Electric Utility Deregulation

[Kidicious]

Originally posted by Imran Siddiqui
Deregulation doesn't mean you abandon anti-trust laws . It just means that you allow more companies to come into the market.

And raise prices

[Adam Smith]

Originally posted by Kidicious
Deregulation is always an industry scam. It's just a matter of how much more money they can rip us off for. If you are fooled by big business than shame on you.

Lets see... US railroad rates are half what they were in 1980; consumers are saving about $28 bill per year; rr's are carrying twice the traffic with half the employees....

Shall I continue with other industries?

PS:
The fact that natural gas prices rose after deregulation is not necessarily bad. Regulation kept natural gas prices artificially low, and low prices were only available if you could find somebody willing to provide the gas. Virtually none of hte new construction in the 1970's and ealry 1980's even bothered to have natural gas service, and these folks are now paying for much more expensive electric heating, etc.

[chequita guevara]

Natural gas prices rose because they stopped storing gas, at least in the MidWest. Several mild winters had left the companies with an oversupply of gas, and so they stopped storing the gas, and the following winter, MidWesterners were screwed. I have an $1800 gas bill from my last winter in Chicago, when previously it had only been $300 for a winter.

Part of the problem with derregulation is that in order to take over contracts, companies do what they always do, underbid and overpromise. Water privatisation has been a sorry business in Britain, from what I've read, with water prices rising and service dropping. The same with train service. Elsewhere in the world, privatisiation has ment exchanging a government monolpoly for a corporate one. There was a virutal revolution in Bolivia to stop Bechtel from buying and dismanteling the water system there.

In Illinois, electric customers were offered a choice between electric companies, but if they switched from ComEd, they had to pay a fee which effectively negated the whole point of switching. ComEd claimed they needed to be compenstated for the nuke plants they built, which were still being paid off, even though they built these plants with the promise of so much power that it would be too expensive to actually bill for it. Illinois consumers were screwed coming and going. Here in Jax, we have publicly owned utilities, and my bills are lower than they were in Chicago.

[Imran Siddiqui]

Here in Jax, we have publicly owned utilities, and my bills are lower than they were in Chicago.

Could part of that be because... well, you are in JACKSONVILLE instead of Chicago?!

[Kidicious]

Originally posted by Adam Smith
Lets see... US railroad rates are half what they were in 1980; consumers are saving about $28 bill per year; rr's are carrying twice the traffic with half the employees....

Shall I continue with other industries?

You could if you wanted to, but honestly I would never be convinced. I know the data goes both ways. I'm just skeptical when special interests starts lobbying government. Usually it's not broke, so I say don't fix it. The general case has been that when it is broke it's because there isn't enough regulation and more is needed, not the other way around.

[Kidicious]

dp

[MichaeltheGreat]

Originally posted by Kidicious


You could if you wanted to, but honestly I would never be convinced. I know the data goes both ways. I'm just skeptical when special interests starts lobbying government.

And you think regulated monopolies aren't special interests or don't lobby government?

Usually it's not broke, so I say don't fix it. The general case has been that when it is broke it's because there isn't enough regulation and more is needed, not the other way around.

Hey, 1950's was good times. Let's keep everything the way they was, I'm sure nothing needs to be improved.

[Kidicious]

Originally posted by MichaeltheGreat
And you think regulated monopolies aren't special interests or don't lobby government?

No, why would you think that. I know they do and I'm keeping my eye on them

[Kidicious]

Originally posted by MichaeltheGreat
Hey, 1950's was good times. Let's keep everything the way they was, I'm sure nothing needs to be improved.

Well, I here that the 50s were pretty good. Unfortunately things have changed (well maybe its fortunate), but I see a scam coming when someone starts telling me how much better things can be when they are already good.

[MichaeltheGreat]

Originally posted by PLATO1003
I was reading the magazine that comes with my electric bill today and their was an article that caught my eye.

Apparently just the idea of US Congress passing sweeping deregulation in the Electric Industry caused several states to actually pass deregulation bills. Most notably is California. The article blamed all the problems that California experienced on this action. It even suggested that this may have contributed to the Enron collapse. The article states that similar legislation is being considered again in Congress.

So... What do you know about this? and How do you feel about it?

Finally, I get time for the initial post.

Technically, the Congress wouldn't be involved in electric utility restructuring, which is what it's really called. Deregulation is just a buzz-word used to market it to the public. The legislation referred to was the Energy Policy Act of 1992, which mandated that the FERC (Federal Energy Regulatory Commission) oversee restructuring of monopoly electric utility markets within a reasonable period of time. FERC in turn mandated to the states that they come up with their own restructuring policies, or else FERC would do it for them.

The manner in which California approached restructuring was atrocious (the main bill was authored by a former Southern California Edison Co. lobbyist, who left a consultancy as a registered lobby to go to work as the chief of staff for the Assemblyman whose name appeared as the bill author. ), but that in itself was survivable. It's now been a matter of ideological fashion to blame the "California disaster" on whoever you never liked in the first place. Some people blame government regulators, some greedy utilities, some blame "those California environmental loonies," some blame greedy corporations trying to con their way into the utility market.

Reality is that a little of all those things contributed to those problems, and a few more factors nobody likes to be bothered with, because they're not ideologically useful.

Here's a quick rundown:

1. - Blame the fruity environmentalists. This is a cute charge, and the general idea is to blame the lack of generating capacity on treehuggers. Actually, a lot of the "treehuggers" are card-carrying Republican conservatives who didn't want power plants in their backyards either. Putting plants in the boonies doesn't work real well, and triggers real environmental delays, because you have to address much longer transmission paths for electricity and often for fuel.

A big cause of the transmission shortfall that people ignored was market factors. During the decade before restructuring and the disaster, there were virtually no additions of new generating capacity, but it just wasn't feasible to build new capacity - the economy was booming, so industrially zoned sites that had good gas and electric transmission access were few and far between, and usually every developer who owned such a site was thinking high-tech industrial park, so a big ugly power plant wasn't what he'd consider an attractive anchor tenant. Couple that with very low short-run wholesale costs, and you couldn't build new capacity and recover your investment - the cost of producing the power was over the market.

By the time restructuring hit, you had a seven to eight year boom in California, combined with drought conditions for three to four years in the southern Rocky Mountain, California, Southwest and Columbia River basins. Oooops, so much for the cheap hydro power the west counted on. You also had massive growth in neighboring states that traditionally had surplus power to sell to Cali, so the market changed far more quickly than anyone could respond to it.

2. - Greedy utilities. To some extent, this is true, what with starting in a 100% market share position, then whining about recovering 38 billion in so-called stranded investment, when in fact much of that was 10-30 year old investment largely or completely recovered in the rate base. In a healthy market, we could have paid them off and let them go away. Instead, in the market that developed, they got skinned too.

3. - Inept regulators and system operators. This is another one that's fashionable in the utility and lobbyist crowd ("WE won't be as stupid as those California people."), but doesn't really work either. The changes in market condition in 2000-2001 were totally unprecedented and extreme (three major areas in sustained drought conditions, a long term boom in growth in and out of state, followed by an extremely hot summer). To avoid something like the California disaster, you have to plan ahead in a 10-15 year timeframe for generation reserve, and 15-20 years for electrical transmission. All indications going into the disaster were that there would be adequate reserves and transmission access for any reasonably foreseeable market conditions, but that there would be a period of time where generation supply was tight, until the market price came up enough to support new capacity (or until the regulated market built new capacity and rate-based it)

Electricity is unique in that it's the only manufactured commodity where supply and demand have to essentially be matched continuously in real time - there's no commercially practical storage, and won't be for decades, at least. That's not good when you also have a long lead time to build new generating or transmission assets.

4. - Greedy corporations entering the market and rigging the system. Some of this happened, but it accounted for less than 20 percent (by the most optimistic interpretation), or maybe even less than ten percent (by more conservative interpretation) of the price movements. The basic claim was that generators were deliberately kept out of the market to drive prices. That can only work when you have very fragile supply-demand balancing, AND when you have a lot of assets in the market, so that you can withdraw some and make enough extra money to cover loss of that asset. As it turns out, much of the maintenance was necessary, or at least prudent, since much of the portfolio bought by Duke, Dynegy, etc. were existing utility plants that had been undermaintained from the late 80's.

I was one of the few and unwelcome who predicted repeatedly (and got blown off repeatedly) that Cali deregulation would raise prices substantially for the first several years, and that it would be about five years for the market to adjust. That last number got whacked because people are back to ignorant bliss. The "problem" got cured because of a series of changes in the initial factors that caused it in the first place: A recession, undoing much of the growth in the original boom, and a couple of mild summers, with a normal winter followed by a sustained, wet winter that is close to restoring normal hydro flows.

California can still end up in a bit of a mess, but a certain amount of peaking capacity did get shoved in during the panic, and both the necessary and unnecessary maintenance of a lot of generating assets has been performed, and won't be an issue for several years at least.

The real lesson is that restructuring can't just be dictated ideologically. Both the form and the timing have to consider objective market conditions and geographic considerations.

[MichaeltheGreat]

Originally posted by Kidicious


Well, I here that the 50s were pretty good. Unfortunately things have changed (well maybe its fortunate), but I see a scam coming when someone starts telling me how much better things can be when they are already good.

"Already good" is relative. I suppose it is nice to get subsidized by someone else, though, which is what individual consumers get from regulated monopoly setups.

[Ned]

Che, I somewhat agree with one of your statements: changing from a government regulated monopoly to an unregulated monopoly is not necessarily good - because you still have a monopoly.

Just privatizing something does not guurantee better performance. Ditto deregulation. Once needs COMPETITION.

Until the California consumer has a choice of power providers at market rates, there really is no true competition in California. "Partially" deregulating the "back end" while keeping the prices regulated at the "front end" lead to a disaster.

MtG, correct me if I am wrong, but there were two critical mistakes made in California: 1) not allowing the utilities to buy power with long term contracts; and 2) not guaranteeing that prices charged the consumer would at least cover the cost of power.

[Adam Smith]

Kidicious:

You could if you wanted to, but honestly I would never be convinced. I know the data goes both ways.

In other words, don't confuse me with the facts.

Aside from the California debacle (more below), and the cable television industry (not real deregulation) the US evidence is quite clear. Cliff Winston, an economist at the Brookings Institution, has been following the effects of deregulation in various industries including airlines, trucking, railroads, telecommunications, cable television, brokerage, banking, petroleum, and natural gas. He concludes that

The evidence clearly shows that microeconomists' predictions that deregulation would porduce susbstantial benefits for Americans have been generaly accurate; hence their predictions from additional benefits from continuing the process should be taken seriously.
Clifford Winston, "Economic Deregulation: Days of Reckoning for Microeconomists", Journal of Economic Literature, September 1993, p. 1286

Industries are likely to behave quite similarly when it comes to adjusting to deregulation, and that their adjustment, while time consuming, will raise consumer welfare - significantly even at first, and increasingly over time.
Clifford Winston, "U.S. Industry Adjustment to Economic Deregulation", Journal of Economic Perspectives, Summer, 1998, p. 108.

The Brookings Institution is a Washington think tank which has long been associated with the Democratic Party. (Full disclosure: I contributed data and analysis for the railroad industry for both of these articles.)

MtG:

Greedy corporations entering the market and rigging the system. Some of this happened, but it accounted for less than 20 percent (by the most optimistic interpretation), or maybe even less than ten percent (by more conservative interpretation) of the price movements.

The latest study by Severin Borenstein (Berkeley) James Bushnell (Berkeley) and Frank Wolak (Stanford) concludes that exercise of market power by generators accounted for a substantially greater proportion of the overcharges.

We present a method for decomposing wholesale electricity payments into production costs, inframarginal competitive rents, and payments resulting from the exercise of market power. Using data from June 1998 to October 2000 in California, we find significant departures from competitive pricing during the high-demand summer months and near-competitive pricing during the lower-demand months of the first two years. In summer 2000, wholesale electricity expenditures were $8.98 billion up from $2.04 billion in summer 1999. We find that 21 percent of this increase was due to production costs, 20 percent to competitive rents, and 59 percent to market power. Borenstein, Bushnell, and Wolak, "Measuring Market Inefficiencies in California's Restructured WHolesale Electricity Market", American Economic Review, December 2002, p. 1376.

As Ned mentioned, most of this problem could have been avoided if utilities had been allowed to sign long-term power supply contracts.

Chegitz:

ComEd claimed they needed to be compenstated for the nuke plants they built, which were still being paid off, even though they built these plants with the promise of so much power that it would be too expensive to actually bill for it.

There is still an issue of what to do with the capital costs of generating plants which are no longer competitive in a deregulated environment. This is known as the stranded cost issue. Stockholders assumed this risk when they invested in the company, so stockholders should bear the charges. Looks like ComEd has successfully lobbied the Ilinois Legislature to dodge this responsibility. Hopefully other legislatures will do a better job. The PJM gird (Pennsylvania - Jersey - Maryland) and the Texas grid certainly seem to be working well. Other areas are still moving toward deregulation.

Ned:

Just privatizing something does not guurantee better performance. Ditto deregulation. Once needs COMPETITION.

There are three layers to the electricity market: generation, transmission, and distribution. All three were regulated. There rae plenty of independent generators who can access the grid, so generation is now considered competitive. Transmission is also generally considered comeptitive, except in areas where competition is limited by objections to building new transmission lines. Distribution, the "last mile" to your house, is still a natural monopoly. Ie., it would be much more costly to have two separate sets of local electric distribution lines, so instead we get one regulated company. Regulation needs to be maintained here, but could still be improved.

[Kidicious]

Originally posted by MichaeltheGreat


"Already good" is relative. I suppose it is nice to get subsidized by someone else, though, which is what individual consumers get from regulated monopoly setups.

If it is nice, I wouldn't be able to tell. What matters to me is if my electric bill goes up or not.

[Kidicious]

MtG,

Lets get down to the bottom of things. The producers knew what the demand for electricity would be in California. They decided not to meet that supply and create a shortage. You can apologize for it all you want, but it wont pass over here.

[Japher]

I am for the deregulation of most industries. Socialism suks.

Yes, there will be shaky times right after industries are deregulated, and greedy companies, like Enron, will vanish leaving a lot of ppl unemployed and out on their arses.... IMO, the long haul will prove better. Also, Enron was a special case of corruption and not having so much to do with deregulation.

Partial deregulation, such as the power industy in California, is dumb idea, and never works. They need to stop it... I really am sick of an idiot, like Davis, negotiating the price I will have to pay for my power. Leave it up to the public, isn't that how it's suppose to work!?

[MichaeltheGreat]

Originally posted by Kidicious


If it is nice, I wouldn't be able to tell. What matters to me is if my electric bill goes up or not.

Well, gee. There's this thing outside your house called a "market." Stuff like fuel gets bought and sold on that market. More people come in and decide they want to run their TV's and refrigerators too, so they want more electricity. So sometimes prices go up, whether we like it or not. They go up less for residential customers, because virtually every state regulatory system has the residential customer class costs partly subsidized by industrial and large commercial customer class costs. If you don't like what you pay now, you ought to check out large commercial or industrial rates.

[MichaeltheGreat]

Originally posted by Kidicious
MtG,

Lets get down to the bottom of things. The producers knew what the demand for electricity would be in California.

So did they get their crystal balls from the same store where you can go buy a powerplant on a truck and get it delivered anywhere you want? You already explained to Adam Smith how you don't like to be inconvenienced by facts, so I assume accurate crystal balls and instant power plants are a part of your world?

They decided not to meet that supply and create a shortage.

And of course, they also caused the hot weather, the drought, lots of people to move to Cali and not give a **** about conservation, and transmission lines to go overcapacity. Yes, it's all a big conspiracy, and the end of the shortage had nothing to do with recession, cooler summers and wetter winters. I know you don't like reality, but explain to me how most of the western US simultaneously had shortages, despite not being "deregulated."

Next time you see Supersneak post, ask him how power shortages from BPA affected him.

You can apologize for it all you want, but it wont pass over here.

(a) I don't apologize for it at all, since I had nothing to do with it. (and worked on the other side of the industry). I do however like to interject a little reality, so I apologize if facts are inconvenient to your "greedy corporations" rant.

(b) I neither know nor care where "over here" is.

[Kidicious]

Originally posted by MichaeltheGreat


Well, gee. There's this thing outside your house called a "market." Stuff like fuel gets bought and sold on that market. More people come in and decide they want to run their TV's and refrigerators too, so they want more electricity. So sometimes prices go up, whether we like it or not. They go up less for residential customers, because virtually every state regulatory system has the residential customer class costs partly subsidized by industrial and large commercial customer class costs. If you don't like what you pay now, you ought to check out large commercial or industrial rates.

I thought they got cheaper rates when they buy in bundles?

[Kidicious]

Originally posted by MichaeltheGreat
So did they get their crystal balls from the same store where you can go buy a powerplant on a truck and get it delivered anywhere you want? You already explained to Adam Smith how you don't like to be inconvenienced by facts, so I assume accurate crystal balls and instant power plants are a part of your world?

I believe there is some evidence that the demand had been estimated accurately and that it was known to everyone in the industry who bothered to get the information.

I don't have a problem with facts when they prove something to me, but when there are conflicting facts, or there is missing information then I only consider them so much.

[Japher]

And of course, they also caused the hot weather, the drought, lots of people to move to Cali and not give a **** about conservation, and transmission lines to go overcapacity. Yes, it's all a big conspiracy, and the end of the shortage had nothing to do with recession, cooler summers and wetter winters. I know you don't like reality, but explain to me how most of the western US simultaneously had shortages, despite not being "deregulated

ahem... I wouldn't say that ppl in California don't give a **** about conservation. I admit that we have a lot of idiots here, but conservation is in our everyday life... Plus, we have a lot of hippies who keep reminding us.

To defend your statement, however, I can tell you that heaters kick on if the temp drops below 70, and the AC kicks on if the temp goes over 80... I have neither in my house, nor have I ever needed one.

The main problem with Cali was Gray Davis, IMO, and everyone here is too dumb to admit it, so we vote the idiot in again!

We also have a big NIMBY complex.

[Kidicious]

Originally posted by MichaeltheGreat
And of course, they also caused the hot weather, the drought, lots of people to move to Cali and not give a **** about conservation, and transmission lines to go overcapacity. Yes, it's all a big conspiracy, and the end of the shortage had nothing to do with recession, cooler summers and wetter winters. I know you don't like reality, but explain to me how most of the western US simultaneously had shortages, despite not being "deregulated."

You seem to know a lot about the electricity industry, so you should know that the possibility of these events should have been taken into consideration. None of these events were freak happenings. There was real possibilities of all of them occuring.

There were no shortages in the rest of the West like there were in Cali. Maybe some mild shortages. So why were the shortages so bad in Cali? The dereg scam my friend.

Btw, I'm not only blamming the corporations for this. Obviously the government was involved. It's true that they screwed it up, but the question is why did they screw it up.

[Kidicious]

Originally posted by Japher

The main problem with Cali was Gray Davis, IMO, and everyone here is too dumb to admit it, so we vote the idiot in again!

We also have a big NIMBY complex.

Ok no one corrected you the first time. Davis had nothing to do with it. He was just elected when the **** hit the fan and he had to deal with it.

[Willem]

Frankly, I think this whole argument will be moot sometime in the future. While looking into fuel cell technology, I came across a company that was selling units that could be installed in a home and provided enough energy to supply most of the needs of an average dwelling. The cost is still rather expensive, but that will come down in time.

Plus there's also inroads being made into solar cell technology and it shouldn't be to long that the cost per kilowatt hour will be comparable to current rates from standard generating methods. I think the only areas where hydroelectric generation etc. will be needed will be for industry; the average consumer will be pretty much self-sufficient in the future. Of course that's still sometime down the road but the writing's on the wall as far as I'm concerned.

[Adam Smith]

Originally posted by Japher
To defend your statement, however, I can tell you that heaters kick on if the temp drops below 70, and the AC kicks on if the temp goes over 80... I have neither in my house, nor have I ever needed one.

Jeez, the standard where I live is that the heater kicks in if the house temperature gets below 68 daytime, 64 at night. The AC only kicks in when it hits 82. And beyond that there is the incredibly inexpensive personalized energy saving device pictured below. Methinks Californians protest too much?

[Kidicious]

Originally posted by Adam Smith
Jeez, the standard where I live is that the heater kicks in if the house temperature gets below 68 daytime, 64 at night. The AC only kicks in when it hits 82. And beyond that there is the incredibly inexpensive personalized energy saving device pictured below. Methinks Californians protest too much?

Keeping the AC at 82 is pretty good. I'm uncomfortable in the summer with it set that high, but I do it nontheless.

[MichaeltheGreat]

Originally posted by Adam Smith
MtG:

The latest study by Severin Borenstein (Berkeley) James Bushnell (Berkeley) and Frank Wolak (Stanford) concludes that exercise of market power by generators accounted for a substantially greater proportion of the overcharges.
As Ned mentioned, most of this problem could have been avoided if utilities had been allowed to sign long-term power supply contracts.

Do you have any link or data on where I can get a copy of this study? I'd be interested in reading their description of their methodology, but it seems to me from the three-tier classification that a lot of things they're lumping under market power were actually the results of physical constraints. The ten to twenty percent band I was referring to was the range of overcharges that were strictly related to abuse of market power. The percentage increase for production costs they cited is correct, because there was a natural gas and fuel oil price spike in about that range, when modified by changes in system average heat rate due to inefficient peaking generation being called into service.

I think it's kind of stretching the market power (or at least, abuse of market power) definition when physical transmission constraints (North Pass 15, Devers substation, Tesla-Midway and the California-Oregon Transmission Project were the worst) kept power out of the market, and when both WAPA and BPA shorted their customers due to hydro generation limits, creating a scramble for short-term replacement power throughout the WSCC.

The CPX / Cal-ISO insistence on hour ahead and day ahead bids was shortsighted, but long term contracts wouldn't have mattered that much, due to the transmission constraints. Long-term wholesale power contracts come in four general categories:

As available or surplus contracts are essentially non-committal "if you've got any, we can probably use it" arrangements, and are not approvable in prudency review of resource plans.

Firm power contracts have three levels, unit firm, system firm, and firm firm. Unit firm (a la power out of the Palo Verde nuke) are based on availability of a specific generator, and the seller has no other obligation. System firm contracts require the seller to make the power available from any generator physically or contractually within the seller's generating portfolio, but system firm contracts don't require delivery if transmission is constrained along the delivery path. So those contracts would have been meaningless in much of the summer of 2000, especially wrt rolling outages. However, in what is now once again a soft wholesale market, we'd be stuck with long term system firm power costs.

Firm firm (meaning the seller assumes all risk for delivery and must make up failures from any source at any cost) contracts are extremely pricy and often unavailable. FERC would also likely reject such contracts where transmission constraints were likely, unless the seller had priority rights for the amount of power under contract along the transmission path. Most of that is already committed.

Long-term contracting from QF's and IPP's had similar problems - most of the available ones were in marginal operating condition, or outside the critical transmission congestion areas.

Long-term contracting would have eased some of the financial pain, by spreading it over the term of the contract, but reliability issues would still have been just about as bad.

Ned:
Distribution, the "last mile" to your house, is still a natural monopoly. Ie., it would be much more costly to have two separate sets of local electric distribution lines, so instead we get one regulated company. Regulation needs to be maintained here, but could still be improved.

One of the California problems that is still on-going is that the regulated utilities shifted a lot of their gold-plating and overhead costs to distribution, so that the captive cost of distribution is high enough that most customers who might attempt to buy directly from third party suppliers would pay more than their current rates, between distribution and standby charges. The change to being fundamentally a distribution company has also made Cali utilities even more unfriendly to on-site QFs, which could cut the utilities distribution related charges. Aggressive standby charge and departing load charge schemes are now the norm, again, to discourage large customers from leaving the system. The one market niche that they can't touch now, however, is new energy users who integrate generation from the outset of their developments.

Edit - fixed quote tag.

[MichaeltheGreat]

Originally posted by Kidicious
You seem to know a lot about the electricity industry, so you should know that the possibility of these events should have been taken into consideration. None of these events were freak happenings. There was real possibilities of all of them occuring.

The combination of an eight-year growth boom, hottest summer on record, and three-four years of drought in three-four key regional hydropower basins was unprecedented, and would have had to be predicted a decade in advance at least. In-state power projects > 49.5 megawatts had to go through a two stage review process at the California Energy Commission that took three to four years IF there was no significant opposition. This is separate from financing, engineering, equipment procurement, CPUC/FERC approvals of contracts, NEPA/CEQA (National Environmental Policy Act/California Environmental Quality Act) issues. To have prevented the 2000 disaster, major generating asset development would have had to be started no later than 1990. At that time, short-term wholesale power markets were in the 2.1-2.5 cent range, so non-utility generators were just not financeable.

Utilities could not have sold the CPUC on the need for additional capacity - at the time, Cali was running a generation surplus of around 28 percent, with 15-20 percent being required by WSCC (Western Systems Coordinating Council) protocols for spinning and ready reserves. What would your reaction have been if PG&E or SCE had gone to the CPUC and said: "We don't have enough generation, despite our 28 percent surplus, so we want to build new power plants and include their cost in the rate base." In 1990, you and 99% of everyone else would have screamed the utilities were greedy bastards trying to gouge everyone. In 2000, people screamed because their was a shortage.

There were no shortages in the rest of the West like there were in Cali. Maybe some mild shortages. So why were the shortages so bad in Cali? The dereg scam my friend.

Wrong. There were huge acute shortages in the west, especially in hydropower. Bonneville Power Administration took a bath, and paid huge sums of money to contractors to buy out of contracts BPA couldn't meet. Many of those companies took the BPA buyout, realizing they weren't going to get BPA power anyway, then went out of business, because they couldn't afford replacement power at current market costs. In Oregon, such plant closures by former BPA power customers caused loss of 130,000 jobs, and there were about 80,000 jobs lost in Washinton as well - all heavy manufacturing related.

In the southwest, WAPA (Western Area Power Authority) had a long-prescheduled shutdown of one of the two generator banks at Hoover dam, to rewind the generator cores, and WAPA had production problems at it's other dams as well, due to low water flows. WAPA also terminated a lot of contractors, although not as many or not as acutely as BPA.

The reason the effects were felt in California moreso is that California had been a big importer of power from these other states, and the local utilities could not export power to California under their own state laws during times when there were power needs within their own systems. They can only sell surplus power off-system. So when their surpluses dried up, California got cut off from those power supplies that weren't already on system-firm contract status.

Then, on the super hot days of summer, the transmission lines into the state hit full capacity several times, and even system- firm power purchases from out of state got interrupted.

I'm not denying that substantial gaming of the system occured, to the tune of billions, but to say that is the only cause of the power crisis, or even the leading cause, is totally incorrect. That type of gaming could not have occurred in a normal balance of supply and demand. One of the failures of "deregulation" (restructuring) in California was that there was no mechanism to compensate plants adequately for sitting idle as spinning or ready reserve assets, and no mechanism for adequately compensating "surplus" plants for just being there if needed. The way you prevent disasters like Cali 2000 is by having substantial overcapacity in the system, but ratepayers in regulated schemes, and generation owners in deregulated schemes, don't like to suck up the cost of that necessary overcapacity.

Had the old system remained in place, we would have still had the rolling outages problems, and the cost problems would have been nearly as bad, just with the cost spread out more.

[MichaeltheGreat]

Originally posted by Kidicious

I believe there is some evidence that the demand had been estimated accurately and that it was known to everyone in the industry who bothered to get the information.

The demand was estimated accurately a few months ahead of time (earliest seasonal weather forecasts for season-ahead weather conditions)

Unfortunately, to solve the problem the demand would have had to have been estimated accurately a decade in advance, and market conditions (either CPUC approval of rate increases to cover new capacity additions, or a seller-friendly open market that priced power high enough to invite new capacity) would also have been needed to be in place. Neither of those conditions occurred.

Forecasting that you're in a shitload of trouble when you're on the Titanic and see that iceberg a quarter mile away doesn't do you much good.

[MichaeltheGreat]

Originally posted by Kidicious


I thought they got cheaper rates when they buy in bundles?

Cheaper has to be in relation to actual cost of service. Since residential systems are low voltage, they have additional levels of transformation (transformer costs and losses), expensive distribution in relation to the amount of power carried, and lots of billing and customer service related costs.

If I sell you something for nine dollars that costs ten to provide, and sell someone else the same thing for six dollars that only costs five to provide, the other guy is getting his something cheaper, but still subsidizing your costs.

The worst hit rate classes in California are large commercial customers, then agriculture/large pumping, then industrials, then residential. How much each non-residential class pays depends on load profile (since they're time and seasonal rates), but if you had a similar load profile for all customer classes (just scale it down for residential, but keep the same percentages each day, hour and month), then large industrial and residential customers would pay about the same in absolute terms, with pumping/ag and large commercial paying 5-15% more.

In terms of actual cost in relation to cost of service, then residentials are paying about half of what the other customer classes are paying. Cost of electricity and cost of water are two large factors (in addition to People's Republic taxes) which discourage a lot of businesses from locating in California, and encourage a lot of them to leave.