Allocation of rights and duties in exploitation of energy resources
Energy is high on the domestic agenda
Energy: important to look at public and international values
– the allocation of rights and duties concerning the exploitation of all energy resources between individuals, between individuals and governments, between governments and states
– affects of market volatility and new technologies
– environmental issues
– no easy answers, when looking at struggle between environmental issues and economic issues
History of US and Energy
– 1800’s candle lighting in houses, farming communities and animal power
– 1900’s industrial growth, most major industries in or around US cities
– major energy source was coal from Appalachian
– 1950 use of electricity now wide spread
– growth in the transportation industry
Major sources of energy
– predominant is fossil fuels: coal, oil and natural gas
– solar and wind, thermal: alternate energy sources
Coal: U.S. has vast reserves, has pollution issues, strip mining and reclamation issues, high transportation costs
Oil: import ½ oil, exploration issues, transportation is main usage
Natural Gas: direct heating and fuel for electricity generation, is in limited qualities
Nuclear: 20% of our energy, safety issue, waste issues, terrorism issues
Hydroelectric: moving water, important in PNW
Alternative Energy Sources: research and development issues, environmental issues
– those other than hydro (although hydro is alternate energy source)
Electricity is a secondary source, relies on one of the 6 primary ones.
(1) transportation: 27.7% of all energy use
(2) industrial: 22.1%
(3) residential and commercial: 11.1%
(4) electric power: 38.9%
Petroleum- 39.8% à 96% goes to transportation sector
Natural Gas- 23%à 39% goes to industrial sector, 24% goes to electric power
Coal- 22.5%à 90% goes to electric power
Renewable Energy- 6.1% (includes hydro)à most to electric power
Nuclear- 8.2%à all goes to electric power
US- largest energy consumer, ¼ of all energy
– grown dependent on fossil fuel imports, esp. petroleum since 70’s crisis
Raw material to Usable product
– identifying how much resource is there
– what is fair to producer and consumers
– different departments overlap
– federal preemption: issues of nuclear safety are preempted by feds
– can be dual regulation as long as not frustrate the fed purpose
– competition v. monopoly: private issues and public regulation
– issues have international implications
Predictions: about energy supply and supply and demand are so off target many times, have to be skeptical
Energy business is a very capital intensive business: huge investments
Energy Economic – looks to how products are distributed (not on the final)
– what goods produced?
– resources to produce those goods?
– who receives those goods?
Method of allocating resources in US is the market, and market is ran by supply and demand
– energy: is usually a concentration of ownership = barriers to market place
When different kinds of energy emerges = externalities, which is a cost or benefits that is not charged to the decision maker (the person which owns the energy source)
– Ex. if pollute the air, you not have to pay for the pollution costs
– economist would say that should internalize this in cost of doing business
– when have externalities, tend to have over consumption b/c the activity involved is lower in price than the true cost
– key concept in energy regulation
– Ex. builds a house at top of hill, and someone else builds at bottom, and one at bottom decides that going to use solar panels for heating. At top of hill not have solar and decides that like trees and plants at top and the trees eventually block the sun for the bottom house. The externality here is the shade that is blocking the sun, is a correction to the externality is the top owner would prune the trees. But have competing values at play. Top owner not have to pay for the blocking of the sun, but am getting the benefit of landscaping. Have right to use land way want it.
The question: given the less than perfect market, when and to what extent should the government intervene????
– govt. can intervene through: taxes, subsidies, direct legislation
Look at the policy involved, the real world economic result.. Is it good economics????
– is it realistic
– is it good for the environment
– purely private decision makingà to strict government control and ownership
– govt can intervene, can be a regulator,
– what is the rationale for regulations
(1) regulate natural monopolies- have a single business that can supply the market (lack of competition), fears of pricing, efficient use of resources,
(2) problem of externalities- not every thing is going to be included in the price unless the regulator requires it to pick up the externality cost
(3) political rationale” govt regulates what think is essential, but not everything that is essential
Need a convergence of the economic and the political factors, as well as a legal justification.
Distributional fairness in energy b/c resource is essential, due to inelastic supply (cant increase the supply)
If there is a shortage and cant increase supply then the resources are going to the highest bidder if the government does not regulate.
– can ration
– let the market rule but take back excess windfall profits
Chapter 2: The Rise of Market Power in Energy
A lot of energy in US is distributed to consumers by public utilities, and most energy resources are regulated as public utilities.
Can have private ownership of public utilities. No one is suggesting that make all public
duty to serve CL obligation.
Railroad increased the fear of monopoly power and public utilities. Little or no competitive services. Public annoyance, irrational discriminationà led to demand to state and federal regulation after Civil War.
Before regulated airplane flights, prices were very high when little competition.
Three important US Sup Ct decision in defining parameters in what can be regulated
– breadth of regulation
– and Constitutional issues
(1) Gibbons v. Ogden- first major case to help define the extent of the Commerce Clause
– State of NY had granted the exclusive right to operate steam boats
– Ogden had exclusive territory under state
– and Gibbons had federal grant to do same
– SC held: NY action interfered with prerogative of Congress
– what is the meaning of commerce? is more than just buying and selling things, is traffic, intercourse
– Gibbons ultimately won b/c steamboats between 2 states is commerce
– Congress was within its power under the Commerce Clause, although NY had the power to grant Ogden’s right, it just could not forbid Gibbons
· If have a grid only within one state and not connect ot other states, then government can not regulate, Texas has
(2) Munn v. Illinois- (38) why we have rate regulation, and the extent of the state’s regulatory power. 1876, at the threshold of tech development.
– State of Ill. acted under its policing power
– Granger Laws adopted from fear of farmers not going to get product to market
– were warehouses along the river, and Ill set the maximum rates for those warehouses
– attempt to regulate storage of grain prices at those warehouses
– warehouses argue violation of Commerce Clause (CC)
– court held: when private property is devoted to public use is subject to public regulation
– is this public use?
– warehouses said was important to US, then SC said ok then is public use
– control of rates not new
– upheld the Ill statute that regulated ceiling prices for the storage
– even if interstate commerce was affected in absence of federal action, the state can intervene
– “reasonable prices”- rate by PU is required under CL to be reasonable
– dissent: this was a destruction in property, only time when regulation is warranted is when grant a specific public interest to the property