Southern States Ship Power North
July 8, 1999
LevelOMeter 6 of 16
Relevant Review:
   Demand & Supply
Market Adjustment
Market Adjustment

   Hot days always cause high demand for electricity as air conditioners run non-stop. Earlier this week things got so hot that, in many areas, utilities weren't able to keep up with the demand from their customers. The electric grid that covers the east coast from Florida to Maine enables the selling of electricity from one region to another within the grid. Because hot days are so common in the south, most utility companies in Southern states had enough capacity to supply their customers on Tuesday, and in some cases had electricity to spare. Some utility companies in the Northeast were unable to generate enough power. In certain areas, power went out completely as utilities simply couldn't cope; however, in other areas, utilities in the North purchased electricity from Southern utilities.

   The total amount of electricity that can be generated is almost perfectly inelastic in the short run. As any good economics student would predict, rising demand coupled with inelastic supply leads to a very rapid increase in price. The wholesale price of electricity this time of year is usually around US$40 per megawatt hour, but on Tuesday the wholesale price rose above US$900 per megawatt hour in some parts of the Northeast.

   Certain utility companies have come under harsh criticism for not building the capacity necessary for hot days. Portions of Manhattan went without electricity for over 18 hours, causing city officials to consider legal action against Con Ed. Until Northern states start experiencing many hot days each summer, it's a good guess that utility companies will try and get by without building additional costly generating facilities, and instead try to rely on the wholesale electricity market to get them through hot summer days. By the same token, unless the South starts getting a lot more snow, Southern cities probably won't buy snow removal equipment and will, instead, shut down at the first snowflake.
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