This Tech Central Station article by Lynne Kiesling has a few noteworthy observations about the link between deregulation and last week’s blackout. She notices that, while the generation and sale of electricity has been largely deregulated, the actual distribution of electricity remains heavily regulated.
The rates that regulators allow take into account changes in costs, required investments, and the payment to the utility of a rate of return on the assets they own. For much of the past decade this rate of return has been substantially lower than what utilities could earn from doing other things with their money, so they did not invest in building much new transmission capacity or in upgrading existing lines.
The numbers offered this weekend suggest that electricity volume has increased 30 percent while transmission carrying capacity has increased only 15 percent. This fact illustrates the mismatch between the dynamic markets for wholesale power and the rigid, maladaptive set of state-level regulations and incentives that govern transmission investment decisions.
She points out four options to deal with the current state of things. We could build more wires, although this is heavily regulated and no one wants them in their backyard. New technologies could be used to get more out of the existing grid. Or more generators, nearer to their customers, could be built; that should be no problem, especially with the environmentalists and those that will live next to them. (The new generators, not the environmentalists.) Then there’s
We can, and should, use market-based retail pricing to communicate customer demand into the grid. Under the decades-old regulatory rules controlling the retail sale of power, customer rates are set as averages over the entire year…Averaged rates also give customers no incentive to conserve when the cost of providing them with power is high, such as during the late afternoon on a warm summer day like last Thursday. Grid operators saw power flow anomalies as early as three hours before the blackout that spread in nine seconds, and in those three hours, if we had market-based retail pricing, even the shifting of a few large customers could have lowered the peak demand and prevented the power surge.
Whether it lessens the chance of blackouts or not, I’ve got no problem with paying the actual cost of the electricity I’m using. Read the whole thing.
While knee-jerk deregulation isn’t any better than knee-jerk reregulation, if good, fair rules can be put in place to prevent outright theft, a free market will get people the electricity they need. It’s obvious to anyone that people want more electricity. If they can make money doing so, a lot of people will generate and distribute it. Supply and demand will dictate the price, if allowed, and customers will be able to vote with their dollars.