Saturday, June 02, 2007

Arizona Energy Exports

The Arizona Corporation Commission voted down a proposal by Southern California Edison to run more high voltage power lines from Arizona to California. Califonia is a net electricity importer while Arizona is a net exporter. Arizona currently supplies about 30% of California's electicity imports. As always, there were arguments for and against.

Edison executives argued that would be good for Arizona because it would generate jobs and increase the state's ability to transmit energy. Other utility-related businesses spoke in favor of the plan...

"I don't want Arizona to be the energy farm for California. That's my bottom line," said Bill Mundell, commission member...

Corporation Commission staff members said Arizona taxpayers could lose up to $292 million because the plants could sell their electricity to the California markets, driving up energy costs for Arizonans.

Arizona also will need those plants as the state continues to grow at a rapid rate, said Kris Mayes, commission member.

"You (Southern California Edison) are trying to drop a giant extension cord into Arizona, the fastest-growing state in the country," she said.

A couple of points. Anytime you export something the local price goes up. In return, you increase local economic activity and grow the local economy. The jobs and economic growth are the reasons that, most of the time, governments encourage exports. In this case, the commission is more concerned about the potential price increases.

Also note something else about our energy usage.

Most energy use fits into a couple of broad categories - fixed site and transportation. Most fixed site usage in Arizona is electricity although we also use a bit of natural gas for heating. Most transportation usage is liquid - gasoline, diesel, jet fuel and whatnot. While Arizona is a net exporter of electricity, we import essentially all of our transportation fuels. About 70% of those come from California.

The commission also chided California for not building enough power plants in their own state. Note that Arizona Clean Fuels has been trying to get approval to build a refinery in Arizona for over a decade.

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Continued Wage Law Perils

They still haven't figured out how to deal with the consequences of the new minimum wage law here in Arizona. The problem first came to light back in January.

One of the Valley's largest work centers for people with disabilities is still up and running, and nearly 100 employees furloughed this year are back at work.

But the Centers for Habilitation, based in Tempe, is operating apprehensively.

If the Legislature doesn't step in before the session ends in a few weeks and create an exemption to the new state minimum wage law that allows lower wages to disabled employees, as many as 70 TCH workers could lose their jobs permanently. And in the meantime, the 40-year-old non-profit fears it could be vulnerable to lawsuits...

Raising the salaries of subminimum-wage employees to the full minimum wage would cost TCH an estimated $425,000 more annually, according to the organization, more than half of the non-profit's current payroll of $775,000...

If something isn't done this session, the majority of those 90 individuals, probably 70 of those men and women, could be put out of a work activity because we simply can't afford to subsidize at that level."

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NBA All-Star Game and Inelastic Supply

The Arizona legislature has discovered the consequences of taxing an inelastic supply.

State lawmakers hope to lure the 2009 NBA All-Star Game to Phoenix by waiving the state sales tax charged on tickets for the game and its associated attractions.

Supporters of the incentive, which would be worth $300,000 to $400,000 to the NBA and its assorted sponsors who purchase the tickets, say it could help the city land the event and the worldwide exposure and economic windfall that come with it.

But the sales-tax waiver is caught up in state budget negotiations - it's included in the House's proposal, not the Senate's - and is targeted by critics who call it a tax giveaway to big corporations...

"It seems absolutely ridiculous," Cheuvront said of the All-Star Game offer. "I don't support it. I don't think it's good public policy. The tickets sell out anyway."

Verschoor said he's "open to taking a look at it," but also called it "kind of irksome" that the sales-tax waiver would most benefit the NBA and major corporations, not fans.

The supply of seats in a stadium is perfectly inelastic. The marginal cost of providing the next seat is essentially zero right up to the capacity of the stadium. At that point, it becomes essentially infinite.

When you tax something that has a perfectly inelastic supply, the supplier pays all of the tax. Conversely, when you lower the tax, the supplier reaps all of the benefit.

The NBA would prefer to make more money, not less, so they shop around for places that allow them to do that. There are other benefits to hosting the game however.

Las Vegas hosted the All-Star Game and its four days of festivities earlier this year. Officials there say the event attracted 85,000 visitors and created nearly $91 million in local economic impact.