Wednesday, October 03, 2007

Wind Power: Frequently Asked Questions

Isn't the energy market the best place to buy electricity?

This is the crux of the matter. Delmarva Power is happy buying electricity from the grid. The Electric Utility Retail Customer Supply Act of 2006 (EURCSA) established a procurement process that could bring wind power to Delaware:

The [Public Service] Commission, the Director of the Office of Management and Budget, the Controller General and the Energy Office shall, on or before February 28, 2007 evaluate such proposals and may determine to approve one or more of such proposals that result in the greatest long-term system benefits…

State senator Charles Copeland, who voted against EURCSA, voiced his preference for the free market recently in the News Journal:

"We ought to let private investors compete against one another to get us the best price point and price stability. I think the marketplace would do that better than some regulatory regime," Copeland said.

The market provides, by definition, the best price point at any given moment. But market energy prices fluctuate considerably; in order to smooth out the market fluctuations, many energy users choose to enter into longer term contracts of several months to several years. For example, a homeowner has the choice of buying heating oil at the current price, which may rise sharply during a cold snap, or may choose to buy oil for a set price for the season.
As we have learned, spot market prices can and have been manipulated, as happened in California in 2000. A succession of price points does not necessarily equate to the best price stability.

There are longer term distortions in the energy market relating to the environmental and health costs of burning fossil fuels. The costs of future carbon controls will lead to a significant increase in the price of electricity from fossil fuels. There is a debate as to whether these costs should take the form of a carbon tax or a cap and trade system. Either would lead higher energy prices.

As for health costs, Jeremy Firestone and Willett Kempton have estimated the costs of continuing to burn fossil fuels instead of turning to wind power to be $1 billion over the next 25 years. I would expect those costs to be disproportionately borne by low income residents, who are more likely to live near the Indian River or Edge Moor power plants.

Why not just buy renewable energy from the grid? Wouldn't that do the same in terms of promoting renewable energy?

I've been hearing that Delmarva has been promoting this line recently, including in its polling of customers.

A wind power or hydroelectric plant in West Virginia could provide power to Delaware. But the benefits in terms of reduced pollution and enhanced price stability would be diluted in the atmosphere (in the case of reduced pollution) and in the grid (when it comes to price stability).

A wind power installation in Delaware would reduce our reliance on old dirty power plants and create a price stable portion of our energy portfolio that would benefit Delawareans primarily.

Why doesn't Delmarva Power want to do a deal with Bluewater Wind?

Delmarva Power cites its concerns with the cost of wind power for its ratepayers. It's worth repeating that Delmarva's legitimate corporate interests and the interests of its customers are not the same and should not be conflated.

Delmarva used to be a vertically integrated utility that generated electricity, transmitted it over its power lines and delivered it to its customers. Today, as a part of Pepco Holdings, Inc., Delmarva is no longer in the power generation business. Instead, it buys power from sister company Conectiv Energy and from the grid. Entering into a long term contract into a long term contract with Bluewater Wind would upset its corporate strategy.

Won't the Sustainable Energy Utility (SEU) bring demand and supply in alignment?

State senator Harris McDowell says the SEU will reduce demand enough to meet Delaware's long term needs. This may be so, but we would still exposed to future price increases from fossil fuel sources. The need for a local energy source with long term price stability would remain.

Why are some legislators seeking to rein in the controller general?

Six legislators sent a letter to controller general Russell Larson last week urging him to not act on the wind power deal until he has consulted with them

Some legislators like Charles Copeland opposed the RFP process from the beginning. Others like state senator Harris McDowell and state representative Gerald Hocker voted for EURCSA, but now cite new information as to why they want the General Assembly to review the proposed agreement to bring wind power to Delaware.

The letter from the six legislators mentioned new information:

WHEREAS, new information not available at the time of consideration of HB 6 (EURCSA) and/or at the issuance of the RFP which led to PSC Order 7199 may be relevant to the final decision of the General Assembly…
Gerald Hocker echoed this point in the Cape Gazette last week:

"A lot has changed (in the energy market) in the last year and a half since HB 6 was passed," said Hocker. "I feel the General Assembly needs to be briefed on the changes."

I don't know what this new information might be.
There's plenty more to discuss, so feel free to pose your energy conundrums to me. I'll do my best to answer.

2 Comments:

Anonymous kavips said...

The problem with free enterprise competition in the energy sector, is that eventually, the number of players merge into one monopoly.

Without competition, the efficiency stops. For the Copeland statement to work, Delmarva needs to be divided into 10 corporations, competing with each other for our dollars, and then perhaps his theory may make sense.

Because there is NO competition against Delmarva, the government MUST step in as a competing power, and create by law, a situation that is tolerable for Delaware's citizens.

11:39 AM, October 05, 2007  
Blogger TommyWonk said...

Power utilities are considered natural monopolies; it is not rational for competitors to come in and build duplicate transmission lines. Regulation of utilities can hardly be seen as anti-competitive, if the free market doesn't allow for competition.

Delmarva likes being in the transmission and delivery business and prefers to buy power on the market. Since this strategy won't protect us from long term price increases and short term price spikes, the state's intervention is rational.

12:11 PM, October 05, 2007  

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