Energy and politics.

[Eugene Coyle <eugenecoyle@xxxxxxx>]

This I fear is going to seem doubly or triply provincial.  First it is
California centered, second energy centered, and third USA centered.
But here goes.

    Wholesale electric prices in California have moved in a year from
2.5 cents to 25 cents.  Sort of on a rough average, actually high at the
moment but will get to that average on the current trajectory..  (Spikes
have been as high as 12 dollars or more.)  There is a consumer backlash
and that will explode into a gigantic one as this plays out.

    Now natural gas prices nationally have moved from around $2.25 per
thousand cubic feet (mcf) twelve to fifteen months ago to around
$6.00/mcf nationally.  A spot trade yesterday in the west was around 27
or 28 dollars.

    Gas is burned to make electricity, so electricity is inflate in
price.  On top of that, gas to burn under electric boilers is considered
a lower priority than what is used in homes and schools, so the electric
power plants get curtailed on cold days, driving electric prices even
higher and also driving the gas price higher as the power plants try to
buy gas out of the priority queue.

    Obviously this is a big consumer issue.  But it seems to me bigger
than that.  As all of the above shows up in the monthly bills,
California residents and politicians are going to want a fix.  Gov.
Davis is demanding that the federal regulators (FERC) force the power
wholesalers to disgorge their profits of the past ten months.  FERC
isn't going to do that -- especially since Bush now seems elected.  FERC
has always been a front for the oil and gas interests and will certainly
get more so as Bush appointees gradually move in.

    Privatization?  Politicians in Calif -- including the Governor --
are speaking openly of publically-owned power plants as a way of
alleviating the electric debacle.  This is in good part posturing, and
also used as a threat to FERC -- i. e. telling FERC that to save the
free market it better give some (short-run) consumer relief.  But if a
fix doesn't show up, public investment in electric power could actually
unfold.

    This California problem is showing up elsewhere in the states, of
course.  Prices are jumping in Massachusetts and will jump again.  New
York had a big price increase and was spared a worse one only by a mild
summer.  In the Northwest, there have been large temporary lay-offs this
past year as paper mills and aluminum smelters chose to shut down rather
than pay the electric price.  There have been permanent lay-offs as
well, as some employers couldn't find a wholesale contract at a price
that would permit operation and simply closed down.  Butte, Montana was
hit with this.  In Ohio steel plants closed briefly during the summer
because of high electric prices.

    We can't build our way out of high electric prices because the
investors aren't dumb enough to kill the goose by creating excess
capacity.  (Well, maybe they are, but we'll get from oligopoly to tight
oligopoly soon enough to take care of that.)

    Down the road, energy -- especially electric and gas -- will move
from the control of actual producers to international brokers -- this is
already happening in a big way.  So things will get worse.  Enron and
others will completely control electric prices and control the gas that
is used to make electricity.

    I understand all this.  We are on a path that heads over the cliff.
But what I'm wondering is how will the politics of this play out over
the next few years?  Public ownership?  Seems too much of a break with
the free market for the American public.

    Will coal to generate electricity come back in a major way?  Seems
likely, but coal is much more of a climate threat than natural gas,
which itself is, of course, a fossil fuel.

    If coal comes back, then how does the USA get anywhere near
compliance with whatever finally happens post-Kyoto?

And will the public in the USA, provincial as it is, allow global
warming to accelerate as it watches the very concrete effects that will
soon be apparent?  If it doesn't, what will be the policy moves?  Trains
insteead of SUVs?  That's one possibility, remote as Doug considers it.
And remote in time, in any event.

    Let me conclude by saying that I think this is heralding a major
political earthquake.  But I have no sense of what the place will look
like after the first few shock waves.

Any ideas?

Gene Coyle