Just got the "Electricity Restructuring" book and am enjoying it. Thanks to this Substack for getting me interested in and aware of electric grids as systems. Fascinating.
I noticed a story today that far-leftists in Congress have proposed a bill to in essence nationalize the Texas grid. Probably would have missed that if I had not been paying attention as a result of subscribing to this Substack.
Coase was opposed to public utility regulation and favored eliminating franchise protection, period. Milton Friedman also. The idea of a basic violation of private property rights (mandatory open access); a centrally planned wholesale grid (ISOs/RTOs); and an artificial retail market with huge transaction costs (where there was little before under PUR) is just the opposite re Ronald Coase.
And no, electricity is not a 'common pool resource' where private property rights and a free market cannot apply. Only mandatory open access made it so--this might be why Ostrom never consider it as such (correct me if I am wrong).
The US electricity market has never performed this badly in its nearly 150-year history. Government intervention is fundamental. Friedman, Coase, Demsetz, etc. were right, after all.
Rob, I've replied on LinkedIn to the first two points you make here.
You add here the third point that the "market has never performed this badly in its nearly 150-year history." Not sure exactly how you are judging "the US electricity market" over the 150 years.
In the old days, there were mechanical failures and human error behind the blackouts, which were rare events, with some longer ones in the national news. Very uncommon.
Today, electricity reliability is in the news all the time because of central planning errors (ISOs/RTOs) and renewables forcing. We have blackouts, conservation orders, and near misses. News stories about an uncertain future with power reliability. It's a new world because central planners cannot price reliability like private companies can (or could).
Combine all the major outages in US history with what happened in Texas in one month three years ago. Texas was far worse. What does that tell you?
There is no getting around the significant failures in Texas during winter storm Uri. However, can you pin the failures on electricity reforms or is your thinking of the simple "post hoc, propter hoc" form? Competitive generating resources performed better during Uri than generating resources owned by monopolies. Some gas fueled power plant outages were due to failures of the natural gas industry--obviously not a consequence of electricity reform.
In addition, we can't really say how the old regulated monopoly approach would have performed in the ERCOT region under such an extreme storm, because no storm in the history of ERCOT had been so cold, for so long, over so much of the ERCOT region. (Though again, the residual monopoly generating plants in ERCOT didn't do as well as competitive generators during Uri, so maybe that's relevant.)
Most outages now, as historically, are in the wires part of the system which remains regulated now just as much as it was prior to the reforms. Those interruptions are also trending down slowly, though for reasons mostly unrelated to reforms.
I'm reluctant to judge the industry by news stories. NERC reports do offer reasons for concern, though NERC does not do benefit-cost analysis or other formal assessment of cost-effectiveness--consumers should adopt their talking points judiciously.
So why did Texas in 2021 (and some close calls since then) fail when generations of electrical technology (145 years) did not under a wide variety of pressures?
Is it a coincidence that Texas had an ISO market covering 90 percent of the state and was trying to ensure reliability rather than Grade A companies with their capital on the line? (No)
Was it because of a $60 billion investment in wind and solar that ruined the economics of coal and gas (yes).
Was it because of EPA rules and ESG pressure to electrify compressor stations that lost power (yes)
Was it because climate models predict warmer winters (disproportionately to summer even) and NOAA predicted a warm winter for Texas (yes).
Sure, one of the great 'what if's' is a real free market versus the hyper-related construct that Texas had in 2021 (and has today). But the history of electricity provision and market process analysis vs. government strongly suggests that the crisis of crises was, as you would expect, governmental.
P.S. Gas winterization technology was on the shelf but not used, which can also be traced to the governmental forced dis-integration of the power industry. The properties of electricity point directly toward vertical integration to ensure reliable service. We have learned an expensive lesson in this regard.
Just got the "Electricity Restructuring" book and am enjoying it. Thanks to this Substack for getting me interested in and aware of electric grids as systems. Fascinating.
I noticed a story today that far-leftists in Congress have proposed a bill to in essence nationalize the Texas grid. Probably would have missed that if I had not been paying attention as a result of subscribing to this Substack.
Coase was opposed to public utility regulation and favored eliminating franchise protection, period. Milton Friedman also. The idea of a basic violation of private property rights (mandatory open access); a centrally planned wholesale grid (ISOs/RTOs); and an artificial retail market with huge transaction costs (where there was little before under PUR) is just the opposite re Ronald Coase.
And no, electricity is not a 'common pool resource' where private property rights and a free market cannot apply. Only mandatory open access made it so--this might be why Ostrom never consider it as such (correct me if I am wrong).
The US electricity market has never performed this badly in its nearly 150-year history. Government intervention is fundamental. Friedman, Coase, Demsetz, etc. were right, after all.
Rob, I've replied on LinkedIn to the first two points you make here.
You add here the third point that the "market has never performed this badly in its nearly 150-year history." Not sure exactly how you are judging "the US electricity market" over the 150 years.
In the old days, there were mechanical failures and human error behind the blackouts, which were rare events, with some longer ones in the national news. Very uncommon.
Today, electricity reliability is in the news all the time because of central planning errors (ISOs/RTOs) and renewables forcing. We have blackouts, conservation orders, and near misses. News stories about an uncertain future with power reliability. It's a new world because central planners cannot price reliability like private companies can (or could).
Combine all the major outages in US history with what happened in Texas in one month three years ago. Texas was far worse. What does that tell you?
There is no getting around the significant failures in Texas during winter storm Uri. However, can you pin the failures on electricity reforms or is your thinking of the simple "post hoc, propter hoc" form? Competitive generating resources performed better during Uri than generating resources owned by monopolies. Some gas fueled power plant outages were due to failures of the natural gas industry--obviously not a consequence of electricity reform.
In addition, we can't really say how the old regulated monopoly approach would have performed in the ERCOT region under such an extreme storm, because no storm in the history of ERCOT had been so cold, for so long, over so much of the ERCOT region. (Though again, the residual monopoly generating plants in ERCOT didn't do as well as competitive generators during Uri, so maybe that's relevant.)
Most outages now, as historically, are in the wires part of the system which remains regulated now just as much as it was prior to the reforms. Those interruptions are also trending down slowly, though for reasons mostly unrelated to reforms.
I'm reluctant to judge the industry by news stories. NERC reports do offer reasons for concern, though NERC does not do benefit-cost analysis or other formal assessment of cost-effectiveness--consumers should adopt their talking points judiciously.
So why did Texas in 2021 (and some close calls since then) fail when generations of electrical technology (145 years) did not under a wide variety of pressures?
Is it a coincidence that Texas had an ISO market covering 90 percent of the state and was trying to ensure reliability rather than Grade A companies with their capital on the line? (No)
Was it because of a $60 billion investment in wind and solar that ruined the economics of coal and gas (yes).
Was it because of EPA rules and ESG pressure to electrify compressor stations that lost power (yes)
Was it because climate models predict warmer winters (disproportionately to summer even) and NOAA predicted a warm winter for Texas (yes).
Sure, one of the great 'what if's' is a real free market versus the hyper-related construct that Texas had in 2021 (and has today). But the history of electricity provision and market process analysis vs. government strongly suggests that the crisis of crises was, as you would expect, governmental.
P.S. Gas winterization technology was on the shelf but not used, which can also be traced to the governmental forced dis-integration of the power industry. The properties of electricity point directly toward vertical integration to ensure reliable service. We have learned an expensive lesson in this regard.