Vol. 23, No. 3 (September 2015)
USAEE Dialogue is the official on-line Newsletter of the United States Association for Energy Economics. Its mission is to communicate recent research, analyses, case studies and commentary on issues of energy economics that are of general interest to the membership. USAEE Dialogue is also a forum for reports of local USAEE Chapter and other USAEE/IAEE-sanctioned activities. USAEE members in all sectors of the energy economics’ community -- business/consulting, government and academia (including students) -- are encouraged to contribute articles for publication. For further information please consult: "Guidelines for Submissions of Articles" at: http://www.usaee.org/pdf/blog/Dialogue_Article_Submission_Guidelines.pdf.
From the President, USAEE
Troy N. ThompsonManager, Business Planning & AnalyticsChevron Corporation
The first half of the year has been an active one for USAEE and I want to highlight some of our activities at the Chapter level. Most of our Association’s Chapters, including those student-led, actively meet on a regular basis and serve as a local forum for the discussion and exchange of ideas on energy economics. To highlight a couple of events, in April, the Central Texas Chapter held a workshop on EPA’s proposed clean power plan rules, while our National Capital Area Chapter held their annual energy policy conference. Both events were well received. A few of our Chapters face some challenges that include establishing a base of membership over a wide geographic area, leadership development and securing speakers. Efforts, led by our VP of Chapter Liaison, Peter Kobos, along with support from USAEE Council are underway to help nurture their growth. Efforts include sending promotion material, highlighting Chapter activities in Dialogue, providing advice and guidance and identifying speakers through the use of our Distinguished Lecture Series (DLS) speakers. DLS, created in 2012, is a USAEE sponsored program of peer-nominated thought leaders and recognized experts in their field who are known to be capable speakers. DLS speakers for 2015 are Guy Caruso with CSIS and Kevin Forbes with Catholic University of America.
From the Editor
Welcome to the September 2015 issue of USAEE Dialogue! In this issue we’re pleased to present the following articles:
Joy Churston Dunkerley
(1933 - 2015)
Sadly we report the passing on June 5, 2015, of Joy Dunkerley, economist, author, co-founder of IAEE and long-time member of the National Capital Area Chapter, USAEE. Please read more about our late colleague and her career on the IAEE web-site at http://www.iaee.org/en/membership/membernews.aspx#dunkerley.
Findings from the BP Statistical Review of World Energy:
North American Energy in 2014 – A Banner Year for Supply
These observations on the North American energy story in 2014 are drawn from the 2015 edition of the BP Statistical Review of World Energy, which was published in June. More information on this year’s Review – the 64th annual edition – can be found at www.bp.com/statisticalreview.
Broken Windows and Electricity Generation:
The Cost of Prematurely Closing Existing Plants
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” – Frederic Bastiat
The configuration of the electricity generation sector has long been shaped by public policy. From the early days when Thomas Edison lavished New York politicians with expensive dinners in order to build the Pearl Street Station to the evolution of modern electricity markets, policymakers have heavily influenced the makeup of the electricity generation industry. In the context of current environmental policy—driven by regulations from the Environmental Protection Agency (EPA)—electricity generation faces new and unprecedented intervention by federal policymakers.
As energy economists, a fair question to ask in today’s policy climate is: Do policymakers recognize the economic tradeoffs in electricity generation policy?
Day-Ahead Market Prices of Electricity and Economic
Fundamentals: Preliminary Evidence from New York City
Ernest M. Zampelli Professor, School of Business and EconomicsCatholic University of AmericaWashington, DC
To neoclassical economists, prices are an essential tool in ensuring efficient resource allocation. Indicative of this, McDermott (2012) in a paper entitled, “The Regulatory Dilemma: Getting over the Fear of Price” makes the point that societal welfare is unlikely to be maximized when price signals are repressed. For example, a necessary condition of not wasting resources in the generation of electricity is the equalization of marginal cost across generating stations. It is almost inconceivable that a regulated utility would achieve this condition. However, profit maximization by firms in a competitive market will give rise to marginal cost equal to price and thus marginal generation costs will be equalized across generating stations.
Fairly Pricing Net Intervals While Keeping the Utility
Recent events have made electricity economics more complicated. Previously, input prices were predictable, as was the mix of generating fuels. The cost of the utility could thus be well determined ahead of time. Further, the load patterns of customers simplified rate design. Prices were often invariant over long time periods. The price invariance allowed utilities to read inexpensive watt-hour meters once a month, instead of installing more expensive interval meters.
The passage of the Public Utility Regulatory Policy Act (PURPA) of 1978 began a change in the industry, allowing Qualifying Facilities (QFs) to require its local utility to buy the output of their generation. PURPA also created the concept of net metering, where a single meter would measure the net flow between the customer and the utility, instead of different meters being used for customer consumption versus customer generation. Net metering requirements changed the customer load patterns experienced by the utility, invalidating traditional rate design.
Front Groups Play a Growing and Dangerous
Role in Energy Policy
Energy policy has become a hot political topic again in the U.S., with issues surrounding oil and gas fracking, renewables, and environmental stewardship top-of-mind for a growing percentage of legislators, corporate interests and voters. And with energy issues come front groups paid for by energy companies. We hear messaging from front groups frequently during elections, but it may be hard to recognize them and even harder to know who is behind them these days.
Bearing names that suggest grassroots origins, they appear to be selling apple pie, motherhood, and the American Way. Find your way to the back room, however, and their real character emerges: corporations and interest groups manipulating public opinion and the political process for advantage and profit.
Do Energy Forecasts Minimize the Need for Base Load
Electricity Generation Renewal?
Christopher NicholsSenior Analyst, National Energy Technology Laboratory,
Gavin PickenpaughEconomist, National Energy Technology LaboratoryPittsburgh, PA
The Annual Energy Outlook 2015 (AEO’15), the premier energy market forecast produced by the U.S. Energy Information Administration (EIA), forecasts that just under 300 GW of new electricity generation capacity will be required to be built in the next 30 years. Historical capacity additions have averaged around 20 GW per year, or double the rate projected in the AEO’15 and most other energy forecasts. Given that myriad organizations – many without intimate knowledge of the energy industry - use these forecasts in their planning efforts, it is imperative that the assumptions and methodology behind these results are as accurate and reasonable as possible. Several factors indicate that the amount of new generation capacity forecasted in the AEO’15 may be much lower than would be needed to replace retiring baseload electricity generation units and to support even moderate economic growth. Although the results of the AEO’15 are the sole focus of this article, most other energy forecasting models either use AEO results for calibration or have similar methods, which are also likely to minimize the need for new generation.
Local Chapter Activities
The Presidents of local USAEE Chapters are encouraged to submit write-ups with photographs of local activities. Please contact the Editor for submission guidelines.
19th Annual Washington Energy Policy Conference
A Joint Program of the National Capital Area Chapter, USAEE (NCAC) and
Johns Hopkins School of Advanced International Studies (SAIS)
James Koehler (NCAC Vice President) and R. Omar Cabrales (NCAC President) at the 19th Annual Washington Energy Policy Conference.
The National Capital Area Chapter of the U.S. Association for Energy Economics (NCAC) held its 19th Annual Energy Policy Conference on April 29, 2015, on the theme, "Fossil Fuel Reserves: Will We Leave Them In The Ground? Can We Afford Not To? The Economic Costs of (Not) Utilizing Existing Reserves to Meet Potential Limits on GHGs”. This year’s conference was co-sponsored with The Johns Hopkins University School of Advanced International Studies (SAIS), and was held at the main auditorium of the SAIS campus in Washington, DC.
During this day-long program, speakers explored economic issues and the impact of current and potential policies and actions designed to reduce GHG emissions and concentrations. The main question was whether companies who derive their value from hydrocarbon reserves could see their value drop if these reserves are “left in the ground” in order to meet carbon emission targets. The conference was well attended, with approximately 100 members, guests, panelists, and SAIS faculty and students, attending for all or part of the day. Conference presentations may be found on the NCAC-USAEE web-site at http://ncac-usaee.org/archives2015.php .
Recent IAEE Conferences
38th IAEE International Conference
"Energy Security, Technology and Sustainability Challenges Across the Globe"
May 24 - 27, 2015
Summaries of selected conference presentations may be found in a special edition of IAEE Energy Forum at:
Forthcoming USAEE / IAEE Conferences
"The Dynamic Energy Landscape"
Oct. 25 - 28, 2015
The theme for our annual conference is the “Dynamic Energy Landscape”, a very appropriate title given the current energy economy. The Program Committee has done a marvelous job securing speakers that will address the theme and offer insights covering all aspects of energy development and use.
This year's North American Conference will be held in Pittsburgh, Pennsylvania, one of the main centers of American energy and an area that has witnessed an industrial resurgence, which will also be one of the planned plenary topics. In addition, a Society of Petroleum Engineers (SPE) led topic will focus on water at the well-site and explore the challenges around its production, handling and disposal. Other plenaries plan to cover a wide range of topics that include Renewable Energy Integration, Climate, the Future of Coal, Geopolitics, Energy Infrastructure and current issues facing North American Energy.
In addition to the conference program, we have several activities that include a reception at the Andy Warhol Museum on Tuesday and two technical tours: the EverPower Wind Farm technical tour takes place on Sunday and a technical tour of the Range Resources’ Marcellus shale gas drilling operations takes place on Thursday.
The dates for our upcoming 33rd annual USAEE/IAEE North American Conference are fast approaching! If you have not registered or made travel plans to Pittsburgh, I encourage you to do so soon. I look forward to seeing you at the conference!
-- Troy Thompson, President, USAEE
Please see the conference website for on-line registration and further information:
5th IAEE Asian Conference
"Meeting Asia's Energy Challenges"
Perth, Western Australia
February 14 - 17, 2016
The 5th IAEE Asian Conference to be held in Perth from February 14-17, 2016 will discuss the challenges of meeting what is expected to be continuing enormous growth in Asian energy demand over the next few decades. We have all just experienced the large impacts on world energy markets of the rapid growth in the Chinese economy. India has also recently been undergoing very fast economic growth, and with a population approaching that of China and perhaps surpassing it in the next decade, it is also likely to have a noticeable impact on world energy demand. Fewer people are aware, however, that the ASEAN countries as a group also now have a population of more than 600 million and have been experiencing accelerated economic growth in recent years.
The growth in energy demand in Asia will require the region to import substantial amounts of energy from elsewhere in the world, with impacts on suppliers and other customers of those suppliers, and international and national security. It also will require substantial investments in infrastructure within the region, and policies to cope with the pollution and other externalities associated with ballooning energy consumption. The conference will also discuss the national security and strategic implications of meeting Asian energy demand growth.
For IAEE members from North America, it is also noteworthy that the conference will be held in the late summer and Perth is known for beautiful beaches and a summer with low humidity (like southern California). Hence, make your plans now for escaping to the sunshine and warmth as winter takes hold at home!
-- Peter Hartley, President, IAEE
Please see the conference website for further information:
39th IAEE International Conference
"Energy: Expectations and Uncertainty"
June 19 - 22, 2016
The 39th IAEE International Conference takes place in Bergen, Norway, at the Norwegian School of Economics (NHH), 19 - 22 June 2016, with the main theme Energy: Expectations and Uncertainty - Challenges for analysis, decisions and policy. Energy systems are becoming increasingly interdependent and integrated, raising the importance of changes in resources, markets, technology, policy, environment and climate. Methods, analyses and results that take explicit account of uncertainty and expectations from an economic and decision-making perspective will be highlighted.
Please see the conference website for further information:
Volume 23, Number 3 - 2015