Tuesday, February 15, 2011

Deregulation Didn't Work

Lately I've been reading more and more opinions on how government is always more expensive and less efficient than private industry.

For instance FedEx is more efficient than the Gov regulated US Post Office. The US Post Office is having money problems and Fed Ex isn't. I've heard quite a few folks suggest that the US Post Office declare bankruptcy, and go out of business. because of this.

Is this how you measure efficiency? Maximizing profits?

I just looked up letter rates to mail a letter from home to the office, using Fed Ex. They quoted me $14.98

The US Post Office will deliver the same letter for 44 cents.

Maybe the US Post Office needs to raise their rates to be more 'efficient'?

I'm beginning to think that word doesn't mean what people think it means.

ERCOT Study: Deregulation Didn’t Work

ARLINGTON (CBSDFW.COM) – Delia Villareal of Arlington cooks three meals a day for herself and her husband, so she’s not happy to hear about a new study finding Texas residents have paid nearly $11.5 billion dollars more than they should have for electricity since deregulation in 2002.

That’s about 42 percent higher than the national average. “I find that being very ridiculous,” says Villareal. This despite the promises deregulation would trigger competition and lower prices. “Us as the elderly live on a budget, we’re on a fixed income. Of course, it’s affecting us.”

The study is called The Story of ERCOT, the Electric Reliability Council of Texas, which runs the state’s power grid. The study blames the high electric rates residents and businesses pay on Ercot’s bias toward the industry, and what it calls ERCOT’s alarming increases in spending and borrowing.

The study says in 2006, one company illegally charged $57 million, yet only paid a $15 million fine.

Arlington City Attorney Jay Doegey chairs two non-profit coalitions that commissioned the study. He says, “Everything is fine and if they just leave things alone, then everything’s wonderful. For them, everything’s wonderful. But it’s not wonderful for consumers.”

ERCOT declined an interview, but says the issues have been brought up before. In a statement, it says “…These are expected to be acted upon by the Texas Legislature during their current session, and ERCOT stands ready to institute any and all changes the Legislature adopts….”

The study’s author says the state legislature needs to make drastic changes to make Ercot more accountable to the public. Lawmakers may do just that. On Tuesday, a state Senate hearing will focus on the recent rolling blackouts.

As for Delia Villareal, she’s hoping the legislature will listen to people like her. “They need to get their act together. We’ve been promised lots of things. Where’s all the promises?”

On Tuesday, ERCOT’s president, the chairman of the Public Utilities Commission, and energy company executives will be among those testifying before lawmakers about the recent rolling blackouts.

18 Comments:

At 12:39 PM, Anonymous edgar said...

utility deregulation is always a screw job. in every case it leads to gouging.

 
At 2:04 PM, Blogger DB said...

Heh Weasel, I thought a doomer like you would have jumped all over the latest news that Shell is effectively calling peak oil as sometime later this decade ("supplies will have trouble keeping up with demand" with "easy to access oil").

Which is basically peak oil.

But being as I'm an "irrational cornie" I'd point out that their original peak oil depletion date was 2015. Now they've pushed that back.

So will you doomer types actually believe the likes of Shell or will you continue to claim that there is a conspiracy and that real peak oil is in the past?

Inquiring minds want to know.

 
At 2:26 PM, Blogger Weaseldog said...

Hey DB! Welcome Back!

I have no independent verification of Shell's prediction.

The EIA has been notorious in publishing false data, only to correct it later. For that reason, I can't with any certainty know that we're seeing a new peak in all liquids.

The Peak in conventional oil has always been the one I'm concerned with, and that one is firmly rooted in 2005.

On your pronouncement of the 2015 date, it would help you provided a source,, and specified if oyu're talking about all liquids or conventional oil. Campbell and Laherre once predicted that date for conventional oil, then in 1998, with better data, moved it to 2010. They were optimists. It actually happened in 2005.

The Shell prediction is for all liquids. All liquids has a muddled meaning. If I take 100 barrels of heavy oil, and convert it to 75 barrels of of light crude, then my all liquids count is 175 barrels. But I only have 75 barrels available for resale. So my actual meaningful production is 75 barrels of light crude.

If we looked at money in this light... Say I took 100 dollars and converted to 75 units of another currency. The way the EIA calculates things, I could say that I have produced 175 units of money.

But still I don't have the dollars anymore. I only have the currency I converted it too.

The monetary analogy to the mistake made, would be confusing cash flow with profits, and declaring cash flow as profits.

If in two years it turns out that conventional oil has reached a new peak, then I'll be happy to say I was wrong. 'All liquids' is a tougher statistic to make sense of. It only gives us a ballpark idea of how much energy is made available to civilization. It also encompasses liquids with a wide range of energy densities. From year to year, the mix will change.

That would be like creating a yearly benchmark on a random mix of currencies, without knowing what the individual currencies are or their proportions, or values.

Say I showed you five bags that are full of money of various denominations and currencies.

The values of the currencies when added up, (with no conversions) are...

1. 456
2. 589
3. 765
4. 901
5. 1045

It looks like each bag is more valuable than the one before, right?

But what if I told you that the first bag was mostly US Dollars and the last mostly Greek Drachmas?

That would change everything, wouldn't it?

 
At 2:27 PM, Anonymous edgar said...

Two Transportation Security Administration employees charged with stealing $40,000 from luggage at New York’s John F. Kennedy International Airport will lose their jobs, the U.S. agency that oversees aviation security said.

TSA officers Persad Coumar, 44, and Davon Webb, 30, both of New York, are awaiting arraignment in Queens Criminal Court in New York, said Kevin Ryan, a spokesman for the Queens County District Attorney’s office, in an e-mail. They are accused of stealing the money on Jan. 30 from a piece of checked luggage containing $170,000 inside the American Airlines terminal, Ryan said. The charges include conspiracy, grand larceny and possession of stolen property.

“TSA has a zero tolerance policy for theft in the workplace,” the agency said in an e-mailed statement. “TSA is working closely with law enforcement authorities to ensure the individuals responsible are prosecuted and we will move swiftly and decisively to end the federal careers of any employee who engages in illegal activity on the job.”

From 2008 to 2010, 12 TSA officers lost their jobs due to thefts at security points or from checked baggage, Ann Davis, a TSA spokeswoman, said in an e-mail.

 
At 2:57 PM, Blogger Weaseldog said...

Who puts $170,000 in cash in checked luggage?

Isn't that drug or terrorism law violation?

I wonder who they stole it from. Must be someone important if the DEA or Homeland Security hasn't confiscated it.

What were they going to buy with it, that they wanted to avoid reporting?

 
At 3:32 PM, Blogger DB said...

I get your point about the barrels compared to currencies and I accept it that it's comparing apples to oranges. Especially when talking about biofuels which I don't really like. But time will tell if the declining EROEI argument the doomers make will end up applying to liquids like biofuels. That said liquids also includes such things as liquid condensates from gas as well as converted liquids from other sources.

I also don't know if they were talking about all liquids vs light sweet crude. It was the two scenarios report from a couple years ago that alluded to a peak oil date of around 2015. In any event time will tell.

 
At 4:04 PM, Blogger an average patriot said...

The post office is pretty inefficient as is the Government. They overpay the higher ups with benies. When I saw that they are spending 100s of millions buying their houses so they can relocate and many other exorbitant benies and they are threatening bankruptcy I get sick!

 
At 8:35 AM, Blogger The Ex-Wiz said...

The Post Office was set up to be public service (utility), providing low cost for communication to all areas of the country.

You do understand that Fed Ex, etc., have no similar mandate.

They will push the price up as high as demand will allow.

And won't quit.

Ever.

Good luck with getting on that bus that pretends that the U.S. Post Office should make a profit or break even as it tries to service ever more remote communities.

Of course the appointees since Reagan have paid themselves huge salaries. They were paid to drive it out of business (and they are succeeding).

Funny how as we got to be a fabulously wealthy (and productive) country after WW2, we let the con men talk us into putting a price on everything that eventually only the rich can pay.

And it's coming home to roost.

As for Shell's (and the other energy company's) "peak oil" gambit . . . they are years ahead of the populace in mythmaking.

And were quite successful in winning in the 70's when Carter tried to take actions that would benefit the planet.

They are still in charge.

 
At 10:10 AM, Blogger DB said...

@weasel,

The "peak oil is 2015" can no longer be found on the shell website, but it CAN be found on the wayback machine.

It says, (from the Shell CEO) "After 2015 easily accessible supplies of oil and gas probably will no longer keep up with demand."

Here is the link on the wayback machine:
http://web.archive.org/web/20080128150453/http://www.shell.com/home/content/aboutshell-en/our_strategy/shell_global_scenarios/two_energy_futures/two_energy_futures_25012008.html

 
At 11:35 AM, Blogger Weaseldog said...

DB, when you clarified that you meant Shell made that prediction, I understood where you were coming from.

I remembered them making that prediction.

And yes, they are referring to All Liquids.

In economics, demand is measured by what people are buying. If there is no product, people don't buy it, demand is zero. If a gas station is out of gas, and people want to buy gas there, demand is still zero for that station, because no one is buying gas there.

If we look at the history of oil production, we find that the quantity of oil that people buy, closely tracks the quantity of oil supplied. When oil production was rising exponentially, then so did purchases, and prices remained stable. so in strict economic terms we can say that when supply is rising exponentially, demand also rises exponentially.

If supply is not rising, then people are not getting oil they want at the price they want. In a strict sense, I would argue that demand is not being met.

I would argue that folks would buy a lot more oil at $14 / barrel than at $200 / barrel. So in this case, simply raising the price changes demand. It doesn't change the 'NEED', but it changes the measured demand.

So I would argue that the Shell CEO is wrong. Demand will drop when supplies go into decline, because the price will go up.

And likewise if all of the gas station in the USA for some reason ran out of gasoline, demand for gasoline would go to zero. Economists would measure how much the public was buying, see that it's zero, and proclaim that the demand is way down. Never mind that the public would 'NEED' gasoline.

 
At 1:10 PM, Blogger DB said...

@weasel,

It's a good argument you make but it's not yet settled in the case of oil.
Whether you predict right or whether you predict wrong depemds on whether oil is price-elastic or price-inelastic.

One part of your comment is that the public NEED gasoline, right?

If that's true it means that oil is price-elastic and the price will rise forever.

If, however, the real scenario is that the public need something that oil can do for them that can be done with substitute products then oil will be price inelastic at a certain pricing point (i.e. the point at which substitutes become cost effective).

My 'straw man' argument as you like to call it is that all of the dieoff stuff is based on the economic premise that oil is 100% price elastic because there is no substitute.

What the evidence seems to suggest is that either oil is in fact price inelastic above a certain point.

The question that now remains is why?

Is it
a. Because people's salaries don't rise and thus oil prices can only go so high
b. economic growth cannot continue once putative limits to oil production are hit
c. at a certain point people switch to other methods of meeting their needs other than oil
or
d. something else

I personally argue that it's not a. because the price didn't go high enough. People (in the US/Canada/Europe etc) could theoretically afford a lot higher than the record price we saw in 2008

I doubt that it's b. because there are varying rates of economic growth with unclear links to oil supplies.

So it could therefore be d. something else or else c. substitutes.

In fact, it's easy to point out that there are substitutes. Even your own choices which are to use less oil and go local are substitutes. They aren't necessarily the substitutes I personally would choose but they're certainly viable substitutes.

 
At 2:06 PM, Blogger Weaseldog said...

It's not that prices are inelastic, it's that supplies are inelastic.

The same goes for the substitutes.

Currently, the world is consuming the substitutes as fast as they can be created. And we're spending more and more money, to keep production from falling. If oil production drops, the sale of substitutes won't increase, because there's elasticity in supply.

It's a common fallacy that the only use for oil is driving commuter around. Commuters actually have some elasticity in what they can spend on fuel.

Businesses though also depend on oil. They need it, so that materials can be shipped in and products shipped out. Raw materials are also made from petroleum. If fuel prices go to high, they cannot profitably produce and ship products. If the price stays high for long enough, they lose their profit margins.

Then they can't repay their business loans and the go bankrupt. then they layoff all of their employees.

Now there's fewer folks bidding up the price of oil and it drops.

One way to look at this is to use the analogy of food. In Ethiopia, the land has been plagued by periodic famines. When the food supply drops, the price goes up, and people eat alternatives to food. They eat boiled leather and grass. After a time, lot's of people die from malnutrition and disease. Then with fewer mouths to feed, there is enough food again and the price drops.

Once the price drops you ask, why did all those people die when we have such a surplus?

Energy is the food of commerce. Reduce the energy flow and businesses go bankrupt.

Just watch. Oil supplies will ratchet down again, and you'll see a fresh wave of bankruptcies follow the prices spikes. Then the prices will drop again and folks will shake their heads wondering why all those businesses died when there's such a surplus.

 
At 4:11 PM, Blogger DB said...

@weasel

The major flaw in your argument weasel is you're still failing to take account of substitutes correctly.

I'm only going to focus on personal transportation because that's where most of the developed world's oil supply goes (more than 2/3 typically). There are substitutes in non-transportation sectors but this area is more fragmented and complicated to discuss so I'm going to focus on transportation.

The substitutes are NOT being consumed. Consider this. There are currently four major substitutes to driving your own gasoline powered vehicle.
1. Use a more fuel efficient vehicle (which will temporarily reduce demand for a short period) but then be faced with continued decline once your "bonus" is eaten up by decline.
2. Take transit.
3. Natural Gas vehicles
4. Electric vehicles

In the case of Natural Gas vehicles, yes the fuel is being consumed, but (your opinion about supplies notwithstanding) we have more than enough to make up a small percentage decline.

In the case of electric vehicles, there is no consumption happening. Electric vehicles are effectively a storage medium for electricity, all of whose parts can be recycled ad infinitum. There is likewise no foreseeable shortage of electricity because unlike oil we can still easily expand our electricity "reserves". Additionally, if we use renewables, then there is a breeder effect. Building windmills does not consume the windmills in order to get electricity. Likewise with solar panels. Every single renewable source you build is still there year after year. It's a far better replacement for the transportation need than using oil based transportation in the first place.

Any case the point is moot. Your money appears to be on decline and very limited solutions leading to great problems possibly including collapse. My money is on a very interesting total market substitution where required utility of transportation is 100% met by the new products that are starting to become available.

We will see who is right later this decade.

 
At 5:18 PM, Blogger Weaseldog said...

Well, let's consider your scenario. Say the US Gov bought the trucking and railroad industry a complete replacement set of locomotives and big rigs that run on natural gas instead of diesel.

We already use our natural gas as fast as we can import it.

Who would put out business and or what electrical generation plants would you shut down to to free up the fuel? Or would you make it illegal to use natural gas for residential purposes?

Since 2000, we've needed those substitutes. Instead we've chosen to become more efficient by shutting down 42,000+ factories.

So as I see, it I've already got eleven years on your decade.

How many more decades will you need, and how many thousands of businesses will close before we can measure the effects you're expecting?

We're not talking about a future event here, we're talking about an ongoing event, eleven years in the making. You understand this right?

This exchange we're having right now, I had with other people in the 1990s. They informed me that we not be closing factories and DuPont and DOW Chemical would not move to Asia. We would not have an economic downturn, because renewables, efficiency gains and substitutes would kick in before that happened.

I'll make a prediction now. In nine years, when we're twenty years into your prediction, you'll ask for another ten years. You'll just keep redrawing the line in the sand.

 
At 10:37 PM, Blogger DB said...

So if I'm reading you right you are saying we do not have excess supplies of natural gas in North America right now. In addition, we have seen only a decline in natural gas production in the last 11 years and the fraccing technology perfected only four years ago does not exist. Furthermore you foresaw the decline in natural gas we are experiencing more than ten years ago and that nothing since has happened to halt that decline.

Also you're saying that as a direct result of our failure to produce a dent in the ongoing decline in natural gas supplies all our chemical processing and manufacturing companies shipped their factories to the far east?

Is that basically what your saying? Please confirm

 
At 4:22 AM, Blogger Weaseldog said...

I've clearly said about a dozen times now, here and on your blog that our natural gas production is still at about 1970s levels.

Overall, I don't think you're reading what I'm writing

Asia has seen growth in natural gas production. Back in 2000, DOW Chemical and DuPont released somewhat cryptic press statements that they were moving their plants because of pricing and availability concerns. Dick Armey at that time, was spearheading an effort to pay manufacturing plants to leave the country.

In my view, there is reason to believe that Mathew Simmons played a critical role in helping industrial plants move, by giving them advice on future supplies. So though he's prominent figure on the Peak Oil side, he has not been good for the American job situation.

Natural gas production in the USA can't be said to be in decline. It's been up and down since the 1970s, but shows no sign of sustained growth.

Still our population and our dependence on natural gas has grown. So our reliance on imports has grown.

 
At 9:13 AM, Blogger DB said...

No, I do read what you're writing, I just don't agree with everything you write.

OK I researched the natural gas situation and here are the facts.

In 1970 the total US natural gas production was approximately 21 Trillion Cubic Feet that year which was the peak up until that point and it subsequently declined to a production level of 16 TCF by 1985. Then it bounced around 16 TCF until 2005 until the technology was developed to permit the extraction of shale gas. Last year the US produced slightly more natural gas than in did in 1970.

So reciting the facts you are correct. In your conclusions of wailing and gnashing of teeth however, I break with you since the trajectory is now upwards because of the massive resource base of shale gas.

As to the loss of US jobs, you're staring too hard at your navel. The USA isn't the only country affected by Chinese competition and you can hardly pin the lack of competitiveness of the US on declining domestic natural gas supplies in the 1970s and 80s because other countries also got their asses handed to them who had INCREASING natural gas supplies (such as the UK).

So what it comes down to now is this: in order to continue your argument of doom you have to take the position that shale gas production cannot be increased and is thus useless as a substitute because all the demand is already used up by other industries.

 
At 9:50 AM, Blogger Weaseldog said...

DB, I'm cool with us disagreeing. You were mis-characterizing my position, when I was clear in words what I meant.

"So what it comes down to now is this: in order to continue your argument of doom you have to take the position that shale gas production cannot be increased and is thus useless as a substitute because all the demand is already used up by other industries."

That's not quite what I said, but it's much closer.

I'll write a new post later with a better explanation of my view and some math to explain how I came to think what I do at them moment.

And keep in mind, I'm more concerned with numbers that can be verified. The assumption that shale gas production will enjoy even moderate long term growth isn't yet proven. I see this as counting chickens before they hatch.

I'll soon provide some math based on real numbers, that show how much growth that shale gas needs to provide, to make up for our current losses in oil growth.

 

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