Power Issues

So I was returning from my business trip in D.C. when we hit Stamford, CT around 4:45. Mr business partner Chris suggested that we dodge Stamford traffic by getting off the highway and eating an early dinner, returning to the road in an hour and a half or so. Given that the highway appeared to be a parking lot, I agreed. So we took exit 9 off 95 in search for food.

We immediately noticed the lights were out in Stamford, and so we figured we’d drive down the street to the next town over, looking for a place to eat, given that nobody was cooking anything without lights in the kitchen. After crossing two town borders, we realized something was substantially wrong, and we turned on the radio, and heard about the blackout that you all know about now. Luckily, we were able to grab dinner on the grill at Chris’s friend’s house, who lived nearby. Still, I didn’t get home until 1:30 AM. I should have been home at 7.

* * *

I once concepted an Internet power retail company for the consultancy I used to work for back in the dot com heyday. In the process of doing that, I researched the power industry and the issues surrounding it, compiling with the help of an assistant, a extensive compendium on the industry, it’s history, it’s issues, and the deregulation movement that was spawning companies like Essential.com and utility.com. So I know a fair amount about the power industry, and Thursday’s fiasco has prompted me to write this missive. Sorry if it’s long winded. Go look at this if you’d prefer something that will numb your brain.

When commercial electricity networks were first being rolled out, the politicians who dominated government were big government, central planning types. And they believed that it would be wrong to just let anybody who wanted to to lay wire down around an urban area. Rather, they thought that what made sense was for there to be one power company in any one area, heavily regulated such that they didn’t behave like a monopoly and gouge on prices. This is the power paradigm that we all grew up with, one power company, often known as simply “the power company.” It was basically an unbranded public service whose bill you paid every month.

Prices were regulated at a specific margin above cost. In other words, the state would allow the power company to charge X% above the cost of producing the power, so as to not gouge the citizenry. This of course, led the power company to try and do everything in their power to increase the cost of providing service, because if the cost were increased, the revenue could be increased as well. That is why unlike the stereotype in the Simpsons, power plants are actually some of the safest industrial environments in the world. Every safety measure that could be built into the plant, would be built into the plant, so that it too could produce a state regulated margin of X%.

So costs were creeping up ever higher, and the power companies came to be dominated by, you guessed it, cost accountants. Who better to assign costs around to grab that state regulated margin than cost accountants? And the power companies became further and further distanced from the customers they were serving. In fact, in power company parlance, they weren’t even called “customers,” but rather “rate payers.” Costs were further driven by the fact that environmentalists were successfullt blocking the construction of new power plants, nuclear and otherwise. This meant that the supply was actually getting restricted, and now prices were climbing higher not just because of the manipulations of cost accountants, but because there simply wasn’t enough power to go around.

The first device to bring this problem to the consumer’s attention was the digital clock. Consumers would come home to see that all of their clocks were blinking, thus alerting them to a problem that they previously were unaware of, that the service that they were overpaying for was lousy. Further, as the workplace became further computerized and Bill Gates’s vision of a computer on every desktop came to pass, brownouts became a serious issue for businesses, who couldn’t afford to have entire workdays ruined by dataloss caused by unreliable power. especially given how much they were paying for it in the first place.

That was when companies started taking themselves off the grid. Oracle decided they’d simply had enough, and they built their own power plant right on the Oracle campus, guaranteeing them power 24/7, while lowering their cost of electricity. This began to scare the power companies. Further, advances in technology were making power generators available even to smaller businesses, and soon even to homes. Natural gas powered generators like those offered by Microturbine threatened to turn the entire industry on its head. Costs needed to be lowered immediately. Consumers and businesses needed to have a choice among electricity providers, in order to keep them on the grid. And so the electricity companies reluctantly agreed to deregulation, ending their monopoly over their rate payer’s power consumption.

* * *

There are a number of issues that stem from the problems caused by the original mis-management of the rollout of commercial electricity in the United States. They are:

–> Peak Management Issues
–> Grid Sustainability/Electricity Routing
–> Local Wire Administration

Let’s deal with these one at a time.

Peak Management Issues

Americans are very familiar with the concepts of supply and demand, that when supply is short or demand is high, the price of a good rises, and when supply is plentiful and demand is low, prices decline. Everyone who has a telephone, cellular or otherwise, is familiar with the notions of peak and off-peak times during which the rates are different. Electricity, however, isn’t metered that way. All that is metered is how much electricity has passed into your home or business between two points in time. But it doesn’t measure what time of day or what day of the week you were using the most electricity. So the electric company bills you at an average rate.

This causes two problems. First, individuals can’t save money by planning their electricity usage around the lower rates, e.g. when to start the laundry machine or dishwasher. As a result, they do these things during the times when it happens to be convenient to do them, i.e. at peak times. As a result, the system is strained, and more power plants need to be built to handle the peak hours strain, but then remain idle during off-peak hours. This is a tremendous waste, costing everybody money and resources.

The problem is that it costs thousands of dollars to replace the electric meter on an existing home, so the return on investment for individuals is very long-term. It may be shorter for businesses. A number of companies, I’ve heard, are working on individual time of day meters for high-energy-consumption appliances, so that you’d plug your air conditioner into the meter, and then plug that into the wall. These devices would help people plan their electricity usage, and thus lower strain on the system, but what’s really needed is for congress to mandate that all new construction use time of day/day of week metering, and then to slowly mandate the replacement of meters in homes around the country. Eventually, the current metering system will need to be replaced anyway, for reasons I’ll explain in Grid Sustainability.

But there’s one further issue regarding electricity: futures. Individuals need to be given the option to buy electricity in bulk when the rates are cheaper, by paying for the service up front. Electricity is cheaper typically because the source powering it is cheaper, such as natural gas or coal, and so electricity futures would work in much the same way as coal or gas futures. Except that all you’d do is prepay for a year’s power when the power company offered special rates. These sorts of financial instruments can help lower the cost of power for individuals and businesses.

Grid Sustainability/Electricity Routing

During deregulation, power generation was separated from grid maintenance and customer service/billing. This was generally a good thing, encouraging individual power generators to compete with each other on price and helping to lower the cost of power for everybody (What California did was something entirely different and completely screwed up, and would take too long for me to explain here. Suffice it to say, they’re not included in this analysis.) But the grid is still maintained by the power company. The problem with the grid is not just that it’s over taxed, which it is, but that it’s architecture is technologically ancient, and is in need of a complete redesign.

The metaphor often used to describe the way the current system works is that of a lake, where you have a number of “water providers” pumping water into the lake, and lots of consumers siphoning water out of the lake. And so long as the two remain at equilibrium, everyone is happy. A consumer can buy his water from any one of the providers, and even if the individual molecules of water he consumes didn’t come from his provider, since every drop is the same as every other drop, it shouldn’t matter.

The problem with this, of course, is that it’s a centralized system, much like the telephone system. If one water provider dumps poison in, everyone’s affected. People marveled how during 9-11 the telephone system seemed to crash and burn, but the Internet sayed up and remained viable. That’s because the Internet is based on routing, and is decentralized. So if any one line goes down, or any part of the network blows up, the rest of teh network adjusts and routes traffic accordingly. Power needs to be routed similarly.

A number of people have theorized on how this would work. Here’s an example, written in a wise assed demeanor. But here’s how I envision it. Right now, you’re reading the samaBlog, which is hosted at a server farm somewhere. That’s similar to a power generator that exists somewhere. If the connection between you and the samaBlog were to be disrupted, every router in between would find an alternate path, and you’re enjoyment would be uninterrupted. That is because each bit of information contained on the net is numbered, and can be tracked and moved about at will, with a different path taken every time.

Right now power works more like the phone system. In fact, it’s much worse, because at least the phone system can electronically switch itself, whereas the power company requires fleets of trucks to carry engineers out to poles and make switches manually. What’s needed is for each “packet” or grouping of electricity to be inventoried and numbered, in a manner of speaking. This will facilitate the construction of large backhaul networks, much like the Internet currently has, which will carry electricity by means of the most efficient route available, from the place you’re buying power from to your home or business. And if some freak in Canada blows up his own power plant, no worries. Not only will everybody else remain unaffected, but even those Canadians within range of teh original problem could quickly and easily be routed power from someplace else, minimizing the downtime for everybody.

Such a system would require that every individual have a new kind of electricity meter, one that can handle IP routing instructions as it were, and it would spawn a host of new companies, back haul carriers, who make the connections between generators and retail sellers of electricity.

To implement such a system requires standard setting and deregulation on a scale that has not been attempted by this country before. But we’re long overdue, so let’s start now.

Local Wire Administration

You may not realize it, but telephone poles are actually not owned by the phone company. They’re owned by the power company. Phone companies, cable companies and others rent space on the lines to deliver their services. This represents a problem. None of the essential utilities currently have direct competition, and this is because of the lines coming into your house. Muicipalities have essentially handed monopolies out to cable tv companies, while local phone companies have had a traditional monopoly disrupted only by the bill mandating competition from DSL carriers, which worked miserably. And given that power companies own the lines, it is unlikely that they will let other power companies hang their wires from the lines anyway.

The original thinking that said that there should only be one set of wires running through a town is hogwash. Redundancy from multiple providers is a good thing, and congress should separate the poles from teh electric companies, and place them in the hands of municipalities as public infrastructure akin to the roads. Then congress should mandate that anyone who can pay the fees must be allowed access to the poles to hang their wires, i.e. no more locally granted monopolies.

Again, this would spawn a whole new kind of company, the local provider, whose job it is to bring you electricity uninterrupted. That means that they maintain their grid and buy electricity cheaply and reliably, because if they don’t, it’s a trivial matter for you to change providers. Competition will encourage the maintenance of the local grids, and will spawn creative products and services which I’m sure I haven’t even thought about yet. Once the power companies stop servicing “rate payers” and instead start serving “customers,” everybody will be better off.

And it will probably spawn an economic boom too.

* * *

If you’re still reading this, thanks. Had to get that off my chest. Now I’m off to a BBQ.

 

17 Responses to “Power Issues”

  Thucydides Says:

Municipal ownership of the poles is no solution. The towns will make all decisions based on politics, and will drive up charges to cross subsidize politically influential tax eaters.

 
  Cranky Observer Says:

Well, that’s the story as the advocates of structural change in the provision of electricity tell it. And it can be made a convincing argument.

The other side of the story is that (a) the unregulated approach was tried from 1880 through 1910, and it didn’t work very well (forests of wires from competing providers blotting out the city sky being one reason, but there were others). And that from 1910 through 1980 the regulated monopoly model provided exponentially increasing amounts of electricity, with better and better reliability, at DECREASING real price, to close to 100% of the population of North America. And that since then, every atttempt to “fix” this system has cost consumers in dollars and reliability.

As I said, there are other issues. Utilities did get a bit lazy in the 1960s. Several big ones got trapped in the changes that hit nuclear power post-TMI. And the attractiveness of a career in heavy power engineering decreased in the 80s compared to microelectronics.

But I think it is a bit odd to have such a detailed post and not once mention Kenneth Lay, Dick Cheney, or the amount of $$$ contributed by Enron and Dynergy to various politicians. Regulated utilities were limited by law in the amount of political contributions they could make. And also in the amount of loot that could be extracted from them. These laws didn’t apply to Enron. Are the consumers actually better off? How about the ex-employees of the “fat lazy utilites” that Enron “fixed”? Let’s be honest: Samuel Insull would have been ashamed to do what Kenneth Lay did.

So I am a little skeptical of this analysis.

Cranky

 
  The Sanity Inspector Says:

Don’t forget the complications that would ensue in areas where they bury the utility lines.

 
  Cranky Observer Says:

“Right now power works more like the phone system. In fact, it’s much worse, because at least the phone system can electronically switch itself, whereas the power company requires fleets of trucks to carry engineers out to poles and make switches manually”

Um, no. There are some operations that have to be carried out manually, for reasons of physics and safety. And should a large part of the grid fail then recovery requires a lot of manual switching.

But in daily operation switching and power flow are handled from local and regional coordination centers, which have automated data capture and control over the remote equipment. These systems are extremely sophisticated. In fact in the 1970s electric utilities were one of the driving forces behind the design of what came to be called “non-stop” or 100% reliable computer systems, to support these switching operations.

There are several other technical mistakes of this nature in your post, which leads me to believe you studied the surface economics and sociology of the power industry, but not the actual electrical engineering, industrial engineering, or physics of how to make it work.

Cranky

 
  Patrick Lasswell Says:

Enron, Dynergy, and the rest of the big five who took advantage of the opportunity provided by California are evil guilty buggers. It should be pointed out that denouncing them as buggers after the California legislature dropped trou, greased up, and strapped their wrists to their ankles seems a half measure. From what I have heard from the people who are putting Enron power traders in jail, the political failure came first, the criminal behavior came second. Both were reprehensible, but there are matters of causality to be considered.

The Wall Street Journal had an interesting editorial discussing the abject failure of economic theory in Africa. Their conclusion was that no economic theory implemented corruptly can survive to accomplish its goals. This post is a broad overview of the essentials of the power industry as it stands. To address your concern however, it is only necessary for the “power packets” he described to be accurately logged, analyzed, and made public record to alleviate much of the corruption issues. Secret trades breed corruption, that was one of the biggest mistakes made by the government of California.

 
  JG Says:

Every economic / political model has some problems. For the democratic ? capitalist model it is the case of the natural monopoly. It seems to me that the Scandinavian?s had the right solution with the idea of Cooperative based utilities. The local users should own the local distribution networks for phone, cable, Internet, and power. Let the service providers then bid for contracts with the local population.

 
  Cranky Observer Says:

“The Wall Street Journal had an interesting editorial discussing the abject failure of economic theory in Africa. Their conclusion was that no economic theory implemented corruptly can survive to accomplish its goals.”

Yes, I saw that editorial. The first thing that popped in to my mind when I read it was my old radical friends who used to say “you can’t say that communism doesn’t work because it has never been tried in practice” – as if the Stalin years could just be wished away.

We tried free-for-all capitalism in utility service from 1880 through 1910. It didn’t work: we had the worst of both worlds, corruption AND inefficiency.

Then we tried the regulated monopoly model from 1910 to 1980. It worked fairly well, albeit with some suboptimal features and side-effects.

So we broke the regulated monopoly model to get something “better”. Now we have gross corruption, failure to invest for the long term, decreasing reliability, AND higher prices. I really don’t think you can say it is a coincidence that those who created the new policies then went on to commit the corruption and theft.

So, openness, sure. Who was on Dick Cheney’s Energy Policy Task Force and what did they discuss? Can I have the minutes of those meetings please? Who represented Joe Citizen on that task force when Ken Lay took the floor?

If you want to restructure energy provision, it would help if you could explain exactly how this can be avoided next time. The WSJ wasn’t so concerned about corruption when Enron was trading at $60/sh.

Cranky

 
  Steve Says:

But it doesn’t measure what time of day or what day of the week you were using the most electricity. So the electric company bills you at an average rate.

Not true at all! Rates do vary depending on the customer. For example large power customers (typically referred to as time of use) have demand rates that vary over time. For example, using electricity at 1 PM on a weekday is going to be more expensive than at the same time on Saturday or Sunday. Same thing for energy rates.

The reason residential customers don’t get such rates is that many of them don’t have real time meters (which are expensive) and thus don’t know how much they are using and I doubt even fewer would be calculating their bills. Still, residential customers are not billed an average rate. What electricity costs depends on how much you use.

Some rates do get flat rates such as street lights (at least where I live) but their usage does not change over the course of the day, so changing the price wont change their behavior, which is ultimately what you are driving at (i.e., higher prices lowering consumption).

But there’s one further issue regarding electricity: futures. Individuals need to be given the option to buy electricity in bulk when the rates are cheaper, by paying for the service up front. Electricity is cheaper typically because the source powering it is cheaper, such as natural gas or coal, and so electricity futures would work in much the same way as coal or gas futures. Except that all you’d do is prepay for a year’s power when the power company offered special rates. These sorts of financial instruments can help lower the cost of power for individuals and businesses.

LOL, one word: Enron.

I agree with what you have written here, a functional futures market is an excellent way to hedge against price shocks, but if you suggest this at a policy meeting every leftwing idiot (and a few rightwing idiots) will start screaming about Enron this, and Enron that.

Right now power works more like the phone system. In fact, it’s much worse, because at least the phone system can electronically switch itself, whereas the power company requires fleets of trucks to carry engineers out to poles and make switches manually.

Uhhh, no.

You may not realize it, but telephone poles are actually not owned by the phone company. They’re owned by the power company. Phone companies, cable companies and others rent space on the lines to deliver their services. This represents a problem. None of the essential utilities currently have direct competition, and this is because of the lines coming into your house.

This is because the distribution and transmission systems represent natural monopolies (that’s a economic term, look it up). Having competition here is going to difficult and socially wasteful. Do you really want 15 sets of poles lining the road? Do you really want another utility company digging up your street to lay some more wire every other weekend? Especially when one set of lines is sufficient?

The idea of redundancy is not necessary since most of the time the load on the system is well below the maximum the system can handle.

 
  Cranky Observer Says:

“The reason residential customers don’t get such rates is that many of them don’t have real time meters (which are expensive) and thus don’t know how much they are using and I doubt even fewer would be calculating their bills.”

Actually, it has been tried. At best, home consumers find it too complex and annoying to manage, and demand something “simpler”. Such as flat-rate retail pricing.

At worst, consumers see time-of-day and day-of-year pricing to be a scam, similar to what the way full-fare airlines manage ticket prices. Not wanting to open that particular can of worms, but from the consumers point of view it does look like a scam. So they start complaining about it in the political arena…

That said, Detroit Edison does have a very successful TOD/interruptable usage plan for air conditioning load. It works well for everyone I know who has it, although I suspect that is in part because AC loads are not all that high in Detroit compared to cities farther south.

Cranky

 
  Cranky Observer Says:

“I agree with what you have written here, a functional futures market is an excellent way to hedge against price shocks, but if you suggest this at a policy meeting every leftwing idiot (and a few rightwing idiots) will start screaming about Enron this, and Enron that.”

$60 billion of wealth evaporated and 100,000 jobs lost would seem to me to be a fairly good reason to “scream” about attempts to expand such activity. Not to mention very public prosecution of Martha Stewart while Ken Lay and Dick Cheney walk free with no charges. The public isn’t that dumb!

Cranky

 
  Sam Hall Says:

It would take a book to explain the errors in your post. Here is just a few highlights.
1. The circuits that carry your telephone traffic are the same ones that carry Internet traffic. Yes, if a group of circuits go down, the Internet will reroute, while you will have to redial your phone circut. Big deal.
2. The Internet is a packet SWITCHED service, electric power is one steady signal and can not be packet switched.
3. The power flowing over the grid can be rerouted
just like the Internet and normally is – something went very wrong the other day.
4. No company that is not poducing power for their own needs, like a steel plant, can produce electric power anywhere near the cost that a power company can provide it. This is basic physics and there is no way you can change it.
5. Not all the poles are owned by the the power company, the telephone guys own many. There is a federal rule that requires them to share and sets the terms.

 
  Dale Amon Says:

I agree that municipal ownership will not work. They’re the ones who in some cases spent 1-15 years on bids for “CATV” … basically pushing up the bribes I suspect. Government is inherently crooked.

You missed some of the older history of the electric companies in the US. There originally was competition. Interestingly enough, the push to regulate came from the industry itself and was often used by one better politically connected (or the company that was better at bribing the crooked bureaucrats and politicians) to put their rival out of business.

You can dig up some of this from issues of Reason Magazine, probably early 1980′s. Or there may be some reports at the Reason Institute on it.

 
  Jay Solo Says:

Indeed, wasn’t it AT&T itself that pushed for monopoly status in the early days when there was competition it preferred not to have? Different industry, same idea.

 
  M. Simon Says:

Now suppose the problem was not caused by lack of energy or lack of power but lack of control caused by the physical impossibility of controlling a power plant that must deliver huge amounts of power over very long distances on AC lines.

No amout of regulation or deregulation can fix a physics problem. You might as well ask the legislature to change the speed of light or the value of pi.

It may be that the very interconnectedness of the grid caused the problem.

The truth for those interested is that the power grid is not under control for short term fluctuations. (under one second). These fluctuations are allowed to absorb or deliver short term energy imbalances. The control system ignores them. It has to or it can’t even provide the longer term control necessary for even minimum functionality.

Now add in all the negative resistance loads we have been adding to the grid (computer power supplies for instance) and you have the makings of a serious problem. A control problem. Not energy. Not power. Control.

The solution is to make generation as much as possible a local thing. Until we have storage and a better long distance electrical energy transfer medium (high voltage DC lines).

Electricity cannot be packetized. Switching suppliers according to immediate costs will add fluctuation to the grids. Also high power switch gear is very expensive. A very good telephone relay bought in small quantities might cost $3. A house power relay bought in similar quantities might cost in the thousands. You will need at least two.

Then there is the problem of the switch over “glitch”. Which can be handled by a local flywheel/generator. Another several thousand or more.

Every body with a light switch in their dwelling considers themself to be an electrical expert. It is good to have opinions. It might also be wise to get them vetted by some one with expertise in the area.

The problem is that energy is easy to understand. Power is not too difficult. But transmission line theory, electrical theory in general, and control theory – all essential in making grid decisions – are in short supply.

For a very short primer and one in which many details are not rigorously dealt with (so the novice can get a feel for them) go here:

http://www.sierratimes.com/03/08/19/simon.htm

 
  David Foster Says:

Time-of-day pricing for residential users…we have that in suburban DC (Maryland) and have for several years. Peak pricing has been used for indusrial customers, just about everywhere in the country, for decades.

And I don’t understand the comment about time-of-day meters costing “several thousand dollars.” If they do, they shouldn’t. If someone would like to give me the contract for a million of these, I’m pretty sure I could deliver them for $300 each or so, at a pretty good profit.

 
  Winds of Change.NET Says:
Power and Control: 2 Views
Time to dive back into the issues the blackout raised, via 2 excellent articles that offer important background and points of view.

 
 

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