Shorting the Grid

The Hidden Fragility of Our Electric Grid

Meredith Angwin

• Publisher: Carnot Communications
• Year: 2020
• ISBN:
  9780989119092
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Electrical Engineering & Telecommunications
• Index: Technology & Engineering

When rolling blackouts come to the electric grid, they will be old news to the grid insiders.

Only the electricity customers will be surprised.

Grid insiders know how fragile the grid is becoming. Unfortunately, they have no incentive to solve the problems because near-misses increase their profits.

Meredith Angwin describes how closed meetings, arcane auction rules, and five-minute planning horizons will topple the reliability of our electric grid. Shorting the Grid shines light on our vulnerable grid. It also suggests actions that can support the grid that supports all of us.

POLICY, MARKETS, AND FUEL SECURITY

CHAPTER 11

BREAKING UP MONOPOLIES

Regulated monopolies

WE HAVE SEEN THAT RTOs make a mountain of a small hill: they are unable to take simple steps to ensure winter reliability. Later, we will see that, in the RTO areas, insider deliberations are quiet and closed. You need to be kind of a plutocrat to have your voice heard by organizations that run the RTO grid. How did this happen? What problems were RTOs going to solve?

Before RTOs, electricity utilities were “regulated monopolies.” You were in the territory of one vertically integrated utility, and that was that. You were a ratepayer, with no choices.

As noted in chapter eight, the pre-RTO system of vertically integrated utilities had some major problems. The system had perverse incentives: it encouraged a utility to spend as much money as possible in order to get the highest profits it could obtain. The only barriers to spending were the rulings of the state’s Public Service Board, and such boards were subject to regulatory capture. They could become way too close with the industry they were regulating. They could become rubber stamps for whatever the utilities wanted to do.

Meanwhile, in the late ’70s and early ’80s, the tenor of the times was very much in favor of breaking up monopolies and deregulating industries. Such actions had already been a success (more services, lower prices) with the breakup of the airlines and the telephone industries. These industries had also been regulated monopolies.

The breakup of the utilities might follow these leads. Indeed, the two monopoly breakups described above seemed to show a template for utility deregulation.

Airlines

Let’s take the airlines for a start. In the ’40s, the Civil Aeronautics Board (the main federal regulator) saw no particular reason that new airlines were desirable. The big four domestic airlines (United, American, Eastern, and TWA) took up all the spaces at the airports. Then there was Pan Am, the international airline. The situation looked well set. Airlines didn’t compete on price, but they were allowed to compete on amenities. I remember my mother taking a rare plane trip. Before the trip, the airline called to ask how she wanted her steak prepared. Such questions were one of the major ways that airlines competed, since they all were required to charge the same price on the same route.

By the ’70s, with hundreds of millions of people flying domestic routes, the system was breaking down. In consequence, airline routes and prices were deregulated. Almost immediately, new airlines started up, and ticket prices fell. Even more people traveled.

What lesson did the airline industry illustrate for the utility industry? There were two lessons:

• Deregulation leads to lower prices, better service, and more customers
• Deregulation does not lead to more accidents. The safety-regulation part of the regulatory scheme stayed in place and perhaps was even enhanced.

Since utility operations have the potential for all sorts of accidents, from live wires falling on a road to explosions at fossil and nuclear power plants (and let’s not forget dam failure), the improving safety record of the airline industry was a good argument for utility deregulation.

Airline deregulation showed that deregulation did not have to affect safety.

Telephones

Not many people today remember the strict monopoly powers of Ma Bell, a monopoly that mostly ended in 1982. Long-distance calls were madly expensive, calling from a hotel was a mini-nightmare, where the hotel switchboard patched you through to an AT&T long-distance operator.

Not content with owning the phone lines, the phone company also owned your phone and charged you more if you had an extension phone in your house. Some of my law-abiding friends realized that the way the phone company knew you had an extra phone in your house was through feedback from the ringing mechanism. Bootleg phones abounded: the upstairs phone didn’t ring (its ringer was gone), but at least it was there. When you heard the downstairs phone ring, you could at least get to the upstairs phone without a mad dash down the stairs.

The phone company rules turned some of my law-abiding friends into criminals, altering their phones to avoid extra charges. Not me, though. I wasn’t a criminal. And not because I am a goody-two-shoes. We just never had a house big enough for an upstairs until long after the phones were deregulated. George and I married while we were still undergraduates in 1965. The landmark phone-deregulation case was in 1982.

Deregulating the phone system led to lower costs, more choices for long-distance carriers, cell phones all over the place, and all sorts of good things for the consumer.

In some ways, deregulating phones seemed an impossible task. These were the days when everyone had a landline, and there were no cell phones except for specialized uses. For example, in the early ’80s, I rode in a utility truck to a geothermal field and was very impressed with the phone in the truck. Such phones helped the utility keep track of its people, and they could also connect to the regular phone system. But unless you were in a utility truck or a police cruiser, you were not connected with the phone system while moving.

So back to deregulation. The immediately perceived problem with breaking up the phone monopoly was “What are they going to do? Have four utility poles near the house, with four possible wires into the house for the phone?” In other words, how could competition work when there was going to be only one line into the house?

What happened was a bit of a kludge, but it worked. People had only one line into the house, but they had many choices for their long-distance carrier. The carriers also offered many types of plans, and you could choose according to your phone-usage patterns. Overall, the cost of long-distance phone calls dropped rapidly. In other words, even before cell phones became common, breaking up the telecommunications monopoly improved the choices for the consumer.

Phone deregulation showed that there could be significant consumer benefits to deregulation, even with one line into the house.

Electric utilities

And yet, and yet … something went wrong with utility deregulation. Careful analysis may show some savings for consumers in the deregulated utility areas, but a first-pass look at the situation shows no savings (see figure 6). You have to look closely and analyze hard to see any savings in the deregulated areas, a situation quite unlike airlines and phones.

With airlines and phones, any person who was an adult under regulation and deregulation would say, without deep analysis: Yeah, things are better and cheaper now. Better phone service, more flights. This is not true for utility deregulation. RTO areas have higher prices.

Figure 6 is from a paper by Severin Borenstein and James Bushnell of the Energy Institute at Haas (University of California at Berkeley).²⁷ They distinguish between the “restructured states” (RTO areas) and the non-restructured states (states with vertically integrated utilities). It is easy to see the restructured states: they are the line near the top of the chart (highest cost per kWh retail rates).

Figure 6: Comparison of regulated and RTO states (“restructured states”) (Borenstein and Bushnell)

In their paper, Borenstein and Bushnell do not conclude that electrical prices in the RTO states are more expensive due to restructuring. While the “restructured states retail cost” line on the chart starts high and stays high, the authors point out that restructured states had electrical retail costs that followed the gas prices more closely than the retail costs in the non-restructured areas. (The line for gas prices is the dashed line with the small dashes.)

While the “restructured states” with RTOs remained more expensive than the non-restructured states, the gap is narrowing. However, whatever the authors of the paper conclude, I would point out that RTO retail electricity prices have stayed higher than non-RTO retail prices for twenty-five years. I would not personally conclude that retail markets have saved money for the consumer.

Utilities and FERC orders

IN 1997, FERC ISSUED Orders 888 and 889, designed to give open access to transmission lines, and to “encourage the creation of a separate Price Exchange to reveal market-clearing prices in the new competitive market.” Two years later, in 1999, FERC issued Order 2000 to foster participation in Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).²⁸

The model for the deregulation was similar to the one for phone deregulation. One service (your local phone company, your local distribution utility) would be in charge of the wires to your house. Meanwhile, there would be competition on the bigger scale, such as long-distance carriers and power plants.

The “one service that is in charge of local wires” and “choices of other services, like long distance” became part of the model for utility deregulation.

Utility deregulation

THE LOCAL UTILITY WOULD still manage the wire into your house and take care of billing and downed lines during storms. However, you would have your choice of energy suppliers (the local utility is in charge of distribution). You could base your choice on your own criteria. Green power? Inexpensive power? Cheap power up to this much usage with penalties for more usage? Companies could offer it, and you could choose it.

Oops. I forgot something. This didn’t happen, or, at least, it didn’t happen very often. The consumer was left out of the equation. FERC issued orders that allowed local areas (not well-defined) to set up a market system (also not well-defined). ...

Table of contents

• Cover Page
• Advance Praise for Shorting the Grid
• Title Page
• Copyright
• Dedication
• Table of Contents
• Table of Figures
• Angelic Miracles and Easy Problems
• Policy, Markets, and Fuel Security
• Renewables on the Grid
• The RTO and the Customer
• Is There a Way Forward?
• Acknowledgments
• Glossary
• Endnotes
• Index
• About the Author