Monday, March 17, 2008

Solar Powered Convention Center

Let's run some numbers. The basic plan.

The simple idea that gave us stickers and budget floor tiles will help power the Phoenix Convention Center.

In early April, crews will install peel-and-stick solar panels on roughly a third of the West Building's 2-acre roof.

Capital cost

The $850,000 project will be the biggest solar-panel installation on a downtown building, and it's the first time this type of solar-energy technology has been used by Phoenix, APS officials say.

Cost savings

In general, conventional electricity usually costs about 8 to 10 cents per kilowatt-hour, and electricity generated by solar power costs about 20 to 30 cents per kilowatt-hour, said Arizona State University solar-power expert Govindasamy "Mani" Tamizh-Mani.

When crews roll out 732 solar panels on the roof, it should provide 150,000 kilowatt-hours of electricity annually, said Mark Holohan, president of Code Electric, the company doing the installation.

Payback - At 10 cents a kwhr, the power produced is worth $15,000 a year. That's a 1.7% return on an $850,000 investment. That also assumes that there aren't any maintenance costs and that the city doesn't have to borrow the money. As soon as you do any maintenance or borrow the capital, the return goes negative.

Solar power isn't going anywhere if it can't even break even.


Sunday, March 16, 2008

A less than Stimulating Stimulus

From the Phoenix Business Journal, they are running a reader poll on what people intend to do with their stimulus rebate.

From the web site:

Rebate spending

How will you spend your stimulus rebate? Please add comments below.

Buy luxuries

Buy necessities

Save it

Pay down debt


Check out reader comments
This poll is not a scientific sampling, but offers a quick view of what readers are thinking

Note that 60% say that they will basically save it. No this isn't a reliable sample, but it illustrates a point economists have been making about one time tax rebates. To send us the rebate, the government is going to borrow the money in the financial market. In turn, 60% of us will put it right back into the financial market by either paying down debt (personal borrowing from the financial market) or saving it. If the 60% number is anywhere near correct, the majority of the stimulus will merely change the ownership of the debt rather than increase spending (and stimulate the economy.) In short, the stimulative effect of this kind of rebate is minimal.

Not that I'm going to turn down the money...


Saturday, March 15, 2008

Aligning Revenue with Cost

SRP recently announced that they would increase electricity rates during the two hottest months of the summer in order to recapture the higher cost of providing service during those months.

SRP managers originally proposed the 9.3 percent July/August increase because they said it would reflect the higher cost of providing electricity during the two hottest months, when more expensive generators have to be turned on to meet the higher demand.

That plan, which is still preferred by SRP's management, was defended as being the soundest business decision.

"There was public comment about the impact on the peak summer months but also ... they agreed with the philosophy of aligning revenue with the cost of service," said SRP spokesman Scott Harelson.

Of course there has been some objections, and hence some alternative proposals.

Two alternatives announced Thursday would spread the rate increase over six warm-weather months rather than concentrating all of it during July and August - the two hottest months when demand for electricity is greatest.

The board, which requested the alternatives, is scheduled to consider the proposals on Monday. Any new rate plan approved by the board would go into effect May 1.

The new proposals, however, did not win the support AARP Arizona, which opposed the original plan.

"The alternatives are not significantly better and don't address our major concerns," said Janee Briesemeister, senior legislative representative for AARP Arizona.

"There are serious health consequences for people who can't afford adequate cooling in the summertime. We believe SRP can meet its need by spreading the increase throughout the year."

We can use basic economic theory to predict what would happen in either scenario. If the rate increase is concentrated during the two highest cost months, customers will have an increased incentive to use less power during the time period when it is most expensive. If the rate increase is spread throughout the year, customers will not have as much incentive to reduce usage during the high cost months. Hence, spreading the rate increase will result in higher costs (and usage) and overall higher bills. Since SRP is a cooperative, their customers will pay the entire bill one way or the other.


Green Airport Shuttles

Differentiating your service is part of monopolistic competition. In this case, high end taxi service for greenies.

ExecuCar of Phoenix, the luxury division of Scottsdale-based Super Shuttle International, is going green.

The company purchased three hybrid Chevy Tahoe’s to lug environmentally sensitive passengers and their bags to and from the airport.

Now you can fly in on your private jet but feel good about the ride to the hotel.

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Sunday, March 09, 2008

Exporting Power or Not

More fights over sending electric power to California. I commented on this earlier.

More Arizona electricity could be headed to Southern California after the U.S. Department of Energy denied requests Thursday to reconsider its designation of a power transmission corridor between Arizona and California...

Proponents of the designation said additional high voltage power lines are needed in the corridors to supply more electricity to areas of high demand in Southern California and the East Coast...

Bill Mundell, another member of the commission said shipping more Arizona-produced power to California will increase electricity prices for Arizonans, consume Arizona water and other resources for the benefit of California and have an impact on the reliability of electricity to Arizona.

Michael Giberson over at Knowledge Problem points out the conflicting goals of the Governor and the Corporation Commission.

I began to wonder: If they built all that solar power, became a solar Persian Gulf and all that, won't they have to build some power lines into other states to sell that power.

Isn't Governor Napolitano's grand solar dream more or less a goal of becoming what one Arizona Corporation Commissioner derisively referred to as "an energy farm for California" and other states?

It's going to be interesting. So, should Arizona produce and export electricity and reap the benefits of economic growth, or should we restrict exports and provide consumers with lower electric rates.

Also, lest we forget that California is Arizona's "gasoline farm"...

A train derailment in Southern California prompted a three-day shutdown this week of Kinder Morgan's western pipeline that delivers gasoline from Los Angeles-area refineries to metro Phoenix.

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Predatory Pricing - for years

Predatory pricing is generally defined as lowering your price, often below cost, in order to drive a competitor out of business, so that you can then monopolize the market and reap monopoly profits. The problem economists have with the premise is that we haven't seen the second step - raising prices and reaping a monopoly profit. None the less, selling below cost is against the law in several states, California among them.

The SF Weekly, a San Francisco sister publication of Phoenix New Times, has been ordered by a jury to pay $15.6 million for illegally slashing ad rates, apparently in an attempt to put a competitor out of business.

Apparently the illegal rates have gone on for years.

Although both papers lost money in the last decade, the Guardian says it's at a disadvantage because the SF Weekly is bankrolled by Village Voice Media's 16-paper national chain.

Cash infusions from the parent company allowed the Weekly to drop ad prices from $18 a column inch to between $10 and $15 an inch, said Guardian attorney Ralph Alldredge.

Both Village Voice Media Executive Editor Michael Lacey and Weekly Editor Tom Walsh declined to comment.

Although offering a lower price is the golden rule of good business, it can be illegal in California if a company undercuts another with the specific intention of bankrupting its rival.

Although the ad pricing may not have driven one of the papers from the market, the lawsuit might.

"It seems like given the losses that both are experiencing, maybe the San Francisco market can't support two alternative weeklies," said local media watcher Randy Shaw, who writes the online blog BeyondChron. "It's likely, after the outcome of this court case, there might only be one left standing."

A bit of advice before leaving the topic. I used to work in a marketing group for a large corporation. When you work in an oligopoly market structure, it's important to be careful what you say about the competition. You can compete aggressively, but don't ever say you want to "destroy the competition" or "drive them out of business." It tends to get the antitrust folks curious. That's one of the reasons all of our sales training materials and ads had to be vetted by legal before used them.


Wednesday, March 05, 2008

Average Fixed Cost versus Average Variable Cost

We'll be talking about this after spring break.


Saturday, March 01, 2008

Arizona - Persian Gulf of sloar energy

More running the numbers. This time on what it takes for Arizona to become the "Persian Gulf of solar energy."