Vermont Tiger

For SAFSTOR Before He Was Against It

Entergy took ownership of the Vermont Yankee nuclear plant while Howard Dean was governor of Vermont.  Dean did much to midwife the deal, including the part that allows for the plant to be put in a condition known as SAFSTOR once it is no longer operational but before it is fully decommissioned.  The time interval would allow for funds set aside for decommissioning to grow enough through the miracle of compounding interest to cover the full cost of decommissioning.

There are a lot of people who are unhappy with this arrangement.  One of them is ... Howard Dean.

Ruthless and Excessive

 by Art Woolf

It is long past time to drive ruthless energy speculators out of the market.

---Representative Peter Welch, commenting on a bill he is co-sponsoring.

Does this mean that the plain vanilla (non-ruthless) energy speculators will be allowed to continue operating and won't be driven out of the market?  How does Rep. Welch, or the federal regulatory agencies, differentiate between the ruthless and the benign speculators?

According to the AP story, the bill,

The Energy Markets Manipulation Prevention Act (H.R. 2869), directs the Commodity Futures Trading Commission to use its existing authority to investigate excessive speculation in energy markets and empowers the CFTC with additional regulatory authority.

I assume, then, that non-excessive speculation won't be investigated.  But how is the CFTC supposed to differentiate between excessive and non-excessive speculation?

What’s a Smart Grid and Why Does It Matter?

by Tom Evslin

We Vermonters have a huge opportunity to use federal stimulus funds to shape our near term energy future. The Vermont of three years from now will have both reduced its use of expensive and relatively dirty peak electricity AND begun to substantially reduce the use of oil in cars and homes. A Smart Grid is a key part of the SmartVermont plan to compete for federal stimulus dollars to extend broadband to everyone and to use that broadband network as the transport for e-health, e-education, and a smartyer electric grid.

Whether you believe that the most important goal of an energy policy is reducing CO2 emissions, preventing the outflow of dollars from the State and nation for imported oil, or stopping the flow of petro dollars to unfriendly places, you are probably part of the huge consensus which believes that we need to reduce our use of fossil fuels both locally and nationally. It's even better, of course, if we reduce our use of fossil fuels by making alternatives cheaper rather than just by making fossil fuels more expensive; that's kinder to our pocketbooks and has a better chance of being a model for the rest of the world.

Breaking! - Quetzalcoatl Coming to Vermont!

Well, that was my initial reaction when this headline from the Herald drifted by earlier today:

Wind requires human sacrifice

Wow.  This "green religion" is even more onerous than I had thought.

And I don't even want to think about what solar will require - given that in the case of the Aztecs....

I'd better stop there - given the density of nutters in Vermont, it's probably best not to give anyone any ideas.

As long as there's no interest in Rutland (or Burlington, or Brattleboro, or.... Montpelier) in holding "Aztec Cultural Heritage Festivals," we'll probably be safe.

(And fun-n-games aside: Mr. Ross, that is a most excellent letter.)

The Second Thing We Do, Let's Kill All the Speculators

 by Art Woolf

 (With profound apologies to Mr. Shakespeare)

Trying not to be outdone by the Herald, the Freeps also blasts the nasty speculators who are making our lives miserable.  We (presumably that's the government) need to act now

if we want to keep avoiding being whipsawed in the future by speculators.

Of course, the editorial only wants action to prevent oil speculators from, well, speculating.  Evidently, speculating in gold, silver, pork bellies, corn, cotton, soybeans, interest rates, stocks, currencies, coffee, sugar, tin, and all other products is not a problem.  It's just those greedy oil speculators who are a problem.  I'm not sure why those other speculators don't raise prices and make a killing by raising other prices.  Maybe they're just not as greedy or evil as the oil speculators

Anyway, speculators do no good and perform no useful function:

The global market for commodities is based on investors' making bets on what, for instance, a barrel of oil will fetch in 30 days or 60 or 90. Basically, it's a giant casino

Yep.  All those people jumping up and down and screaming on the floor of the Chicago Mercantile Exchange serve the economy about as much as Clem and Marge playing the slots in Vegas.  Why, speculators may even be

people may be buying and selling wheat, for example, that has yet to ripen.

What a horror.  They could at least wait until it was made into a loaf of bread.

As I put it earlier this week in criticizing similar reasoning in the Herald:

I would expect a more sophisticated analysis, rather than an emotional diatribe, from an editorial in a well-respected newspaper.  But, then, I am easily disappointed.

Rhapsody in Green - A Spanish Götterdämmerung

I was in Washington DC for a couple days earlier in the month; one of the highlights of that brief visit was a chance to meet the Spanish economist Prof. Gabriel Calzada (who was also in Washington), and to hear a short presentation about his recent study of the consequences of Spain's decade-long drive for "green-energy" (a model frequently held up to us as one to emulate).

You might recall that I mentioned this study back in my lengthy "Rhapsody in Green" essay that appeared here last month; fellow Tiger Chris Campion also noted the recent appearance of this study.  But in person I learned that Prof. Calzada's analysis was even more detailed than we realized - and that the story he had to tell was even more frightening.

More below the fold.

Peak Wind?

Running out of wind?  You gotta be kidding.

Swindlers and Cheats

Sanders says the companies are hoarding supplies in order to drive up prices of home heating oil, and they can get away with it because they are not required to report their offshore supplies to the federal government.
    Herald

Most of us are familiar with the idea that we can lock in a price today, say $2.25 per gallon, for the fuel oil we expect to use this coming winter if we expect prices to be higher, say $3.25,  than they are today.  Many Vermonters take advantage of that institutional feature of fuel oil markets by entering into contracts with their local fuel oil dealers.

How do their dealers guarantee that price?  They sign a contract with someone, or some firm or institution upstream that locks in that $2.25 price for the delivery of fuel oil six months from now.  If everyone believes that the future price is going to be higher, then someone has to actually buy some fuel oil today at $2.25 and store it for delivery this winter.  That can be done by physically storing the oil in a fuel depot, in an oil tanker, or by keeping it in the ground. 

If prices do indeed reach $3.25 this winter, the homeowner benefits by paying $2.25 when the market price is $3.25.  The "loser" is the ultimate seller of fuel oil, who could have refused to enter into the contract in the first place and could have sold the fuel oil at a price of $3.25 instead of $2.25.   Of course, if fuel oil prices are less than $2.25, the homeowner comes out on the short end of the transaction and the ultimate seller (not the local fuel oil dealer) benefits.

Notice that if a sufficient number of people believe that prices will be higher this winter, lots of fuel oil will be purchased and stored today in anticipation of delivery this winter. That increased demand will drive fuel oil prices up today--assuming there is not a large supply response.  Since it is difficult to produce more fuel oil in the short run (in the language of economics, supply is inelastic) oil prices will rise.  That price increase gives homeowners advance warning that fuel oil prices are likely to be higher this winter and gives them time to adjust to that higher price by, for example, putting in more insulation, replacing windows, or planning to close off part of their house.

Econ 101 and the Senator

     by Art Woolf

Senator Bernie Sanders says

we have plenty of supply and because of the recession we're at a ten year low in terms of demand so what economics 101 tell us is when you have a lot of supply and less demand prices should go down...

That's the problem that Vermont dairy farmers are now experiencing, and Senator Sanders has accurately diagnosed the situation.  Except that when it comes to dairy farmers' problems, we don't usually see the Senator using basic economics 101 analysis.   And he's not.  The quote refers to his views of energy prices and what follows is

...but in fact prices right now are soaring.

As The Times Argus story on the recent runup in gas prices notes

Analysts give different reasons for the recent price increase. But the price of oil is ultimately determined by the many people trying to guess the future of the world economy and the future price of oil, and then acting on those guesses, according to Art Woolf, a University of Vermont economics professor

Senator Sanders would like milk prices to be higher and gas prices to be lower.  He'd also no doubt like us to drink more milk and use less gas, which is inconsistent with the price changes he desires.  At least he gets part of economics 101 correct.

It’s Time for Electricity to Come Out of the Closet and Go Into Storage

(ed. Note:  We are delighted to welcome new contributor Tom Evslin to Vermont Tiger.  Evlsin is, among many other things, the Stimulus Czar for Vermont. That is to say, he heads something called the Office of Economic Stimulus and Recovery, which means he has a lot to say about how the federal stimulus monies are deployed around the state.  And a good thing, too, since Evslin’s ideas are imaginative and forward looking and promise to do a lot to move Vermont out of the doldrums and into a new era of smart growth.   In his first contribution to the Tiger, Evslin makes the case for off-peak electricity – a cause which we are already on record as backing and which may, with the support of Evslin and that federal money, finally get the traction it has needed.)

Way back in 1991, during a previous housing slump, we moved to Vancouver and had to sell our house in Vermont. "Replace the heating system or no one'll look at the house," the realtor said. The offending system was fairly new; it was in good shape; it was comparable in operating cost to what other people had; it was extremely low maintenance; but it was politically incorrect. It used electric (shudder) storage heat!

In the 1970s when electricity from nuclear plants was going to be "too cheap to meter," electrical everything was the rage. When nuclear power went out of fashion, so did electricity. It became the energy form that environmentalists love to hate. This distaste for electricity predated concerns about CO2 concentration in the atmosphere but was intensified by global warming concerns and the undeniable fact that a huge percentage of electricity is generated by burning coal. Reducing electricity use is still an environmental mantra. A whole generation of utility executives have grown up in an era in which they are measured by how much of their product they can manage NOT to sell.

Now it's time to sell electricity. Energy independence requires increased use of electricity. Reducing atmospheric CO2 without an economic meltdown also requires increased use of electricity.

(ed. Note:  We are delighted to welcome new contributor Tom Evslin to Vermont Tiger.  Evlsin is, among many other things, the Stimulus Czar for Vermont. That is to say, he heads something called the Office of Economic Stimulus and Recovery, which means he has a lot to say about how the federal stimulus monies are deployed around the state.  And a good thing, too, since Evslin’s ideas are imaginative and forward looking and promise to do a lot to move Vermont out of the doldrums and into a new era of smart growth.   In his first contribution to the Tiger, Evslin makes the case for off-peak electricity – a cause which we are already on record as backing and which may, with the support of Evslin and that federal money, finally get the traction it has needed.)

Way back in 1991, during a previous housing slump, we moved to Vancouver and had to sell our house in Vermont. "Replace the heating system or no one'll look at the house," the realtor said. The offending system was fairly new; it was in good shape; it was comparable in operating cost to what other people had; it was extremely low maintenance; but it was politically incorrect. It used electric (shudder) storage heat!

In the 1970s when electricity from nuclear plants was going to be "too cheap to meter," electrical everything was the rage. When nuclear power went out of fashion, so did electricity. It became the energy form that environmentalists love to hate. This distaste for electricity predated concerns about CO2 concentration in the atmosphere but was intensified by global warming concerns and the undeniable fact that a huge percentage of electricity is generated by burning coal. Reducing electricity use is still an environmental mantra. A whole generation of utility executives have grown up in an era in which they are measured by how much of their product they can manage NOT to sell.

Now it's time to sell electricity. Energy independence requires increased use of electricity. Reducing atmospheric CO2 without an economic meltdown also requires increased use of electricity.