Harvard professor Bill Hogan claims FERC is wrong to find market manipulation where traders simply make profits on market defects known to all.
Snake Oil & Smart Meters
Customers deserve the straight truth about electricity costs.
Recently I attended a birthday party at a neighbor’s house. As the birthday girl cut the cake, her father showed me his latest acquisition—a handsome electric space heater for which he’d paid $400.
My neighbor is notoriously stingy. But he proudly explained that his investment was a wise one for a variety of reasons—most notably because this heater performed with an efficiency of 200 percent.
I tried to tell my friend—who is a mechanic by trade and an intelligent person by any standard measure—that the first law of thermodynamics prevents efficiencies greater than 100 percent. Moreover, I told him that all electric heaters are exactly 100 percent efficient, no more and no less. The only energy wasted is what escapes the house—for example, through the large picture windows or stone fireplace chimney.
Slightly chastened, my friend acknowledged the heater might not be quite 200 percent efficient, as the salesman had claimed. But he insisted this heater’s patented design was fundamentally more efficient than others on the market, featuring a radiant element that heats a copper plate. Furthermore, he said energy companies had tried to keep this “new invention” off the market, to protect their own sales of fuel and electricity.
At this point I gave up trying to convince my friend. I didn’t want to spoil a fine party with an argument.
Selling Snake Oil
The utility industry faces the difficult task of trying to educate the general public about the realities of delivering electricity service in the 21st century. California’s recent experience trying to put smart thermostats into the state’s building code provides a cautionary example (see “ Selling the Smart Grid ”). And my friend’s space heater provides another, albeit a very different one.
In California, air conditioning drives home energy bills, but where I live, in Minnesota, it’s heating. Fuel oil and natural gas are the two most common home heating fuels, and prices have skyrocketed here just as they have everywhere else. My friend bought his electric heater because his home-heating costs have doubled, and he’s trying to find a cheaper alternative.
I was curious about how the salesman convinced my friend this particular alternative would deliver 200 percent efficiency. I looked at the marketing materials, and they didn’t actually claim 200 percent efficiency (which clearly would be false advertising). Instead, they offered “up to 50 percent savings,” compared to propane heat.
This made more sense. But even at current propane prices, I found it difficult to believe. So I read further, and discovered the heater’s marketing geniuses were careful to avoid claiming 50 percent savings on a Btu-for-Btu basis. Instead, their brochure argued the space heater could be moved around the house, and therefore would heat only the spaces that are occupied at a given time—rather than “wasting” energy on central heat. Further, it said the radiant design would focus most of its heat on the objects in the room—including the human