Friday, October 28, 2011

Attachment to the Grid

According to Elizabeth Souder's article in the Dallas Morning News on October 27, 2011 entitled "Double jolt: higher bills, less reliability" Texans attached to the electricity grid are about to go on "a free-market roller coaster."  Souder reveals that in the decade to come, electricity prices are sure to steadily increase for many factors, including the growing population and Texas’ climate vulnerable to extreme heat and cold.  With more Texans “Reliant” on electricity than ever, the demand is extraordinarily high and the consumers' demand is very inelastic.  Currently, with the high demand for electricity and low supply, there is a shortage.  This can be accredited to electricity companies not building more electricity generating plants because they are simply too expensive for electric companies to expand their capital in the tough and highly competitive electricity market.  One would think that according to the law of supply, with electricity prices high more supply would be offered.  However, experts who work for these companies worry that these prices are temporarily inflated and that investment in more capital could be hard to pay off in the future.  The supply of electricity is relatively inelastic as far as producing more electricity, resulting from more capital.  This is because plants right now seem to be running at full capacity, with little ability to increase production, without expanding and producing new power sources by bringing old, shutdown ones to code or by building new facilities.  In addition, many companies are being forced to shut down their electricity production plants because the facilities do not comply with the newly enforced pollution regulations, which increase the cost of production as well.  Natural gas pipelines in Texas have historically set a trend for the prices of other sources of alternative energy.  With natural gas costs relatively low, there has been deterrence from producing new sources of electricity, furthering the shortage due to the lump amount of profit allowed to companies by natural gas.  In Texas' "deregulated market" when supply cannot meet the demand of the consumers, the equilibrium price of electricity skyrockets.  ERCOT Chief Executive Tripp Doggett says that increased regulations to protect the environment alone will increase customer’s bill by 10%.  Our attachment to the grid is extraordinary, and with government setting a price ceiling of $3,000 per mega-watt hour, there is little incentive to increase supply, forcing rolling blackouts to occur.

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