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How the Free Market Rocked the Grid
sean_nestor sends in a story at IEEE Spectrum that begins:
"Most of us take for granted that the lights will work when we flip them on, without worrying too much about the staggeringly complex things needed to make that happen. Thank the engineers who designed and built the power grids for that — but don't thank them too much. Their main goal was reliability; keeping the cost of electricity down was less of a concern. That's in part why so many people in the United States complain about high electricity prices. Some armchair economists (and a quite a few real ones) have long argued that the solution is deregulation. After all, many other US industries have been deregulated — take, for instance, oil, natural gas, or trucking — and greater competition in those sectors swiftly brought prices down. Why not electricity?"
No, the solution is MORE regulation, not less.
The rates need to be regulated, and the private companies need to be taken over by nonprofit public organizations.
Every time deregulation is tried, consumers get shafted.
Yeah, Look at airplane tickets and how much they have gone down...
Or better yet, Phone companies! My bill is as low as... Egads! It isn;t. Help!
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"First things first -- but not necessarily in that order"
-- The Doctor, "Doctor
You mean like Wall Street or Enron?
Such arguments were compelling enough to convince two dozen or so U.S. states to deregulate their electric industries. Most began in the mid-1990s, and problems emerged soon after, most famously in the rolling blackouts that Californians suffered through in the summer of 2000 and the months that followed. At the root of these troubles is the fact that free markets can be messy and volatile, something few took into account when deregulation began. But the consequences have since proved so chaotic that a quarter of these states have now suspended plans to revamp the way they manage their electric utilities, and few (if any) additional states are rushing to jump on the deregulation bandwagon.
Yeah, so, how about not continuing this experiment with our critical infrastructure?
Palm trees and 8
There are no free markets. There are only markets controlled by governments and markets controlled by customers. The markets controlled by customers work out pretty well for customers. The markets controlled by governments work out pretty well for governments and the politicians that run them and the lobbyists who fund them and the corporations who make money because the politicians control the markets in their favor.
Don't piss off The Angry Economist
The IEEE publishing a political editorial like this really discredits them as a professional organization.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
About deregulation and about how my butt still hurts from the Enron assrape. I'm normally a free-market kind of guy, but I learned a lesson on this one.
"Eve of Destruction", it's not just for old hippies anymore...
<sarcasm>I am always surprised of how easily these "neocons" forget the most basic economic concepts of the system they worship... They forget things basic concepts like ROI, entry barriers and so on, as long as forgetting them favours their dogmas.</sarcasm>
In short, in Capitalism 101 we saw that, in a pure free market, if sector A has profits better than sector B, then inversions will flow from sector B to sector A, increasing supply until price drops, and profits in both sectors are the same.
In Capitalism 102, we saw that, in real life, maybe building a new enterprise in sector A is not just as easy... it may require huge inversions, a big risk (if by entering the market they lower collective profits, maybe the ROI won't be positive), and outright collusions (for example, all enterprises in sector A join and tell you "if you enter into our sector, we will presure our suppliers so nobody does provide you with the materials you need if they want to do bussiness with us").
In Campitalism 103, we all saw what happened to Enron.
In my country, the former monopoly of telcos (Telefónica, now Movistar) still is the only supplier when you need some services in some geographical areas (not by law, but the other telcos do have wanted to get the infrastructure). Sometimes when they have lost a contract with us, they have blocked providing the service through the winner to the maximum that the law allowed them (and at least we have some law forcing them to provide the service in a limit time).
Of course, some illuminated people will only repeat Capitalism 101 lessons while covering the ears to avoid realising what they are really saying...
Why can't
The Tragedy of the Commons. Also known as the Race to the Bottom.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
...a market for electricity will ensure nobody goes without electricity, presumably by the same process by which a housing market ensures nobody is homeless and an international food market has caused an end to world hunger.
The ideologues are back with a vengeance. After all that has happened, after the finance system collapsed (and showed that it wasn't really made of anything substantial in the first place) how can anyone still listen to market fundamentalists?
If we can put a man on the moon, why can't we shoot people for Apollo-related non-sequiturs?
I agree. The free market works well for most stuff, but certain things, not so well. How to tell them apart: imagine whatever service you're discussing breaking down, for instance through the bankruptcy of a private provider. Is it thinkable that the government would not have to step in and provide it? Yes: Go private. No? Go public.
So, suppose you have an electricity grid. Will people be content with blackouts? I doubt it.
Suppose you have a toy manufacturer. That seems like something for private firms to do.
Banks? Apparently, we don't really want the big banks to fail. So we'll have to regulate.
Note your public/private (or regulated/unregulated) depends on your tolerance for breakdown. Some people (and countries) care a lot that healthcare works, for instance.
WTF, 1.5 months after the U.S. change of guard and we're already recycling Enron?
For a couple of years, I worked in the UK electricity industry, which was at least partially deregulated in 1998. People look at me funny when I say I've got candles and tinned food stashed away, but I expect every winter to be the one where it all comes crashing down.
A big part of the problem, at least for us poor schlubs charged with getting the billing right, was that all these deregulated entities keep getting bought and sold. And every time they do that, there's a data migration, which almost invariably gets screwed up. Bad data piles on bad data on bad data, with fixes promised but never delivered in time for the next buyout. One region in particular had one standard evening/weekend meter set-up and no fewer than four different versions of that reality in their database. The net effect was to flip their predicted e/w usage pattern upside down. That usage pattern is what gets fed into the National Grid computers for demand forecasting. See where this is going?
I'm told that the larger "half-hourly" stuff is in somewhat better shape, which is probably why the whole thing's held together so far. But if what I saw was what you can expect from a deregulated energy industry, I'd say there's good reason to be afraid...
You may be too young to know, but you used to not be allowed to own your own phone. You had to rent one from the government monopoly. It was a crime to hook an unapproved device to your telephone line. Deregulation allowed people to do evil unapproved things like run BBSs in their houses and hook modems up to their phone lines.
If you're talking about the US, that's exactly backwards. It was a breach of your contract with the telephone company - which was allowed to become a monopoly by the US government - but not a crime, and it was actually government regulation that forced the phone companies to allow you to connect phones and other devices not rented from the company.
Nobody said those things should be free. But developed countries have measures to ensure that people can obtain them even if they couldn't afford them in a pure free market - precisely because they are essential. But that's unrelated.
Infrastructure is a prime candidate for regulation, because of its "natural monopoly" character - in the absence of regulation, it's very easy for a dominant company to squeeze everyone else out and then exploit their monopoly. Telephone and internet connections got a lot cheaper and faster here (UK) when the dominant phone company were required to let other providers use their network.
Just look at all the "innovation" that companies like Enron brought to a deregulated energy market! Let's ask California how well that worked out for the average consumer. While we're at it we can look at deregulatory laws like the Commodity Futures Modernization Act and the repeal of Glass-Steagal that enabled such "innovation". The "free market" for oil is now run by speculators who can buy and sell contracts for millions of barrels of oil but never have to take delivery, creating false demand and squeezing millions of dollars a day from average americans as they have to pay over $3.00/gal to fuel their vehicles. What else has deregulation done? How about all those nasty little unregulated derivatives such as MBS(mortgage backed securities) that imploded the world economy? That's financial "innovation" like the world had never seen before. All thanks to deregulation, yay!
All things are subject to interpretation, whichever interpretation prevails at a given time is a function of power and n
For the same reason "life isn't fair"
As long as 1% of the total population controls 90% of the wealth, there is no such thing as competition or free market capitalism.
I like competition and I dislike government intrusion but there is a reason FOR government and that is to protect it's citizens, that includes protection from economic crimes as well as physical ones.
The middle class is shrinking regardless of which ideology is popular that month. People are losing their homes left and right, jobs are going over seas and yet still so many people are ignorant to the real issues.
Deregulating natural monopolies doesn't solve the problem. It just hands a blank check to a corporation chosen by the government to fuck it's customers however it chooses.
Free market is an oxymoron to anyone that actually understands what the two words mean.
They pushed for deregulation, then prices started to skyrocket, and blackout/brownouts followed.
Seth Blumsack, the author of that offensive lie, should be forced to read aloud the live data feed of the oil and gas market prices. For the rest of his life. Oil and gas prices have skyrocketed without regulations protecting us from speculators, supply side manipulation, and every other kind of abuse the market manipulators cook up. Trucking is a random example of an industry never properly regulated enough that is also not actually deregulated.
But right there under lying Blumsack's byline is a cluster of pictures of Enron creating a faked energy crisis in California, because deregulation allowed it. Of course, that crisis also required Bush and his lying "free marketeers" to be running the Federal government, which is obligated to protect one state from interstate commerce abuses that damage it - which is what Texas deregulation allowed by keeping Enron's practices and books secret, even though California's deregulation required opening them.
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make install -not war
Also, if the politicians put the price too low, more electricity is demanded than can be supplied (this is why there were bread lines in the USSR).
It's curious that you mention bread here. So what's the proposed free market solution to those lines, then - price the bread higher so that some of the poorer people forming those lines couldn't afford to buy it at all?
The most economically efficient electricity market...
The funny thing about "economic efficiency" is that it says absolutely nothing about how many people get shafted in it.
Before replying in this thread you must have at least taken a Microeconomics or a Macroeconomics university level course.
I wish!
Where did he say it would be free?
Just look at all the "innovation" that companies like Enron brought to a deregulated energy market! Let's ask California how well that worked out for the average consumer. While we're at it we can look at deregulatory laws like the Commodity Futures Modernization Act and the repeal of Glass-Steagal that enabled such "innovation". The "free market" for oil is now run by speculators who can buy and sell contracts for millions of barrels of oil but never have to take delivery, creating false demand and squeezing millions of dollars a day from average americans as they have to pay over $3.00/gal to fuel their vehicles. What else has deregulation done? How about all those nasty little unregulated derivatives such as MBS(mortgage backed securities) that imploded the world economy? That's financial "innovation" like the world had never seen before. All thanks to deregulation, yay!
The California electricity market wasn't completely deregulated. And the residual government power is what caused brownouts and bankrupt electricity providers to Enron's benefit.
Second, claiming that speculators are responsible for the slightly elevated price of oil (adjust for inflation) is just a demonstration of your ignorance of the oil markets. Where in the world do you think that oil goes? If I speculate and buy a million barrels of oil, then that oil has to go somewhere. Either I have to pay someone to store it physically or I sell it. Being a speculator, I sell it as expected. And the oil ends up in the hands of the consumers of oil, as expected. Supply and demand explains the oil prices far better than blaming things on the scapegoat of the month.
Finally, you apparently don't understand what went wrong with the financial crisis in 2007-2009. Here's the phrase that explains it all: "50 to 1 leverage". No security, no matter how regulated or safe, makes financial sense when you have. by hook or crook, that kind of leverage. Fortunately, government was around to bail all these greedy bankers and clueless investors. Of course, that means the market wasn't truly deregulated.
Deregulation in California is what drove the sometimes 2000% increase in electricity costs that peaked in 2003. It brought us Enron and the recall of Governor Gray Davis.
Blindly recommending deregulation on a commodity that is bought and sold in an a marketplace that promotes investing and speculation instead of direct production, distribution, and consumption creates a situation that will blow up unless it is regulated in some fashion.
(Of course the SEC has shown it can really keep a handle on this type of thing... hmmm... uhhh, urrrk...
It doesn't matter what course you choose to take. If you leave the psychopaths in positions of power, then whatever system is used will only lead to further misery.
These problems can only be solved by the recognizing and removal of non-humans. I'd start at the banking level, remove the psychopaths from that system, undo usery, and then work down.
If the ability to experience empathy is a pre-requisite before one can be considered human, then Psychopaths are not human. They are a predator population which has embedded itself at the highest levels of power and social control. If you want to treat them kindly, then that's fine, but whatever happens, they need to be removed from their positions or we will continue to live in a state of war, poverty and misery.
-FL
You mean that one of these days I won't be on dialup? All due to the last 20 years of little regulation which has seen my service downgrade and my bill go up. $30 bucks a month now for a 2.64 kb/s connection. Lots of choices for long distance which I don't use so pay $5 a month for not using long distance. At least my basic bill has been pretty stable which is why now it is only 20% of the total.
https://en.wikipedia.org/wiki/Inverted_totalitarianism
None of this could have happened without deregulation of the telephone system. We wouldn't be having this conversation right now if we still have a government monopoly in telephone systems.
It was an AT&T rule. It was a lawsuit against AT&T that allowed third party equipment to be connected to AT&T's monopoly network, while they were still a monopoly.
The Swedish market for telecommunication was deregulated during the 90's and is much cheaper with strong competition. We have at least three major parallel mobile networks covering almost all of the country. A lot of small telcos have sprung up selling "old copper". Before anyone brings up the old "yes, but you are such a small country, so it is different" argument, let me mention that we have a population the size of New York spread out over a country the size of Texas. Besides the lower prices and higher speeds, we also get much faster administration when setting up, moving or closing (yes really) an account.
100MB/s broadband at $60/month
80MB/s mobile broadband at $91/month (introduced recently, will lower once mainstream)
Mobile phone at $17/month
That said, the so called "free" nordic energy market and the similarly "free" railroad market are complete jokes. During last winter at least 2 of our nuclear reactors where closed for scheduled maintenance mid-winter. During winter temperature in Stockholm can reach -25 C / -13 F and in Northland it can reach -40 C / -40 F. Not an optimal time for scheduled maintenance but the energy companies said... "Oops, we will schedule differently next year. Sorry for the high prices.". This year maintenance was in the fall, with at least one nuclear reactor still being worked on/upgraded during early winter.
The problem is definitely not a true free market. For the Swedish energy market here are some of the problems.
To me, producers get paid for investing in their own already profitable plants and plants taken off-line during winter are signs of corruption, dishonesty and incompetence. Deregulation works beautifully when politicians are competent and honest. Despite my normal cynicism I do on occasion admit that there are honest politicians out there. This is one such occasion.
She made the willows dance
You are under a serious delusion here, let me help you out.
The "Free Market" only works in a Utopian world. In that Utopian world when it comes to energy you would have many many transmission paths and you would have many many suppliers and each consumer could choose their own supplier and transmission path and select the best deal they could find in that combination.
Real world now. You have a set of transmission paths that are pretty much fixed, it is called the Grid. You have a few BIG power generators. In northern California that vast majority of the electrical grid is owned by Pacific Gas and Electric as well as the Natural Gas Grid.
Now PG&E maintains both the grids as a cost of doing business. Now as a consumer I want to buy power from Joe's Electrical Generation and then the problem becomes how do I get the power from JEG? Does JEG send it's power into the PG&E Grid? If so how much will PG&E Charge JEG and or ME for the privilege of using that Grid? What does it cost to maintain, modernize and upgrade that Grid as a stand alone entity? What should PG&E charge JEG and or Me for me to get power from JEG?
Suppose Fred's Electrical Generation comes along and can generate 1000 times more electricity then JEG can generate? Suppose PG&E has determined that in order to keep the grid up and running, modernized, etc. that they need to charge 10 cents per unitm but as FGE's customer base grows and grows to the point where they are saturating the grid and PG&E can't expand the grid fast enough what happens to JEG? Does JEG lose the ability to feed into the grid and thereby feed me since FGE's customer base has grown to the extent that they can afford to pay PG&E a premium that effectively shuts down JGE's path to me, the customer.
The problem is that it is no longer a free market between me and JEG it is a market now between the Grid Owner and the Power Producers.
It is a lot like Net Neutrality. The Grid ( in this case the long haul cable owners can now ( do to saturation ) are in the position of being able to say to prover A that they must pay a higher price to send their content but leave provider B at the same cost.
Common Carrier Status dictates that the carrier ( in this case PG&E ) must carry everyones product at the same price and not affect the market of goods and services unless it affects then entire market equally. So if PG&E needs to dump 10 million into improving the grid then that increase must be spread, pro-rated amongst ALL its customers to ensure the market is fair to all participants.
The problem is that none of what I have described actually occurs. Mostly what happens is that back room deals are struck and the one the greases the palm of the grid owner the most gets to see that the screws are put to the ones that don't grease the palm as well and more often then not that person is the consumer or in my example the consumer and JEG.
Hey KID! Yeah you, get the fuck off my lawn!