Wednesday, February 2, 2011

Rolling blackouts come to Texas

Deregulation will usher in a new era of lower consumer prices and more reliable service.

Those words, or words to that effect, have been uttered every time a regulated industry has been turned loose from government reins. In some instances, it's true. Air travel is much cheaper now that it ever was during the days the government oversaw the industry. The cost of making a long distance call is cheaper than ever, as well.

But when it comes to utilities, the promised benefits of deregulation are (almost) always just beyond reach.
ERCOT, which overseers power supplies in Texas, has asked electrical companies to institute "rotating outages" to compensate for increased demands for electricity during the wintery cold snap gripping the state.
Electricity deregulation was sold to Texans just like it was sold to everyone else. And we've all looked at California's annual rolling blackouts during the summer when energy prices skyrocket. Of course Enron had their hand in the mess by engineering shortages in order to drive prices even higher.

Now we have rolling blackouts in Texas due to the extreme winter weather that has moved into the state. But we've always gotten at least one nasty "blue norther" a year without the state calling for rolling blackouts. What's different?

In the old days the local utility owned the lines (transmission) and the power plant (generation). Money was to be made through the sale of power. The lines were a fixed cost that the power companies had to eat. The Public Utility Commission would approve rate requests from the utilities that took into account the cost of putting up poles and stringing lines.

When the energy market was deregulated the utility companies shed their lines and because marketing companies that bought and sold electricity. The utilities spun off units that maintained the transmission lines. These units became independent companies who made their money charging the marketing companies for shipping electricity across their lines.

In theory, the new utility companies were free to make money without worrying about the cost of installing or maintaining the power lines. This made the companies more profitable. As we all learned in economics, companies who wish to become more efficient take those profits and reinvest them in the company - constructing new plants or exploring new technology to generate electricity.

A growing futures market in electricity developed. Companies could enter into contract to deliver, or purchase, electricity for a given period at a fixed price. Companies could enhance their profitability by hedging their bets with these contracts. Guaranteed fixed prices for electricity and long-term contracts with customers turned the utility market into the equivalent of shooting fish in a barrel for the utility companies.

In reality the utility companies took their buckets of cash and showered their executives with lavish bonuses and plastered their names on sports stadiums throughout the state. The result was that production capacity has failed to keep up with the demand for electricity.
"Although we realize this is an inconvenience for our customers, these controlled rolling outages are planned emergency measures designed to avoid potentially longer, and more widespread power outages. We will continue these rolling outages until we receive direction from ERCOT that the electric supply in Texas has stabilized." -- Scott Prozchaka, CenterPoint Energy
Funny how no one ever mentioned the term "rolling blackouts" when trumpeting the benefits of deregulation.


Rebecca Bany said...

My power usually goes off before everyone in our town. However, others have lost power off and on the past 2 days. But I haven't lost mine yet! WooHoo. Not happy for those w/o of course. Hope they get it back soon and can stay warm!

JohnO said...

I'm a first-time poster that enjoys reading your blog. Following is from another blog I read almost every day,

"Every year before an upcoming freeze we are told over and over again to "wrap our pipes", or the three P's: Pipes, Pets, and People. Unfortunately according to Lt Governor David Dewhurst, a frozen pipe put hundreds of thousands in the dark and in the cold. From the Austin Statesman:

Lt. Gov. David Dewhurst said late this morning that a broken pipe and a frozen pipe at two Central Texas electric generating plants helped trigger a statewide power emergency that forced rolling blackouts in Austin and across Texas."