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Regulation, Not DeReg, Caused Blackout

BETWEEN THE POWER LINES-Who’s to blame for the Sept. 8 power outage that blacked out more than a million electricity customers in San Diego and Orange counties and parts of Arizona and Northern Baja California? [link]

The Economist magazine blames that old boogeyman “deregulation.” But that couldn’t be further from the truth.

In fact, the grid is so regulated that it has to accommodate redundant sources of over-market-priced power such as wind, solar and geothermal energy for 33 percent of its load, as required by AB 32, the California Global Warming Solutions Act of 2006.  With Green Power able to trump conventional power for 33 percent of the market, the remaining market has to be extraordinarily competitive.

The Economist claims that more base-load power plants have not been built by the private sector due to deregulation making the market so efficient that there are thin power reserves available in an emergency. But the Economist contradicts itself when it also states:

“But with so little base-load capacity in the area, standby plants for meeting peak demand could not be spun up fast enough to stabilize the voltage. The overloaded grid promptly crashed, causing blackouts to spread across the region and into Mexico.”

Which is it: “Too little base-load power” or an “overloaded grid that crashed”? The Economist doesn’t seem to know, so it just keeps searching for a metaphor and using worn out clichés.

Deregulation as ‘Worse Than Terrorism’

The Economist goes so far as to equate fictional deregulation as more of a threat than terrorism to the electrical grid. Deregulation is the perfect fall guy for the postmodern anti-capitalist reader of the Economist. Instead of interviewing some real San Diegans to find out what their initial impressions were, the Economist invents some responses by fictional people:

“We don’t need no lousy terrorists to cause mayhem,” San Diegans must have reflected afterwards.

“We can manage just fine by ourselves”….



The magazine adds:

“As elsewhere, the electrical-power industry in America has changed over recent decades from a collection of heavily regulated regional monopolies to a complex, competitive, national, free-market business.”

But there is no free electricity market in California. Retail electricity prices are still regulated by the California Public Utility Commission.  And the CPUC requires all power plants to have a certain amount of “spinning reserves” in the event of an emergency.

The Western Regional Energy Council, the Federal Energy Regulatory Commission and the National Electric Reliability Corporation regulate the wholesale energy market.

After the 2001 Energy Crisis, the electricity market was re-designed to be based on short-term and long-term energy contracts to prevent grid operators from scrambling to manage grid congestion. The California Independent System Operator, located in Alhambra, prices 3,000 “nodes” on the grid by day-ahead auctions. In other words, spot market prices are not solely used to manage supply and demand any more. So much for the false notion that a “free market” caused the Sept. 8 power outage.

One online commentator to the Economist article works with PJM, the regional transmission organization in the Mid-Atlantic to Chicago region. He said the following paragraph from the Economist article is “essentially untrue”:

“Managing supply and demand, once the prerogative of the utilities’ planners, has become a process shaped largely by an energy company’s appetite for risk. Meanwhile, independent system operators who schedule the dispatches of electricity have become, effectively, asset managers—using market-clearing prices to equilibrate between bids by suppliers and those from retailers.”

The commentator explained, “Capacity and transmission are still typically non-market based prices imposed on the consumer. They are based on NERC mandates, not market forces.”

From Regulation to Contractual Regulation

As pointed out in Jose A. Gomez-Ibanez’s book, “Regulating Infrastructure Monopoly, Contracts, and Discretion” (2003), after the California Energy Crisis of 2001, California and much of the nation shifted from managing electric monopolies by regulation to long-term contracts to provide stronger protections against opportunism. Long-term contracts are a market mechanism but are not the same as the stock market or other “free markets.” Contracts are between “exclusive” parties.

The Economist is correct that power companies don’t have an incentive to upgrade the transmission and distribution grids. But why? Because they don’t own any!  Regulated monopolies had to divest and unbundle power generation from transmission long ago.  And transmission and distribution (T&D) companies are regulated monopolies whose tariff prices are based on fixed costs, plus a regulated rate of return.  Again, this is not a free market or deregulation per se.

To pile one compound error on top of another, The Economist believes that California gets “dirty coal” power from West Virginia:

“The juice that comes out of a plug in clean-energy California can easily have come from a dirty coal-fired plant in Wyoming or West Virginia.”

I could go on with all the technical errors of omission and commission in the Economist’s article about “smart grids” being hackable.  But I couldn’t find information that any energy or transmission company transmits power anywhere near 3,000 miles, as transmission static losses would be excessive. The Los Angeles City Department of Water and Power and the Pasadena Department of Water and Power, among others, buy coal-powered electricity from the Intermountain Power Plant in Utah, about 650 miles away.

The Economist goes on with their nonsense when they write:

“Critics point out, with some justification, that California’s energy strategy of focusing on conservation and expanding intermittent sources of renewable energy — while ignoring the urgent need for more base-load generating capacity close to big cities — was the primary cause of the grid failure.”

Neither the Federal Environmental Protection Agency, nor the NIMBY public wants power plants or wind farms “in their back yards” anymore. So why does the Economist believe base-load electric generation needs to return “close to big cities”?

What Caused the Outage?

We don’t know the cause of the Sept. 8 power outage. The best guess so far is that a maintenance worker at the North Gila, Arizona substation was swapping monitoring equipment when a chain reaction equivalent to a circuit breaker tripping occurred across a large region.  San Diego Gas and Electric has been trying to get approval for the Sunrise Powerlink from Imperial Valley to San Diego, but the green and NIMBY coalition has been impassable. There is no way of ever completing it without system failure building up citizen pressure to complete it.

The purpose of the Economist article was ideological. Deregulation sounds like a plausible explanation for the outage and resonates with the widespread ideology that deregulation also caused the California Energy Crisis of 2001. If you don’t know what you’re writing about, I guess it is better just to fall back on some postmodern anti-capitalist ideology. And to the Economist, it is apparently more important to keep that ideology alive than it is to do any real reporting or educating of the public.

(Wayne Lusvardi blogs at CalWatchdog.com where this column first appeared.) –cw

Tags: San Diego, Orange County, deregulation, global warming, DWP, electric power, power grid





CityWatch
Vol 9 Issue 76
Pub: Sept 23, 2011

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