“The annual average cost between 2003 and Dec 31 2005 of the total retail price (commercial and residential) per Kilowatthour of electricity in the United States will rise as calculated by the U.S. Departmentof Energy in chained (inflation-adjusted) U.S. dollars.” Detailed Terms »

STAKES $400

will go to Planned Parenthood Int'l if Kurtz wins,
or Center for Immigration Studies if Burns wins.

Kurtz's Argument

Coal and natural gas are primary fuels used in electrical power generation in the US. In my view, natural gas production will not increase to meet expected demand; and coal is currently at depressed
prices. Economic recovery should increase power demand, while efficiency increases will likely lag. Infrastructure changes to augment conversion to cleaner coal or new nuclear plants will take far longer than 2 years.

Base line data and final data will be from the Energy Information Administration of the U.S. Department of Energy as at Table 8.6 at
http://www.eia.doe.gov/emeu/aer/txt/ptb0806.html
The opposition will be betting that energy prices stay the same or decline during the same period of time.

Burns's Argument

This bet is really about whether you think government data is any good and whether you think trends tend to continue in the direction they have been going.

The price of electricity, adjusted to 1992 terms, has been going down fairly consistently for more than 100 years. A residential customer in 1892 paid more than 4 dollars for each kilowatt-hour, a price that explains why electricity was viewed as a luxury item at the time. By 1907, the price had dropped by more than half, to $1.56 per kWh. As utilities pursued incremental technological advances, prices fell to 55 cents in 1927 and 19 cents in 1947. Progress continued in the post World-War II period, such that the price of electricity dropped to 13 cents per kWh in 1953 and 9 cents in 1967. Pricing continued to decline to 7.3 cents by 2001.

The Energy Information Administration of the U.S. Department of Energy notes in "Annual Energy Outlook 2003" (http://www.eia.doe.gov/oiaf/aeo/index.html#prices) that "Average electricity prices are projected to decline from 7.3 cents per kilowatthour in 2001 to a low of 6.3 cents (2001 dollars) by 2007 as a result of cost reductions in an increasingly competitive market where excess generating capacity has resulted from the recent boom in construction and the continued decline in coal prices. Electricity industry restructuring contributes to declining projected prices through reductions in operating and maintenance costs, administrative costs, and other miscellaneous costs."

Will the DoE be right? I'm betting on it. In fact, the total decline in energy costs will be marginal as there is a point where price simply cannot go any lower. We are not quite there yet, but we are close. The DoE believes energy costs will decline in the short- to mid-term (see http://www.eia.doe.gov/oiaf/aeo/aeotab_3.htm) but after 2008 will start to slowly climb.