Microeconomic theory & real time electricity markets

Microeconomic theory & real time electricity markets -...

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A Very Brief Microeconomics Overview 1.0 The electric market debate is not over… A story recently appeared in the business section of the Dallas-Fort Worth Star-Telegram Newspaper [1]. “IN MY OPINION * Texas is getting a lot more energy efficient, a push that was included in the deregulation bill. Believe it or not, electric deregulation is working in Texas -- just not exactly how many envisioned. Yes, monthly electric bills are now higher here than in most parts of the country. But look beyond kilowatt price -- and the short-term pain -- and consider how far Texas has come on energy efficiency and wind power. They were side issues a decade ago, when oil and. ..” This motivated one reader, a small-business owner, to send in a letter, which said [2] “If electricity deregulation is so good for me, why don’t I feel any better? I’m tired of hearing our elected officials tell us that deregulation is working. It kills me to see that the Star-Telegram’s Mitch Schnurman is buying into it. (See: "Give deregulation a nod for some things," Aug. 24) (See: "Texas making strides on energy efficiency," Aug. 24) The rates I am paying rank me right up there with New York and New Jersey. Something is wrong. It is not working for me. How about you? The most recent Fortune Small Business magazine reports that the national average for electricity is 8.9 cents per kilowatt hour. I’m currently paying 14.4 cents in Arlington. Last time I checked, neither New York nor New Jersey had a nuclear power plant and neither was sitting over any coal or natural gas. Something isn’t right…. . …deregulation destroyed a thoughtful and deliberative state planning process that chose energy efficiency policies that offered the biggest bang for the buck. Now special interests just get their specific technology mandated into the law. … I bet that most have never even heard that our skyrocketing electricity prices are based on marginal fuel costs for gas-fired plants. This is the real culprit, and it is hardly ever discussed when the "why are my rates so high?" question is asked. Here’s what I know: Prior to deregulation, our rates were based on the cost of generating and delivering electricity. State regulators were empowered to review the utility’s 1
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books to make sure that the rates you and I paid were reasonable and that the company was receiving enough revenue to continue operations. Under deregulation, state regulators have no power to review and approve generation rates. Electricity generating companies can sell their power to retail electric providers one of two ways. They can enter into a one-on-one contract with a retail provider or they can sell their power on the "spot" market. The state’s electricity grid operator — the Electric Reliability Council of Texas (ERCOT) — operates a daily wholesale spot market for electricity.
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This note was uploaded on 11/02/2011 for the course ECON 301 taught by Professor Gandhi during the Spring '01 term at Andhra University.

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Microeconomic theory & real time electricity markets -...

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