Thursday, February 10, 2011

More on the Texas - New Mexico Electrical/Gas Problems

There's a very good article at The Oil Drum today unraveling some of what went into the electrical shortages in Texas last week that led to gas shortages in New Mexico.

Andy has been asking for "proof" of the effect of privatization (in which I include deregulation) on reliability of energy supplies. I'll provide some quotes from the article.
Another issue is electricity deregulation in Texas. The competitive marketplace produces a situation not all that different from the situation in which BP operated that led to the oil spill in the Gulf of Mexico. Under Texas' structure, there are many entities, each concerned primarily with its own bottom line. In this environment, cost cutting in the name of profitability is rewarded, but can lead to power outages.
Texas is one of the states that replaced the monopoly system of utilities with a system of competing sellers, under what is termed "restructuring". Quite a number of states tried this approach and abandoned it (shown in gold on Figure 2). Texas is one of the states (in green) that kept this approach. It is striking that Texas had problems during cold weather, and other states nearby without restructuring did not.
So there is a controlled experiment of sorts going on, and last week's results don't seem to favor the deregulation model.
One of the stresses under deregulation is the fact that instead of vertically integrated utilities, we now have a much larger number of independent entities, each looking out for its own profitability, but not having a great deal of concern about making the system as a whole work together well. The economic incentive for each of these units is to cut costs as much as possible. For example, units have an economic incentive to cut corners on details like making certain that the unit can operate in any kind of weather. Units cannot be expected to have much concern about how their action contributes to the smooth operation of the whole. They certainly will not spend much time looking for feedback loops among different systems, such as the ones discussed above.
The observation is made (as I implied) that gas relying on electricity relying on gas as backups may lead to unfortunate feedback loops. In summary,
We recently have experienced a period of over fifty years when the electrical grid was "up" most of the time, and almost everyone has come to take its existence for granted. I think the time has come for a much more conscious awareness of our electrical system's limits; we need to start making decisions with its integrity as a first priority. The Texas power outage fiasco has not turned into the equivalent of BP's oil spill, but if we continue down the path we are headed, we could easily find ourselves with electrical outage problems much worse than the oil spill.
As they say, read the whole thing.


Andy said...


Just to clarify, I did not ask for "proof" but "evidence." Also, I understand a bit more where you are coming from now that I know all of the things you include under the rubric of "privatization." For me, that term has a much more specific meaning.

I thought the Oil Drum piece was a pretty good write-up. This was probably my favorite part:

Eliminating competitive pricing in Texas and other states with the system would seem to be helpful in preventing future blackouts. Eliminating competitive pricing may make integration of wind and solar into the overall electrical system more difficult, but if we want to have a system without major blackouts, we will need to make the health of the overall system a priority. This will likely mean going back to more of a regulated utility model, to the extent this is practical. It may also mean scaling back plans to add wind, solar, electric vehicles, and natural gas vehicles to the system, so that only the amount that the system can readily accommodate is added, given local constraints such as the size of natural gas pipelines and the amount of natural gas storage capacity available for short-term supplementation.

It makes me wonder what the best system for the future would be. Going back to the vertically-integrated regulated monopolies is going to be problematic for meeting future energy needs and decarbonization.

troutsky said...

Montana is a fabulous example of de-regulators gone wild. A huge catastrophe. Don't know if public oversight addresses Andy's concern or if it can stay de-politicized but it's the right direction.

Andy said...


I don't know about Montana, do you have any links?

Public oversight is obviously necessary. I guess what worries me most is the ability of regulators to effectively regulate complex structures with a lot of diverse players. The Texas grid is a good example of this (an even better example is the financial system). You have a variety of energy producers (private, non profit, co-op, municipal), a variety of technologies and distribution systems and different consumers all under a centralized regulatory scheme with a supposedly common set of rules. It seems to me that regulators in general are not very good at managing such large, complex systems and are also more prone to regulatory capture. That, to me, is a clear advantage of the older, vertically-integrated utility system. Regulations were simpler and clearer (and therefore easier to enforce) and regulators only had to deal with a single monopoly provider in a single jurisdiction.

I don't really have an answer to that problem or the best way to structure and manage infrastructure on a large scale.