Date: Mon Feb 12 2001 - 00:26:48 MST
Spike writes:
> > "Robert J. Bradbury" wrote:... [I am under the impression that
> > the deregulation process in California State put a cap on energy
> > prices there (presumably saving Spike from the consequences of the
> > state's problem). There is no such cap however in Washington and
> > my electricity rates are in the process of going up 30%.]
> > I find it very interesting, that the Californians have a
> > very nasty habit of exporting their problems to Washington
Let me clarify that the "cap" is actually a freeze and was intended as
a floor, not a ceiling for prices, at which it succeeded for the first
two years. The utilities wanted a protected profit margin and since
at the time costs were running below prices (which is what motivated
deregulation), freezing prices was their idea. Then a year ago everything
went topsy-turvy, costs rose above still-frozen prices and the utilities
are now one step from bankruptcy.
> I tossed off Robert's point with a distracting riff about singalongs,
> but he makes a good argument, to which I do not know the answer.
> We have a curious uxtaposition of free market, state and local
> government. For instance, we do welfare on a state level,
> vote on power plants on a county level and kinda sorta let
> free markets determine the price of gas but not electricity.
Free markets are determining the "wholesale" but not the "retail" price
of as in California, which is the problem.
> The upshot is, the economically overcooked SF Bay area
> is clearly exporting its problems. San Jose is home to large
> numbers of power hungry server farms. Logical place for
> them because they dont really take up much expensive room,
> but use a lot of power, which is subsidized! The Taxifornia
> state government wont pull the plug, since they continue
> to calmly collect 1.28% annual tax on all the ridiculously
> overpriced Silicon Valley real estate, as well as a cool
> 11% income tax on all these juicy 6 digit incomes, in addition
> to the 7.8% sales tax.
I don't think we should consider it "problem exporting" when some region
consumes more than it produces of a resource. After all, that's what
trade is for. For almost every resource and every region, there will
not be a perfect balance of production and consumption.
However electricity can be expensive to transport. Along with the
well known shortful in electricity production growth, there are also
limitations in the carrying capacity of the major transmission lines,
which are making it difficult to transport electricity into northern
California. That's what caused most of the blackouts last month. There
was electricity available but they couldn't get it into the Bay area.
The real problem is that the growth in California's economy was not
properly anticipated. You can point fingers where you like, but the
benefits of our hindsight were not available in the past. Who can tell
us today how much electricity California will be consuming 5 years
from now? Are we going to regret the long term contracts which are
being negotiated today, at prices which would have seemed outrageously
high three years ago?
> Santa Clara county is laughably overheated economically.
> The result is there is no low-cost housing, so there are few
> if any poor people. When one pays thousands per month
> in taxes, one does not *care* if the power bill is 50 or 100
> or 300 a month, its all down in the noise.
>
> Consequently, Santa Clara county consistently votes to
> export power plants, and the long term result is that the
> cost of power goes up for everyone. Even if free markets
> prevail and voters were not consulted, Santa Clara county
> *still* wouldnt have power plants built on it, for the ground
> is far too expensive for utilities.
It's often reasonable to avoid building power plants near fast-growing
areas. It's better in many ways to put them out where nobody lives.
Leave the land near the city to be used for homes, parks, offices.
But you then have to pay the costs of transporting the power.
There are two separate issues here. One is the difficulty of getting power
into specific regions due to line congestion. The other is the increased
demand for power which is driving up market prices. The former relates to
localized NIMBYism but only hurts the communities which push the plants away.
The latter is a large-scale problem and hurts everyone.
> Whats the fair way to determine where power plants go? spike
This is probably not quite the right question; you want to ask, what
is the most cost-effective and efficient mechanism for locating power
plants. I suspect part of the problem is that the local decision making
authorities don't reap enough economic rewards from allowing plants
to be built in their area. NIMBYism would turn around if people got a
share of the riches from the facilities built in their back yards.
Hal
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