August 17, 2003
Even More on Energy and Deregulation/Regulation
I should have mentioned yesterday that a good place to also read about this stuff is Lynne Kiesling's site. Lynne specializes in energy economics and is an excellent source for information.
Her coverage of the power outage starts here and then you can scroll up. (If later links that I provide don't work start there and just scroll up...Lynne is still on blogspot, but I have it on authority that she is planning on moving sometime in the future.)
The next post isn't very long, but has a very cogent observation.
I would frame what Glenn said about "restructuring not going too well" in this way: it has stalled in a very akward place, with a lot of things, including transmission, still under substantial federal and state-level regulation.
This is important in that with deregulation sort of in limbo at the moment many utilities are reluctant to make invetments in their systems not knowing is going to happen to them. Think of it this way, would you want to buy a house which you plan on living in only to find out six months later you have to share it with some other families? You might decide that holding off on buying the house is the best course of action.
What is going on that could affect the investment decisions for the transmission systems? RTO's, Regional Transmission Organizations. The goal of an RTO is to remove various impediments to deregulation. One such impediment is where companies use their transmission system strategically to limit a competitors access to a market. One of the RTO's functions will be to remove this impediment. At the same time, there has to be an assurance that the owners of these transmission systems are still going to be getting a "fair" return on their investment. Here is some reading from the FERC.
In reading that, it becomes quite obvious that the transmission system is not going to be totally out from under the FERC anytime soon. The running of the transmission system in a given RTO will be up to the RTO, but the FERC will have oversight of the RTO. For instance in the post directly beneath this one, Atrios agrees with Kuttner over the idea that nobody will do any sort of planning for transmission needs, however, the above white paper from FERC puts the lie to this statement. Specifically we have,
As required in Order No. 2000, the Final Rule will require the RTO or ISO to produce technical assessments of the regional grid and support the state siting authorities or multi-state entities by performing necessary studies.
So much for Atrios and Kuttner. By the way, I absolutely do not recommend either as a source of information on this issue. Both know just enough to be convincing, yet highly misleading.
Lynne's next post has some really good links. I especially recommend this one from the Department of Energy.
Unfortunately, investments in the transmission grid have diminished significantly in recent years. Investment barriers include lack of regional integrated planning, difficulty in siting, and uncertainty regarding investment risks and returns. Recently the Federal Energy Regulatory Commission (FERC) called for the development of five Regional Transmission Organizations (RTO's). These RTO's, once completed, will formalize the regional planning process and efficiently manage the growth of the transmission system.
In other words, NIMBYism, environmentalism, and the low rate of return have made investment in the transmission lines less desirable.
The current transmission system was designed to meet the needs of the old utility system of vertically integrated utilities that generated, transmitted and distributed power. The current transmission system was not built with the types of loads that are seen on the system these days. The RTO's which are being created by FERC and overseen by FERC are to help solve some of the above problems.
This post has a nice round up of news links on the power outage. Not all of them are related to the economics of energy and electricity, but give an idea of how things like this can impact many facets of our lives.
This piece at the Reason Public Policy Institute does away with that old canard that "electricity is different because it cannot be stored." Neither can good food service be stored...should we regulate that with a vertically integrated monopoly. Similarly with say a music concert. In fact, the latter is definitely monopolistic in that only that band can provide such performances. Maybe we need FMCRC, the Federal Music Concert Regulatory Commission to make sure that these bastards don't get too rich of of us.
As for the articles notion of restoring direct access, I don't have a problem with it so long as the generation component of the electricity rates are deregulated, i.e., allowed to fluctuate depending on demand.
While small businesses and residential customers don't have very good means of monitoring their usage and its cost at the time (typically residential customers wont know what the costs are until the month following), large power customers do. In fact, it is not uncommon for a large power user to actually have people whose only job is to watch over electricity consumption. Many large power customers do have real time meters. So with sufficient software and effort they can figure out how much their consumption is costing them at the time and recommend the necessary actions to lower costs.
Lynne also points to Reason's blackout resource center. It is also chock full of good information. Lynne also has an excellent set of links on her blog to energy issues in general. So check it out!
Posted by Steve at August 17, 2003 11:16 AM