Sunday, 27 November 2011

Proposed New Air Quality Regulations

In "EPA rules could shut 13,000 megawatts of Midwest coal plants," Reuters says that to remain compliant with proposed EPA rules, Midwestern coal-burning electric utilities might have to invest $33 billion on 62,000 of the 70,000 megawatts of generation capacity. One regulation, on reducing sulfur dioxide and nitrogen dioxide, has already been finalized. Mercury reduction is the most important of the new rules.

How can the voters know whether these new rules are a good thing or not? How can you yourself form an opinion? Why would the utilities oppose such regulations, when they will be allowed to raise their rates to match any cost increases?

22 comments:

  1. What kind of costs will the customers have to incur because of these new regulations? If the benefits of the cleaner air outweight the increase in the price for coal burning electricity then it is definitely worth it. I would think that people would prefer the filtered air, especially those who live around the plant itself

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  3. Using the models we learned in class, voters need to determine how much they value clean air and balance that against how much they value cheap fossil fuel electricity. I form my opinion based on my own principles and values. Mercury is a neurotoxin which kills newborns. Coal pollution can lead to asthma and can stunt development. I ask the question: Why do we need to burn coal when God has given us the gift of a radiant Sun, wind, and unfathomable amounts of geothermal energy potential? It is unethical and immoral to pollute our planet as we do. Our energy needs can be met by renewable sources and increases in efficiency.

    Obviously increased rates will not make customers happy and may give incentive to some consumers to cut down on their consumption of electricity. However, utilities oppose such regulations not because of the immediate effects, but because of the long term implications. Just as most antebellum Southerners refused to give an inch on the slavery issue, so too will the utilities which see that their way of thinking, their way of living (aka doing business) will soon be in the dustbin of history. They want to extract every last bit of 'value' from their existing plants and infrastructure (their landed assets are enormously expensive and hardly liquid).

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  4. For an individual voter, it is a trade off between higher up-front price and a better environment for newborns and future generation. For the economy as a whole, marginal cost and benefit analysis should be conducted. In my opinion, this kind of pollution should be strictly controlled because it directly hurt people most at the beginning of their lives. For the utilities, they oppose this regulation because it is costly. What's more, around 89% of their capacity needs improving under the terms. That incurs extra management expenses. I suppose they are public utilities. So whether they should be allowed to raise rates depends on the non-profit model we learned in Chapter 7.

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  5. Well, first the individual voter would have would have to do a cost-benefit analysis. There is a higher up-front cost if he or she wants future generations, and perhaps the quality of living later in the voters own life, to be better. There are several externalities for the individual voter to consider including the environment and future residents of the area.

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  6. The utility companies will not want to have to deal with the disruptions and unhappy customers from the necessary shutdowns mentioned in the article. They also might not desire the increased price matching they are guarenteed if they feel they are currently operating at a profit maximizing level considering they're utility companies.

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  7. For MISO (the operators for the coal-burning utility companies, the benefits might not be enough to cover all the costs. For example, once rates increase, consumer will look for cheaper energy alternatives, such as natural gas. Consumers all over the midwest and even as far as NC will be affected. However, as the article mentions, there might not be a big enough capability from these other sources of energy to service the changes in demand.

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  8. These voters will know if this rule is a good thing or not, once they see the effects of future prices or less pollution. I myself can form an opinon by measuring the marginal costs and the marginal benefits of the effects. The utilities might oppose regulation because it could hamper efficiency.

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  9. It's in the short run that utilities are hurt by regulations like these, because until there is a rate hearing their prices cannot rise. In the long run, they will be allowed to increase prices because of the new costs.

    I asked about how we ourselves would form opinions because the big problem is information. Sumner, even you would draw the line when the marginal cost gets higher enough and the amount of mercury reduction gets low enough. Mercury will kill even adults in big enough concentration, but the harm is imperceptible at low enough concentrations. Everyone prefers more of any good, including cleaner air than we have now; the limitation is always the price.

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  10. Well, maybe my mind is a bit archaic but I see the answer to your question as being similar to the problem with say tobacco. People smoke because it doesn't cause any physical pain until years later when you get cancer or emphysema. The current mercury and pollution levels are not actually attributable to any daily discomfort so as consumers we happily pay lower rates without realizing that someday if we get cancer it may be partly due to the pollutants put into the air by the power companies. In this sense it is very difficult to raise rates because the added cost to consumers doesn't give them any immediate, tangible benefit.

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  11. It is often the case that utility companies are allowed to increase their rates after new regulations are imposed, but the small allowable rate increase forces them to recover a substantial initial investment over a long recovery period. This reduces the available capital and incentive for utility companies to research and invest in new energy sources.

    This scenario makes a complete divestment away from coal-powered energy plants unrealistic and would be financial impossible for most end consumers to shoulder. If utility/energy markets were not so heavily regulated, maybe there would be more innovation and movement towards more "environmentally friendly" sources.

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  12. With such high costs on the majority of generation capacity, A lot of firms may find it difficult to break even. Though this regulation enforces stricter health related policies, it comes at a high price for utility companies.
    This regulation has obviously been implemented for the well- being of consumers and the general public considering environmental standards. Recovering costs may not just be as easy as raising price, there are restrictions for public utilities to raise prices without justifying them.

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  13. With such high costs on the majority of generation capacity, A lot of firms may find it difficult to break even. Though this regulation enforces stricter health related policies, it comes at a high price for utility companies.
    This regulation has obviously been implemented for the well- being of consumers and the general public considering environmental standards. Recovering costs may not just be as easy as raising price, there are restrictions for public utilities to raise prices without justifying them.

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