What's the right price signal to bring forth enough infrastructure to maintain reliability over the long haul? Moreover, if such a model exists, can it work without stifling competitive markets?...
The Grid Is Dead
Gas pipelines compete against electric transmission lines. And the pipes are winning.
Last month, somebody gave me a copy of what looks likes a purloined private, inside-the-company newsletter put together by an association of power traders. Let me try to share some of it with you.
In one column, the editor reported on a speech he gave at the monthly meeting of the Women of LA, held at the Beverly Hills Four Seasons Hotel, where, as he puts it, the ladies looked like they had just stepped in for lunch after their weekly Bridge or Ma Jong game. The editor saw them as friendly and hospitable, but at the same time, "very pro-Democrat" and "very anti-us." In fact, the editor says that by the time he took the stage, he was put back on his heels, forced to defend power generators against what he described as a lynch-mob mentality.
Earlier, when TV actor Dennis Weaver (Gunsmoke) took the podium, and he urged everyone to embrace conservation and replace fossil fuels with hydrogen (e.g., fuel cells and such), the editors says the ladies just plain broke out in applause. The editor adds that their enthusiasm for Weaver even exceeded their love for consumer advocate (and former Fortnightly author) Peter Navarro, who talked about how the power generators had manipulated prices and pocketed those obscene profits.
Well, I, too, am concerned about runaway electricity prices. But like the ladies of LA, I suspect that the real lesson of the Western power crisis goes beyond price manipulation and obscene profits.
YEARS FROM NOW, WE'LL LOOK BACK ON THE POWER CRISIS AS THE BEGINNING OF THE END OF ELECTRIC TRANSMISSION. You heard right. At the very moment when President Bush is calling for a study of a possible nationwide electric grid, I believe that the power crisis has revealed the truth about the long-haul electric transmission business-it's likely doomed to collapse into a dead-still-breathing business backwater-like the niche occupied today by Western Union or the Postal Service.
How is that possible, you say? Haven't the federal regulators pledged their lives and sacred honor on regional transmission organization (RTOs) to save electric utility competition? And isn't natural gas giving way to electricity in terms of residential energy consumption?
Yes and yes. But consider this: has an integrated electric transmission network improved electric reliability in California? Are Californians better off relying on snow melt in the Cascades as their energy source, delivered by long and delicate electric transmission lines, or on natural gas deposits in the Rockies, the Southwest and Canada, delivered via pipeline? Which commodity market is traded more deeply? Which is the more volatile in price? Which is the most vulnerable to shortage? Which delivery system is more robust? Which system carries the greatest risk from a first-contingency failure?
I believe it's no coincidence that troubles are brewing in all three of the nation's most important network systems-radio and television broadcasting, airline terminal gates, and the Internet. All three suffer from an inability to define and rationalize property rights.