Coping with Spikes in Gas Prices
WASHINGTON D.C., 17 April 2012 – Today, the American Security Project released a perspectives paper about the nation's soaring gasoline prices. The paper underscored that the price of gas is intimately interconnected with crude oil prices, which are set by global markets. America cannot look for short-term solutions to what is a clear long-term problem.
The paper cautioned against hasty responses like banning speculation or releasing oil from the strategic petroleum reserves may give a short term reduction in prices at the pump, they will not solve the problem. America is critically dependent upon petroleum products for its economic well-being and the only solutions are long-term methods to reduce the amount of oil we use across the country.
CEO of the American Security Project said:
“America's dependence on oil, regardless of whether it is produced here at home or imported from abroad, is a serious threat to our national security. The recent spike in oil prices is a symptom of a deeper sickness. This is a long term problem that requires long term solutions.”
Andrew Holland, ASP's Senior Fellow for Energy and Climate Policy said:
“So long as we depend upon oil for virtually all our transportation needs, we will remain vulnerable to extreme spikes in oil prices, like we're seeing now. The price of oil is not in America's control, regardless of how much we drill here.”
He went on to say: “The only solution is to use less oil. Luckily, America can do this; we're developing and commercializing the technology now that can solve this problem. Next generation biofuels, new electric vehicles, and increased fuel efficiency are succeeding in reducing America's dependence on oil. We need to sustain and accelerate these trends so that the next global price spike goes unnoticed."
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An excerpt from the paper is provided below:
Can We Reduce Gasoline Prices?
Although this paper has proved that increased domestic drilling is not a way to reduce oil prices, either in the short or long term, there are ways to reduce oil prices, and there are ways to reduce the impact that high oil prices have on economic growth. None of them, however, are cost-free.
1. The Strategic Petroleum Reserve is the only “spare capacity” that the U.S. government controls. Re- leasing large amounts of oil from the SPR, especially in conjunction with allies around the world, would reduce prices in the short term. Unfortunately, draining the reserve in the face of high prices, not an actual disruption in supply, would undermine its ability to bridge actual supply gaps in the future.
2. A Gasoline tax Holiday could reduce gas prices by 18.5 cents per gallon, but that reduction would be unlikely to last, and it would have the effect of undermining the Highway Trust Fund, from which highway improvements are funded, and would increase the U.S. Government’s already large budget deficit.
3. Restricting Exports of Refined Fuel Products could reduce gas prices for a short time, as the U.S. has become a major exporter of refined fuels like gasoline and diesel. However, altering the free market in such a way would only cause refiners to reduce production of fuel.
4. Limiting Financial Speculation in the markets could remove the ability of traders to drive prices up – but it also removes the ability of short-selling traders to drive prices back down. Moreover, in a global oil market, limits on speculation in the U.S. would only drive traders to foreign centers like London.
5. Diplomatic measures to Reduce War Fears would drive down the global price of oil dramatically, if true. A large amount of speculation in the market right now is in regards to the fear that a war with Iran will cause a disruption in markets. If the threat of war were reduced, that fear would ebb, and prices would go down.
Can We Reduce the Harm of High Oil Prices?
While there are few ways to reduce the price of oil that have no side-effects, there are ways to reduce the harm that high oil prices cause. Unfortunately, these are mostly medium to long-term solutions.
1. Increased Auto Fuel Economy – one of the most effective ways to reduce the harm that high oil prices cause is for individuals to buy more fuel efficient cars. The recent deal between the Automakers, the Unions, and the Government to double fuel economy standards by 2025 mean that the American economy is less harmed by price spikes.
2. Changing to Alternative Fuels – though not a short term measure, building the infrastructure and technology to have biofuels or other alternative fuels will enable consumers to switch fuels when the price goes up.
3. Redesigning Infrastructure – the U.S. is particularly harmed by oil price spikes because we have be- come so dependent upon cars for daily transportation. Reduced commutes and alternatives to cars, like mass transit, would give consumers the option of not using gasoline when the price spikes.
Due to the nature of the global market and supply of oil, the only way to reduce the harm of gas price increases is to use less of it.
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.