California Blackouts Inevitable

March 16, 2001 6:25 AM

California Blackouts Inevitable says the U.S. Govt Energy Secretary. He is against price caps. It seems there is a lack of understanding on his part to grasp a *public good* that benefits all. Having a few producers control a market with a high cost for competitors to enter the market to form true competition screams for some control. Particularly for a commodity that business and people a like use to drive the overall economy. Since the economy is in such great shape maybe we don't need these controls [sic].
posted by vanderwal (9 comments total)

I would like to point out that the Energy Secretary, the evil Spence Abraham.. voted many times to get rid of his own position (before he accepted it for himself).... This is typical of him.
posted by tj at 12:29 PM on March 16, 2001

I don't often agree with Dubya and his cronies policies, (and I'm Californian, to boot), but Abraham's dead-on here. There are two, and only two, solutions to the power situation here:
1) Increase Supply
2) Decrease Demand
The normal method to cause demand to drop (raising consumer prices) has been ruled out by most of the politicians involved. So, we're stuck with increasing supply. This, so far, has consisted of forcing other states to provide CA with power, which disrupts the supply side of our neighbors equations. _Their_ prices go up, since their states didn't have the foresight to repeal the laws of supply and demand.

The solution is now obvious. We need to repeal the second law of thermodynamics. That way, we can build a bunch of perpetual motion machines and attach generators to them, thereby increasing the supply.
posted by swell at 12:47 PM on March 16, 2001

I completely agree with decreasing the demand for power. Increasing the supply is also not a bad idea. From all I have read about the California power problem, part of the problem is the limited number of power suppliers have reduced their output so to raise their rate of return (the limiting supply for constant demand raises the price). The California consumer has been caught in an economic experiment that proved that this basic theory works. By capping the rate the suppliers can set they must return to their previous rates of production to get a similar dollar net return.

It is also odd that the suppliers that will benefit most from new production plants are the same ones limiting their power production and the same ones that were top donors to the *W* campaign, which happen to be Texas based.

If the media got it wrong, then so did I.
posted by vanderwal at 1:09 PM on March 16, 2001

Ok, 'swell'. Let's just tell all the hospitals and businesses and elderly homes to shut down a few days a month. That would reduce demand all right. You seem to believe we have a choice in this matter. Over the long, long run yes we do. But short term, can I re-configure my home for an alternative energy source? Contrary to the lies spread by energy companies, CA demand has NOT increased in whole or per capita in the past year. In fact, CA has one of the lowest per capita consumptions of electricity in the nation.

The problem is the main consumer electricity suppliers (PGE, Southern Edison) were banned by law from obtaining long term contracts for electricity supply. That created an abnormally volatile spot market in CA which suppliers, perfectly legally, took advantage of. (One way was to take several generating plants down for 'maintenance' at once.) Until this can be fixed, it is important that the feds step in to control the market so things don't continue to get out of hand. They do this all the time in the stock market I don't see why this is unthinkable in this situation.
posted by dragline at 2:32 PM on March 16, 2001

'dragline' - your second paragraph hit it dead on.
posted by vanderwal at 2:56 PM on March 16, 2001

The problem is the main consumer electricity suppliers (PGE, Southern Edison) were banned by law from obtaining long term contracts for electricity supply.

As further background here: PG&E, Southern Edison, and SDG&E were all banned by law from obtaining long term contracts for electricity supply as a condition of a huge taxpayer-funded bailout that freed the utilities from the enormous costs of their white-elephant nuclear power plants--you'll see this referred to as "stranded cost recovery", and it was criticized by everyone from Public Citizen on the left to the Heritage Foundation on the right. The utilities lobbied for it and got it as payback for agreeing to what semblence of deregulation California now has. San Diego Gas and Electric paid off the bonds, was freed from the provisions of the bailout, tripled its prices, and is in no danger of bankruptcy.
posted by snarkout at 3:30 PM on March 16, 2001

Just to pick a nit, hospitals don't blackout during rolling blackouts, and nursing homes weren't supposed to either. (Let's not get started on the topic of competency at PG+E). Also, we're not talking about "a couple days a month", we're talking about rotating hour long outages. Not the best way to do business, true, but far from the economic doomsday scenario that seems to be painted fairly often.

I agree with you that the rules governing consumer utilities regarding long term contracts are absurd, and have created, if not a cartel, then something that sure acts like one. But that is a problem that CA needs to fix, and the feds are correct, IMO, not to get involved. CA's absurd rules created the situation where the "scheduled maintenance" could occur. There's also some very strange rules about how CA's spot market works. For example, if PG+E says it wants 100 kWh of power, and, say, Enron offers them 99 kWh at $0.10, and Green Mountain offers them 1 kWh at $0.99, PG+E pays $0.99/kWh for the whole thing. Again, CA needs to make the market act like a market to encourage the producers to compete. If shutting down for "maintenance" hurt the producer's bottom line, they'd only do it when absolutely necessary.

But short term, can I re-configure my home for an alternative energy source?

Well, I'm gradually replacing incandescents with florescents over time. But I'm doing so for purely altruistic reasons. If I knew that my bills were going to double next month, I'd do them all tonite. I'd also replace the wasteful appliances, and string up a clothesline.

You may be right that per capita energy consumption has remained steady, but there are a LOT more Californians than there have been in the recent past if the freeways are any indication. We rely mostly on hydroelectric power, and this year's been considerably drier than the past couple years. Less water in the reservior = blackouts in the summer, and we're running them down now.
posted by swell at 4:01 PM on March 16, 2001

So it seems that the big problem here (on which most everyone seems to agree) isn't that deregulation won't work, but that the system wasn't deregulated enough (i.e. PG&E et al. and their customers got screwed because of remaining regulations).

As for the possibility of hospitals or nursing homes running out of power or money to pay for it in the event that electricity prices were allowed to rise as much as the market would bear: wouldn't it make more sense to subsidize those institutions rather than forcing price caps on the entire industry?

Government price limits will only ensure that the supply will never meet demand. It's simple economics.
posted by daveadams at 8:54 AM on March 19, 2001

While it is true that the deregulation scheme implemented in CA, which wasn't really deregulation, was a major cause of the power shortages, a removal of price caps combined with a multi-tiered cost structure is also necesary. A tiered cost structure, where prices vary depending on the amount of consumption, would increase revenues without hurting the consumers since only those who exeeded some set amount of kW-hr would be charged. This would provide both revenue for the power companies and an incentive for consumers to conserve.
posted by Octaviuz at 10:43 AM on March 19, 2001