Author: Michael Giberson

Michael Giberson

At Constructive Economics, Abe Othman discusses a purported manipulation attempt in Intrade’s Health Care Reform bill market.  The nut of the story is that early on March 17th a trader apparently poured a bit of money into the market, briefly driving the price from around 60 down to 35.  After a few hours the price bounced back into the 60s; if it was manipulation, it failed.  But Othman speculates about a future in which manipulation would work.

Because the Intrade price can be interpreted as an estimate of the likelihood that the bill will pass, a sharp fall in the price could indicate new information reaching the market suggesting the bill will fail.  In the manipulation story presented by Othman, a new perception the bill is failing could be used to pressure the weakest members of the coalition supporting the bill to drop out (Maybe the argument goes, “Why go down with a sinking ship, when you and your constituents never wanted the ship in the first place?”).  As support actually falls, the likelihood the bill passes drops with it.  The manipulated price becomes, with a little lobbying, a correct prediction.

While Othman recognizes that the purported manipulation failed this time, he wonders whether prediction market prices will become sufficiently trusted that such a manipulation will work.  In fact, he predicts, “It’s only a matter of time, a couple years I would guess, before the kind of manipulation I’ve described actually works.

I disagree.

While it is true that a trader can often move the Intrade price relatively cheaply, because the markets often are thin, it is well known that a trader can move the Intrade price.  No half-way sophisticated interpreter of Intrade price data would take a sudden sharp move based on a few trades as proof of changing fundamentals, at most it might inspire the viewer to scan for new news.  It was only a few hours after the March 17 episode before bloggers were calling “manipulation!“  Are observers going to become less willing to call “manipulation!” in a couple of years? No.

While it is true that a trader can often move the Intrade price relatively cheaply, because the markets often are thin, holding the market to the manipulated target price can get expensive.  A manipulator can’t buy the price signal, he just rents it for a while.  And the rental rate will tend to rise over time because the mis-pricing will attract informed traders to trade against the manipulator.

Maybe this gets interesting.  So long as the markets are thinly traded then the market signal can be rented cheaply, but observers treat the signal as cheap talk.  What if talk is not cheap?  Can a deep pockets manipulator actually buy the market price?  That is to say, can the manipulator rent the signal long enough to overcome the “cheap talk” dismissal and change the likelihood of the outcome? I’d say this would work only in a world in which enough market observers  trust the market price summary more than all of the other information available about the subject of the prediction market, but this is unlikely to be the world we live in.

I predict: this kind of manipulation will not happen within the next several years.

Michael Giberson

The New York Times ran an editorial on the election of Rand Paul called the “Limits of Libertarianism.”  I haven’t been paying much attention to Paul’s campaign or related politics, so don’t comment on Paul’s views or the Times response to them.  But I have to draw attention to for the purpose of publicly ridiculing one of the Times final sentences, which contrasts government power against a peculiar view of free markets:

It was only government power that ended slavery and abolished Jim Crow, neither of which would have been eliminated by a purely free market.

Should we give government power credit for ending slavery in the 1860s when government power had been supporting slavery for more than a century before?  How long would slavery have persisted in the United States had the government not used its power to endorse and protect it?  And what is this queer notion of a “purely free market” in which some people can legally assault other people, deprive them of their liberty, and sell them into slavery?  I had imagined that such slavery could not exist in a purely free market.

Should we give government power credit for ending Jim Crow, when Jim Crow attitudes were turned by state and local governments into laws that used government power to force segregation?  How long did it take the Times‘ lauded (federal) government power to overcome the use of (state and local) government power imposing segregation requirements?  In what vision of a “purely free market” can the government tell a business that it must segregate its customers by race?

Idiocy.

Michael Giberson

The Isolated Plant magazine published “A letter from a New York Correspondent,” in their August 1909 edition:

Mr. Editor:

From the viewpoint of one of the “common people,” the recent issues of your magazine have been striking fire with every telling blow…  The following incident is mentioned as a bit of local history.

Two downtown office buildings adjoining each other on the same side of the street, and carrying the same class of tenants, were not operating under sufficiently even costs.  One of them had its own electric power plant and the other used Edison service.  The man who operated his own plant even had a little power to spare and closed a two years’ contract with the other agent to supply the latter’s building with light at a rate considerably lower than the street service.  A contractor installed a 3 inch loricated conduit carrying three double braid conductors between the generator switchboard through the foundation wall to one side of a three-pole double-throw service switch previously installed.

This switch had been used to supply Edison break down service when the building operated its own plant.  The wiring was installed in full accord with the National Code as adopted by the N. Y. Board of Fire Underwriters, and a certificate of approval was received from the city department.  The contractor received a “violation,” however, from the Fire Underwriters, and any attempt to secure a committed statement from the latter board as to the code rule violated was futile.  The was evidently somewhat peculiar, the contractor had performed his work according to the rules of the board as publicly printed and circulated, yet a certificate of approval was withheld, and he could not receive his payment for the work.  The inspector was called on, he was non-committal … the Chief Inspector was non-commital … [The] Superintendent … quite abrubtly stated that his board would not approve the running of an electric power service through a party line; this ruling being the result of an agreement between his board and the N. Y. Edison Co.

Neither contractor nor agents could understand how any such mutual agreement could affect the fire risk….

The N. Y. Edison Co. also got busy after the contractor and threatened to send him to jail for “interfering with their meters,” which of course was not the case and the contractor was not molested; threat was also made to discontinue the [Edison Co.] service to the elevators, but it also passed over.

Both buildings secured independent insurance, the contractor got his money, and each agent fulfilled their two years’ agreement.

C. J. H.

At a time when cogeneration, smart grids, and decentralized energy resources are creating challenges around the fringe of standard regulated retail power service, it is interesting to see how the battled played out a century ago, when state regulation of monopoly regulated utilities was new and competition between central station power and the isolated plant was ongoing.

The Isolated Plant magazine has been digitized by Google Books.  See also the related post of a week ago, “The central station and the isolated plant.”

Michael Giberson

News headlines say, “Orlando wants to prevent gas price gouging,” though the practice Orlando politicians want to stop isn’t price gouging, per se. Rather, the target of the proposal is gasoline retailers near Orlando International Airport who charge substantially higher gasoline prices than neighboring stations. The proposal would require gasoline stations near the airport to post prices in a standardized manner.

Normally, competition between gasoline retailers keeps prices from getting too far apart in a region because at least some customers engage in comparison shopping.  Not all customers will comparison shop, and not even all price-aware customers will switch brands or delay refueling for a few pennies a gallon, so retail gasoline markets usually sport a range of prices.

But most of the time the difference between high and low is on the order of 15 or 20 cents a gallon.  A station near the Orlando airport has had gasolines prices that almost doubled the prices of other gasoline retailers in Orlando (for example, as noted here before, prices at $4.99 a gallon with competitors asking $2.59 to $2.75 a gallon).

It is an interesting little business niche.  Likely most of the sales go to tourists returning a rental car to the airport before hopping a flight home.  Likely the tourists are in a rush, they want to refuel near the airport to avoid paying a refueling charge, and they don’t have a good idea on where to buy cheap fuel around the airport. The price isn’t posted on a roadside sign, but the tourist likely assumes, based on general market experience, that the price isn’t too far out of line with neighboring stations.  Many start pumping the gas without checking the price on the pump – a few gag at the price but pump anyway – and a very few get back into the car and go in search of cheaper fuel.

The principled libertarian in me objects to imposing the price posting requirement as an infringement on the station owners’ freedom to operate his business the way he sees fit.  The consequentialist in me, though, finds it hard to oppose the proposal.  It seems a relatively targeted proposal to help consumers avoid paying the high prices that otherwise flourish in this little niche.

Maybe I should worry not so much about this narrowly targeted proposal itself, this minimalist nudge, but rather I should worry about a government that wants to expand its authority over voluntary deals between retailer and consumer.  Is this the sort of nudge that eventually shoves society onto a slipperly slope down the road to serfdom?

The principled libertarian in me objects, but the overwhelming majority of the voices in my head say the benefits of this proposal will exceed the costs: targeted in scope and aimed at helping the consumer make an informed choice. Why not?

Michael Giberson

Even before the current oil spill into the Gulf of Mexico it was well understood that drilling offshore sometimes results in spills.  The current oil spill in the news has brought the idea of spills to the attention of many, many more people, people who don’t usually think too much about these things.  But it isn’t obvious to me that the spill should cause us to revise our estimates of the likelihood of spills, or otherwise alter any of the factors that go into well reasoned policy analysis.  And if all of the inputs going into a well-reasoned policy analysis stay the same, then the policy recommendation should stay the same too.

If you now favor changes in regulations to reduce the likelihood of future oil spills, you should identify the new policy-relevant information upon which you base your call for changes.  Or, in other words, you should specify what was wrong with your understanding of offshore oil development as of about two months ago, and then explain how correcting that mistake leads you to favor more restrictive regulations.

It is possible, too, that correcting mistakes in your earlier thinking could lead you to favor less-restrictive regulations.  After all, there is no reason to believe that all errors in earlier thinking were biased in the same direction.  For example, learning about advances in movie-star funded clean-up technologies might lead you to reduce your estimate of the expected costs of spills.

By the way, with Canadian tar sands soon to become the largest single source for U.S. oil imports, any advocates of regulatory changes that diminish oil production from offshore U.S. sources on environmental grounds should  include in their analysis the environmental effects of marginal increases in tar sands output and other oil sources.  (Or did your policy analysis assume that diminished offshore production would be compensated for by people driving less and riding sustainably-fueled robot unicorns more?)

SEE ALSO: Robin Hanson on regulation ratchets for related.

Michael Giberson

Texas did it again, it achieved it’s target for new renewable power generation capacity years ahead of schedule. And so, of course, as it becomes increasingly obvious that the Texas Renewable Portfolio Standard (RPS) is essentially irrelevant to growth in wind power, the Texas RPS is increasingly held up as a success and model for other states and the federal government.

From Brighterenergy.org:

The State of Texas exceeded its 2025 renewable energy target 15 years early last year.

The Electric Reliability Council of Texas (ERCOT) said on Friday that there was a record increase in voluntary participation in the state’s renewable energy certificate program in 2009.

Nearly 15 million renewable energy credits [RECs] were retired last year, with just 6.79 million needed by retail electricity providers to satisfy the state’s renewable portfolio standard for the year.

A further 8.14 million RECs were voluntarily retired, surpassing 2008’s record of 6.77 million.

The figures came as ERCOT submitted its annual report on the scheme to the Texas Public Utility Commission.

With more than 10,000 megawatts of renewable energy capacity on the Texas grid – mostly wind power – the state has reached its 2025 target 15 years early, and has doubled the target set for 2015.

The original mandate for 2009 was just 2,000MW, which was achieved three years early.

“Successful”

ERCOT interim CEO Trip Doggett said: “The Texas program was the first of its kind in the nation when it began in 2001, and it is now recognized as one of the most effective and successful in the nation.

“It’s also one of the biggest influences on the rapid growth of wind energy in Texas,” added Mr Doggett.

Other than the popular but faulty post hoc ergo propter hoc logic, what is the evidence?

Sort of like the 45 mph minimum speed limits on some Texas highways, the constraints are so far from binding that it is hard to see how they are relevant.

I think a better explanation of the growth of wind power in Texas (and about 95% of the Texas REC-qualifying renewable power capacity is wind power) is the combination of federal Production Tax Credit subsidies + reasonably good quality wind resources near transmission lines.  The CREZ transmission expansion plan is likely the next most important factor.  REC monies along with other state and local tax exemptions are far smaller considerations, perhaps tipping the balance in favor of development for a few projects.

What is my evidence? Oh, actually, what I have is more of an inference and interpretation drawn from a number of mostly anecdotal sources.  Nothing really reliable to show.  But given the lobbying for a national RPS, it makes a difference whether or not the Texas law is the model it is held out to be.

I’m sure someone has put together the story somewhere.  Anyone know of anything?

Michael Giberson

At the Freakonomics blog, James McWilliams offers a review of sorts of Robert Bryce’s new book Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.  McWilliams reports that the book is “a sustained attack on our irrational infatuation with wind and solar power.” Part of Bryce’s “sustained attack” is a chapter on Denmark and wind energy, and McWilliams’s piece mostly directs itself to explaining and commenting on the Denmark chapter.

Unfortunately, McWilliams’s review only convinces me I shouldn’t rely on his opinions on energy topics.

I end up not believing the review mostly because the explanations of Denmark’s situation feel incomplete and a bit ad hoc.  But rather than ask you to trust my feelings, let’s look at a point McWilliams made where fact checking is easy. Here is McWilliams:

It should be noted, in all fairness to Denmark, that its citizens have done something the U.S. seems unwilling to do: they’ve kept energy demand flat. Today, Denmark uses the same amount of per capita energy as it did in 1981. Remarkable.

Do you interpret these two sentences as McWilliams claiming that Danish consumers have kept per capita energy use level since 1981 and U.S. consumers have increased per capita energy use?

A few moments on the internet turns up data from the U.S. Energy Information Administration on per capita energy use: per capita energy use was 332 million BTU in the United States in 1981, 327 million BTU in 2008, and 310 million BTU in 2009.  These numbers are from the 2008 Annual Energy Review and the 2010 Annual Energy Outlook.  A EIA spreadsheet from the 2006 International Energy Annual [XLS] has data on many countries, including the U.S. and Denmark, over the period 1980-2006. In general both countries have seen ups and downs in per capita energy use from 1980 to 2006, with the ups tending to reflect periods of low energy prices or stronger economic growth and the downs tending to reflect periods of higher energy prices or weaker energy growth. Unremarkable.

Since I can’t rely on McWilliams’s review, I don’t know yet whether I’m interested or not in Bryce’s book.  However, Bryce’s “Five myths about green energy,” an op-ed appearing in the Washington Post just before the his book was published, seems similarly incomplete and ad hoc in its analysis. (How critical for energy policy analysis is a calculation of watts of energy output per square meter of land devoted to energy production? It strikes me as reaching for a techno-scientific sounding statistic to dress up the author’s dismissal of wind power which is itself based on other grounds.) But op-eds are brief and by nature driven to anecdote rather than careful explication of data; maybe the book has more substance.

(A tip of the hat with link to John Whitehead at Environmental Economics for drawing my attention to the McWilliams review at Freakonomics.)

Michael Giberson

And while linking to the Master Resource blog (as I did in the prior post), check out Guillermo Yeatts’s excellent article posted this morning, “Subsoil Oil and Gas Privatization: Private Wealth for the Common Good.”

Privatization, or at least partial privatization, has been tried and has failed in several Latin American countries, as Yeatts notes.  His discussion of those failures, as well as the way that government-control of mineral wealth is used to sustain political coalitions – reward cronies, buy off potential opponents – reminded me of the North, Wallis, and Weingast book, Violence and Social Order.  I think the North, Wallis and Weingast book, too, provides the framework for identifying what more, in addition to privatization of subsurface resources, is necessary for sustaining growth and development in Latin American countries.

Michael Giberson

In the course of making a point about current political actions pursued by some in the electric power industry, Rob Bradley points to the views of industry pioneer Samuel Insull:

Where did the drive for automatic pass-through of  “reasonable” costs begin? For the electric industry, it began in Chicago in June 1898 in a then-controversial speech by Samuel Insull, the head of Chicago Edison Company and the president of the major trade association of the industry, the National Electric Light Association.

Insull did not want regulation for its own sake. He believed that franchise protection was worth giving authorities control over rates. Insull believed that this quid-pro-quo — exclusive franchises for cost-based rate maximums — would lower interest costs (a huge cost item for public utilities) and thus lower rates. Insull also saw statewide public utility regulation as a better alternative to local politics and to municipalization.

Insull’s political program was ahead of its time. Most of his fellow electric utility heads were opposed when Insull first gave his speech. But he would win them over in the next years, and state-after-state would implement formal cost-of-service regulation for electricity.

Bradley then publishes in full Insull’s 1898 speech to the National Electric Light Association (the organization which became today’s Edison Electric Institute).

Check out Bradley’s post to see the speech, most of which is given to contrasting private and public management of resources and well worth reading.  For example, Insull asks, “Is the administration of municipal affairs in the various cities throughout this country so economical, as compared with the management of private industries, and the class of service rendered so efficient, as to justify the increasing of the burdens already imposed upon municipal government?”

It is a perhaps understandable failure of Insull’s analysis that he asserts the superior capabilities of private management in a competitive market setting to advocate private management in a state-regulated monopoly setting. Insull was, after all, able to expand his business and reduce cost and reduce prices pretty consistently throughout his career as a utility industry tycoon – both as a competitor and as a monopolist.

Michael Giberson

Phil Carson reports a few parting thoughts from last week’s IEEE Power and Energy Society’s Transmission and Distribution Conference in New Orleans.  One of those thoughts centered on the last-mile link up of communications and energy systems:

Marty Travers, president for telecommunications at Black & Veatch, reminded me that the “telecom” piece at electric utilities is really a toolbox full of options, from fiber optic cable to public wireless networks, from land mobile radio to microwave. These options are being combined in a mix-and-match strategy to meet the unique needs of various utilities in disparate geographies.

As “last mile” mesh networks employ machine-to-machine (M2M) modules, Travers sees “smart farming” as a potential market, where water management meets electricity consumption, literally out in the field.

The communications network overlay on the grid has been made possible, in part, by the simple fact that costs have been driven down, Travers told me. But the United States market remains a state-by-state proposition.

“Our theory is that [smart grid work] is driven by regulatory input from the state public utility commissions, so it’s still a state-by-state patchwork,” Travers said.

By the time I made it to New Orleans last week all of the IEEE PES 2010 fun was over, so there was nothing left to do but get rained on (Friday), trudge through the mud (Saturday), and enjoy the glorious sunshine (Sunday) of the first weekend of the New Orleans Jazz and Heritage Festival. (A few more photos here.)

Michael Giberson

In January we noted the Federal Energy Regulatory Commission’s questions concerning the integration of “variable energy resources” to the electric power grid.  FERC asked for comments; over 120 comments have been submitted in reply (so far).  Peter Behr, of ClimateWire, characterizes some of the positions submitted in the FERC inquiry in an article available at NYTimes.com.  Behr said more than 2,800 pages worth of comments have been sent to FERC on the issue.

The fundamental issue is whether or not current industry practices unnecessarily discriminate against variable power sources such as wind and solar.  Behr said, “This debate opens another front in the continuing, behind-the-scenes struggle between the renewable power sector and some of the electricity industry’s old guard, whose historic ways of doing business are now under challenge.”

Michael Giberson

Kate MacKenzie at the FT Energy Source blog asks, “Are policymakers, economists and peak oilists starting to speak the same language?“

A rash of papers, comments and interviews have made us think this recently. It’s not as simple as ‘policymakers are waking up to peak oil’, but that all those groups — and indeed, industry — are increasingly talking about the same issues looming in fossil fuel production, even if they’re using different terminology.

Later:

We’d venture that several things have kept talk of peak oil apart from the mainstream: a disagreement over the effect of price on demand, and a perception that many interested in peak oil simply predict overly dramatic, armageddon-style trajectories that sober-minded policymakers see as overblown.

And she concludes:

The debate is beginning to converge around a few central issues: how will economies that developed on cheap, abundant oil deal cope with the transition to expensive, scarcer oil? What will it mean for the emerging economies hoping to emulate those growth patterns? And finally, how will this play out in terms of pollution and climate change?

MacKenzie’s link included above is to James Hamilton’s excellent 2005 post, “How to talk to an economist about peak oil.” Comments at Hamilton’s Econobrowser and responses at peak oil blog The Oil Drum revealed that economists and peak oilers were not communicating well in 2005. I’m not as convinced as MacKenzie seems to be that we’re doing much better in 2010.

Personally, I like the undulating oil plateau.

Michael Giberson

According to Accenture, 46 percent of consumers surveyed said they didn’t want smart grid-based energy management systems if it leads to higher electricity bills.  My guess is that the other 54 percent of consumers didn’t understand the question.  The summary distributed by Accenture contains several other bits of should-be-obvious information – consumers are concerned about data privacy, consumers want to be compensated if utilities can remotely turn off appliances, consumers want to be able to locally reverse remote utility cut-off instructions – but even as many of the results seem obvious, it still adds up to some more-than-obvious insight into what consumers want. The FT Energy Source blog also comments on the report.

At the Searching for Insight blog, Gary Hunt offers a consumer’s perspective on smart grid developments informed by years working in energy and information technology businesses.  See his:

• Life with my PG&E Smart Meter
• Threats to the Utility Business Model Future
• Smart Grid Disruption, Taxes and Turmoil

Michael Giberson

In the WSJ, Numbers Guy columnist Carl Bialik explains, “What We Don’t Know About the Economy,” a column about the making of economics statistics and the limits of the process.

Of this column John Whitehead commented, “This is required reading for all those who think that economists should have a crystal ball that allows predictions of the macroeconomic future that are accurate enough to avoid ‘great’ (or even good) recessions. We aren’t even sure what has happened in the past until significant effort has been focused on the historical data.”

Michael Giberson

Obviously the electric utility industry is very much in the experiment and learning phase (also known as “trial and error”) of the smart grid.  Two examples are provided by PG&E in California and Xcel in Colorado.  It is tempting to rush to judgment on the impossibility of an efficient, well-run, customer-centric smart grid project implemented by rate-regulated, vertically-integrated electric utilities.  I’ll resist that temptation for now, but in the meantime consumers ought to ensure that whatever their local regulated monopoly is doing for (to?) them on the smart grid front doesn’t impede their ability to benefit from the rapidly coming consumer-centric smart grid future.

To that end, consider Toby Considine’s remarks in “Punch and Judy and Energy Usage“:

The real contest is over control of the customer interface, and thereby of the customer. Today’s Google Energy and Microsoft Hohm pose no threats to the control of the customer by the utility. The utilities still can gate access to the back-end energy markets. Control of energy information prevents both intermediation and disintermediation in the energy market. Utilities also are desperate to justify their AMI investments at a time when many are calling for moratoriums and delays in deployment; AMI is part of a seamless model that includes control of the customer’s home as well as of access to information.

[…] The challenge for today is to ensure both backward compatibility with OpenADE and today’s infrastructure and forward compatibility with the unimagined future. That future will support disruptive business models as well as technologies. And that’s why the fights are so fierce over something that appears so simple.

A lot is skipped in the “[…]” so read the whole thing if you want to know more.  An important issue for consumers is that regulated utilities and their regulators do not do “disruptive business models” very well.

Michael Giberson

Bloomberg reports on fraud via Spain’s subsidized feed in tariff rate for solar power:

Preliminary evidence shows some solar stations may have run diesel-burning generators and sold the output as solar power, which earns several times more than electricity from fossil fuels, El Mundo said, citing unidentified people from the energy industry. The power grid received 4,500 megawatt-hours of power from midnight to 7 a.m. in the months audited, El Mundo said.

HT Arizona Economics and Coyote Blog.

Michael Giberson

As just noted, the CFTC has approved Media Derivatives request to establish Trend Exchange, a box office futures exchange.  At Midas Oracle, Chris Masse reacts to the news by drawing attention to remarks by CFTC commissioners suggesting that it may be difficult for Trend Exchange to gain the subsequent CFTC approvals needed for it to actually offer box office futures contracts.

From a Bloomberg story on the exchange approval:

The CFTC must still approve the type of contracts to be dealt before Trend Exchange can begin. The company has said its first product will center on opening-weekend box office.

Product approval is “a very different question” from exchange approval and raises “significant concerns,” Chilton said in an e-mailed statement. He said he had “reluctantly” concurred in today’s vote.

“We have serious concerns regarding the trading of media contracts and we support a very thorough review of all of these first-of-a-kind products,” CFTC Commissioner Scott O’Malia said in an e-mailed statement.

U.S. Senator Blanche Lincoln, an Arkansas Democrat, today added language banning trade in movie futures to a broader derivatives bill she is writing. Lincoln is chairman of the Agriculture Committee that oversees the commodity commission.

More information from the CFTC here, including links to the order and related.

While the CFTC’s inquiry regarding event contracts seems relevant here, I see no reference to that proceeding from 2008 in the CFTC order or concurring statements issued by commissioners.  Perhaps, too, that is a bad sign.

Michael Giberson

Today the CFTC approved Media Derivatives Inc.’s request to create a futures exchange based on box office receipts.  The exchange “is primarily focused on the development of a variety of products to benefit the entertainment industry with one if its initially proposed products being designed to help mitigate risk and enhance the successful financing of motion pictures through trading of opening weekend domestic box office receipts.”

See also reports at Wall Street Journal and Los Angeles Times.

Media Derivatives’s Trend Exchange market is one of two similar proposals that have been submitted to the CFTC for approval.  The other proposal has been submitted by Cantor Fitzgerald, a Wall Street investment and brokerage company, which acquired play-money site Hollywood Stock Exchange a few years ago.

Michael Giberson

Yesterday’s announcement by General Compression, Inc. and ConocoPhillips that the companies would cooperate in developing compressed air energy storage systems (CAES) in Texas is yet another indication that grid-connected energy storage is beginning to take-off.

For more background on CAES see the recent article by Alexis Madrigal in WIRED, “Bottled wind could be as constant as coal.” From WIRED:

The nation’s largest energy storage option right now is pumped hydroelectricity. When excess electricity is present in a system, it can be used to pump water up to a reservoir. Then, when that power is needed, the water is sent through a turbine to generate electricity. The U.S. electric system has 2.5 gigawatts of pumped hydro storage capacity, but most of the good, cheap sites are already occupied, and creating new reservoirs is not environmentally benign.

While wind farmers say storage isn’t technically necessary until the amount of wind power on the grid exceeds 20 or 30 percent of the electrical load, private analysts, the Electric Power Research Institute, and the Department of Energy have identified grid-scale storage as a key need for the rapidly diversifying electricity system.

And going forward, compressed-air energy storage looks like the cheapest option available. Independent analysts have come to similar conclusions.

No specific projects or development dates were included in the General Compression/ConocoPhillips announcement.

On March 31 of this year Electric Transmission Texas, LLC, energized a 4-MW NaS battery near Presidio, Texas. While a few other such systems are in use – AEP first installed such a system in Ohio in 2002 – the ETT project is the largest grid-connected battery system in the United States.  National Geographic Daily News provides more details on the ETT battery project, “Texas pioneers energy storage in giant battery.”  ETT is owned in part by AEP.

I believe I’ve mentioned before in this space that cheap energy storage will revolutionize the electric power business.  We are not quite to the revolutionary stage yet, but these are signals that the day is coming nearer.

Michael Giberson

Tyler Cowen links to a story in the New York Times detailing the opposition of the Motion Picture Association of America to two proposed markets for forecasting movie ticket sales.  Of the objections noted in the article, Cowen thinks the key issue for Hollywood is the possibility of a poor market showing making it difficult for a film to get into and stay in theaters.  The article also mentions possible market manipulation and insider trading issues as problems.

Robin Hanson addressed the manipulation arguments a few days ago, “Movie Manipulation“:

My research suggests that speculative markets are remarkably robust to manipulation attempts; the more folks try to manipulate, the more accurate market estimates get on average!  But with limited funding, I’ve only done a limited number of experiments; I can’t prove no one will ever use a speculative market to purposely influence movie perceptions.  And alas this mere possibility of manipulation may seem intolerable.

Part of what the movie industry fears is further loss of influence over pre-release product positioning, but this is clearly an area where “information wants to be free” will overcome the industry’s desire to control the pre-release buzz.

Rumors and reports now spread more efficiently, thanks in part to the internet, and once a film is out the internet gives us “word of mouth on steriods.”  Fast Company reports: ”Two researchers at HP Labs, Sitaram Asur and Bernardo Huberman, have discovered that you can actually use Twitter mentions to predict how well a movie will do in it’s first couple weekends of release.”

The Fast Company article notes that Twitter analysis method actually outpredicts the (play money) movie prediction market Hollywood Stock Exchange.  At Midas Oracle, Chris Masse countered, “You could turn Bernardo Huberman’s study around and say that the HSX traders are not yet using Twitter as a source to the full extent possible.”  Now the Twitter angle is public information, that omission will be overcome. (And how soon before Hollywood studios begin mass-Twitter marketing campaigns?)

See also: Deadline, “MPAA Organizes Entertainment Community Opposition To Movie Futures Exchange.”