10/26/05Energy: Policy Behavior,Price & Shortages?CE 5212Reuben CollinsKevin Ries10/26/05Historical Cases WW II Energy Crisis 1973 Energy Crisis 1979 Energy Crisis California Power Shortages North East Blackout of 2003 200510/26/05WWII Conservation Efforts Began Fuel Rationing Car Pooling “Victory Speed” Windshield Stickers10/26/0510/26/0510/26/051973 Energy Crisis OPEC announces they will no longerexport oil to countries that support Israel US oil production had been declining Demand raises leading to higher pricesand long lines at gas pumps After the crisis, people returned to oldhabits10/26/051979 Energy Crisis The Shah of Iran fled the country for politicalreasons and Ayatollah Khomeini replaced him Protests disrupted oil production OPEC increased production to make up for Iran. Panic ensued and lines appeared at gas stations Carter Administration began a campaign toderegulate oil and remove price controls installedafter the 1973 crisis By 1991, all price controls were gone10/26/05California Energy Crisis 1996 - California Assembly voted toderegulate the electrical industry Power plants were sold to unregulatedprivate companies and prices are set by theCalifornia Power Exchange – a nonprofit Transmission lines are controlled by theIndependent System Operator – a nonprofit Utilities retain control of distribution networks10/26/05California Energy Crisis: Mistakes? Utility companies were forced to sell theirgenerating plants and buy power atwholesale prices Utility companies were not allowed to passon rate increases to customers No long-term rate agreements were allowed No policy was ever put in place to mediatetemporary price spikes10/26/05California Energy Crisis: Policies? Should the government intervene in cases ofshortages? Should the government place regional pricecaps on wholesale prices? Is electricity too important in today’s world toallow the free market to control prices? Other states will form their policies based onCalifornia’s experiences10/26/05North East Blackout Thursday, August 14, 2003 – Majorpower outages darken entire cities in theNorth East states and Canada. At 4:10 pm 21 power plants shut down Power had returned largely within 4-12hours People remain orderly and cooperative There have been significantly largeroutages throughout history10/26/05North East Blackout North American Electric ReliabilityCouncil (NERC) rules are voluntary andnot enforceable Deregulation separated the ownership oftransmission lines from power generators Transmission system can’t keep up withgenerators, and probably caused theblackout Over $500 million was estimated lost10/26/05North East Blackout Policies? High prices spurred the initial restructuring Should electrical service be vertically orhorizontally structured? The deregulated,horizontal structure is largely to blame for theblackout Over $500 million was estimated lost, and millionsmore will be spent on policy analysis. Was anymoney actually saved by society as a whole?10/26/05New Orleans Hurricane Katrina damaged manyoffshore oil platforms and several oilpipelines Scares of shortages cause 26 nations torelease stored oil to make up for lostproduction in New Orleans Temporary Solution Overall, Hurricane Katrina illustrated howvulnerable the US is to energy shortages10/26/05Searching For EnergyIndependence Energy Independence would allowthe United States to handle supplyand demand issues locally, withoutinvolving foreign nations, givinglocal authorities over price, supply,and demand.10/26/05Searching For EnergyIndependence 1942 US Office of Price Administrationfreezes prices of everyday goods 1960 OPEC formed to unite middle-eastern countries 1973 Trans-Alaskan pipeline constructed 1973 Nixon imposed price controls of oil “Project Independence” sets goals to beenergy independent by 1980.10/26/05Searching For EnergyIndependence 1973 Federal Energy Office created 1974 Federal Energy Administrationcreated 1975 Ford set standards for automobilefuel efficiency 1977 Carter Creates the Department ofEnergy 1981 Reagan eliminates price controls ofoil10/26/05Searching For EnergyIndependence 1991 - Bush Sr. allocates money toresearch electric vehicles 1993 – Clinton funds resarch of a3x more fuel efficient car 2003 – Bush Jr. proposes hydrogenpowered “Freedom Car”10/26/05Searching For EnergyIndependence Ethanol Natural Gas Propane Hydrogen Biodiesel Electricity Methanol P-Series10/26/05Policy Questions Raised Is energyindependencepossible? Is energyindependenceworthwhile? How important is theenvironment relativeto other issues? How could thegovernment mandateconservation? Should thegovernment mandateconservation? Should thegovernment regulateenergy prices orsupplies? Should oil (naturalgas, electricity) bederegulated? Arethere differentanswers for
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