Air Quality and Stationary Source Emission Control (1975) / Chapter Skim
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8 Pricing Policy and Demand for Electricity
8 Pricing Policy and Demand for Electricity
Pages 314-322
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From page 314... ...
While every committee member has not necessarily read and agreed to every detailed statement contained within, the committee believes that the material is of sufficient merit and relevance to be included in this report. ~ EFFECTER PRICING AND CONSERVATION One important means of achieving the broad goals of our national energy policy (i.e., reduced dependence on foreign crude oil and minimization of damage to the environment consistent with economic welfare)
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From page 315... ...
The reason for this is that the demand for all goods and services is, in some degree, elastic -- i f price goes up, buyers will typically take a little bit less, if price goes down, they will typically, take a little more. If then, buyers are to make their individual choices in such a way that they will, as a group, get the maximum total satisfaction from our limited total productive capacity, the prices by which they are guided must reflect the cost to society of producing a little bit more, or its savings f rom producing a little bit less ~ Only then will consumers know what sacrifices they are imposing on society (and therefore on theme elves as a body} by behaving correspondingly, and (according to this idealized conception)
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From page 316... ...
But the only measure of marginal cost that has any economic significance is current costs, or, as one sets rates for the future, Me cost that will be incurred or saved during the period when those rates are in eff ect. In times of rapid inf ration, those marginal costs tend,, naturally, to rise relative to average company revenue requirements, when the latter are based heavily on historic costs.
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From page 317... ...
Second, the plant used f or peaking purposes is typical ly highly energy-intensive. Consumption for relatively short peaks is most economically served by plant, such as gas turbines, involving relatively low capital and high fuel costs: it does not pay to incur the much higher capital costs of, say, nuclear capacity for plant that will operate for only a small fraction of the year.
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From page 318... ...
DEMAND PROJECTIONS AND ELASTI CITY One important part of our national energy policy must be a strenuous effort to encourage conservation to the extent that this is consistent with economic welfare. There are many justif ications for such a policy; one benef it that is directly pertinent to our inquiry is that one way to limit sulfur dioxide emissions from electricity generation is to decrease the need for so much electricity in the f irst place.
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From page 319... ...
These techn' ques have often produced the same kind of results as simple extrapolations on the assumption of constant growth rates, and have proved reasonably reliable during the last several decades because most of 'she determining economic f actors have in fact grown at reasonably stable rates from the late 1 9 Is to the early 1 970s. The validity of these methods and their projections of essentially unchanged growth rates have been subjected to intense criticism during the last few years, under the gradual impact of environmentalist and conservat' onist ob jections to perpetuation of the 7 percent growth rate of :3 :~: .
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From page 320... ...
twO eca es, anc y in =7 4gbY problems tha~ergectshie Wake i tries. The critics ~ ~= ~l ,ndU~-try ClingS Unrealisthiave7ar9ue~ that he aPart from th ~ of the shortages anc 7nll,,-Y r expectec to resume S or 1974, 9rowth ~~ ~ former 7~" m=_ _ , , 75 at 8orethin~y7~be ct on the rate permanen Uming the 1973 sro th t dampenin _ owatt_hOurs as a ~ ~ ~ .85 tri -- -~io~ tne ~gRn r=~_la would be as follows ]
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From page 321... ...
This comparatively high estimated elasticity of demand has an important ef feet on the ultimate level of consumption projected, because the authors assume an increase of 5 percent per year in the real price of electricity from 1972 to 1980. Other statistical analyses have produced results implying a considerably lesser elasticity of demand for electricity, and, in consequence, estimate a considerably more rapid rate of growth in the demand for electricity than the rate forecast by Chapman.
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From page 322... ...
For all these reasons, the full response of demand to recent price changes is unlikely to be achieved in the 1975-1 980 period. For our purposes, it suffices to observe that the demand for electricity must certainly have some price elasticity, and that the prospective increase in the price of electricity may confidently be expected to exert some dampening effect on the growth of consumption; but that, on the other hand, the sharply increasing price of alternative sources of energy, the drying up of supplies of natural gas, and the uncertainty es on the part of consumers about the continued availability of oil imports, after the experience of the Arab boycott, will all tend to work in the other direction -- that is to say, inducing a shift from those alternative sources of energy to electricity.
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