Archive for February, 2011

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Transmitting power from Mexico to Texas

February 8, 2011

Michael Giberson

During part of the electric power emergency in the ERCOT region of Texas last week, the ERCOT system imported power from Mexico to reduce the extent of the blackouts needed to keep the ERCOT grid operating.

The interconnections between ERCOT/Texas and Mexico are relatively recent. The summary of the March 2009 meeting of the ERCOT board reported the following information:

MEXICO GRID CONNECTIONS BEGIN COMMERCIAL OPERATIONS

The direct current (DC) ties with the Comisión Federal de Electricidad (CFE) are open to commercial transactions, effective March 12.  These ties include:

* Eagle Pass (DC-S), 30 MW
* Sharyland Railroad (DC-R), 150 MW
* Laredo Variable Frequency Transformer (DC-L), 100 MW.

    The import and export limits of the connections with CFE are calculated daily and published at this link. [Link seems not to be working. -MG]

    The ERCOT grid is not synchronously connected with any other grids.   Connections to other grids are limited to direct current ties which allow the controlled transfer of power between the ERCOT system and another electrical system without the two systems being synchronized.

    The ERCOT grid also has DC ties with the Southwest Power Pool region at Oklaunion (220 MW) and at Monticello (600 MW), both in the north Texas area.

    The CFE ties have been used for mutual emergency assistance between ERCOT and CFE but were not previously available for commercial transactions. Mexico has assisted ERCOT through the ties and the Laredo connection during capacity-shortfall events, and ERCOT has also assisted CFE on emergency occasions.

    Information about the Sharyland DC tie is here, with technical detail available for the electrically inclined.

    Another discussion of the rolling blackout, this from Platts Energy Trader.

    Posted in Electricity, Energy markets | Tagged , | Comments Off

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    Joan Robinson on the two Koreas in 1977

    February 8, 2011

    Michael Giberson

    Scott Sumner wrote, “On or about December 1978, the world’s ideology changed,”explaining that “this quotation from Joan Robinson did not seem insane in 1977″:

    Before the last Korean war in 1950, the North was home to most of the country’s heavy industry. As late as 1975, its income per head still exceeded the South’s, according to Eui-Gak Hwang of Korea University in Seoul. “Obviously, sooner or later the country must be reunited,” wrote Joan Robinson, a Cambridge economist, in 1977, “by absorbing the South into socialism.” (From The Economist, here.)

    Sumner elaborates his thesis and then jumps to the more speculative issue of whether the dominant ideology is changing again. Or rather, not whether it is changing, but question of the direction of change. I’m not so sure about any of these claims, but the Robinson remark certainly sounds striking to observers looking backwards.

    Posted in Economics, Politics | 3 Comments »

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    We don’t need a geothermal portfolio standard

    February 7, 2011

    Michael Giberson

    The new Jan./Feb. 2011 issue of the Electricity Journal is now available, and it contains the usual range of interesting things to consider.

    Take, for instance, the article “Redefining Renewable Portfolio Standards: The Value of Installed Renewable Capacity.” The article observes, reasonably so, that some sources of renewable power can dependably generate power around the clock, while others are somewhat less dependable. And we can all agree that dependable power is somewhat more useful that less dependable power, other things being equal. But soon enough we depart this firm foundation and begin speculation on how we can rig power markets and renewable power policies to increase the role played by geothermal energy.

    To which the appropriate response is: “Say what?”

    It is as if the article does not realize that their are broader environmental goals at issue in renewable power policy. In fact, the only mention of the word “environment” in the article is in reference to “creat[ing] a suitable investment environment for developers” (p. 15; the article does mention greenhouse gases two times on p. 17).

    By the end of the article the author is asserting that “States with geothermal resources should tailor their renewable portfolio targets to encourage geothermal development to the extent possible.” I guess I missed the benefit-cost analysis earlier in the paper, but when did anyone besides the geothermal power industry conclude it was in the public interest to encourage geothermal development “to the extent possible”? Actually, the author is a bit more generous, allowing that his ideas would equally apply to other dependable renewable resources like biomass and landfill gas.

    We’d be better off if our environmental policy was more focused on solving environmental problems and less focused on boosting one segment of the power industry at the expense of other segments of the industry (and, ultimately, power consumers).

     

     

    Posted in Energy markets, Environmental policy, Regulation | Tagged | 5 Comments »

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    The natural gas that didn’t come in from the cold

    February 7, 2011

    Michael Giberson

    Among the complications caused by the cold weather last week, short supply of natural gas throughout much of the southwest United States. Reports indicate some gas wells were freezing up and loss of electric power to gas production systems, but more of the problem was loss of power to natural gas pipelines. And, as mentioned here Friday, in some cases the rolling blackouts in Texas cut power to the natural gas system, resulting in inadequate gas supplies, resulting in some gas-fired power plants being cut off from supply, hampering efforts to end the rolling blackouts. But the shortage wasn’t just a supply-side issue, a gas company official said demand for gas was the highest its been for 30 years.

    Sources: Dallas Morning News, “Freeze knocked out coal plants and natural gas supplies, leading to blackouts,” and Wall Street Journal, “Texas Power Outages Cause Natural Gas Shortages In US Southwest.”

    Hard hit New Mexico saw lawmakers spring into action. U.S. Representative Ben Ray Lujan is asking the Federal Energy Regulatory Commission to investigate. A state legislative committee is holding hearings today on the outages in the state. Thousands of Arizona gas consumers also lost service. Southern California gas supplies were difficult, but San Diego Gas & Electric and Southern California Gas Co. were able to maintain service to firm customers by drawing on nearby storage supplies and cutting off interruptible customers. (Interruptible customers are typically large industrial consumers who choose to pay a lower rate in exchange for agreeing to be among the first to be cut off during emergencies.)

    Texas regulators are also asking questions, “Texas to Probe Rolling Blackouts.”

    Texas officials have ordered an investigation into rolling blackouts that struck the state’s electric grid last week, including whether market manipulation played a role along with harsh weather in disrupting natural-gas and electricity supplies to millions of people.

    The Public Utility Commission of Texas asked the state’s independent energy-market monitor, Daniel Jones, to conduct a probe to see if power generators, pipeline companies or others broke market rules. …

    To be sure, Texas set an all-time winter power demand record one day during the storm, placing historic pressure on power providers.

    Electricity-grid officials said Mr. Jones’ team will look at price patterns and power-plant outages remembering that, in California’s energy crisis of 2000-2001, unscrupulous power generators feigned equipment problems to drive up the price of electricity. A significant number of plants in Texas failed last week, and wholesale electricity prices briefly spiked.

    Some commentators linked the electric power-gas pipeline interdependency issue to environmental regulation. As this Energy Information Administration document on natural gas compressor stations explains, compressor stations can be either electric or natural gas-fueled. As of the November 2007 date, most compressors were gas fueled, drawing gas from the pipeline itself to run the compressor station, but in some areas of the country “all or some may be electrically powered primarily for environmental or security reasons.” (Note that the document is dated before the current administration took office, so you can’t blame the White House for it.)

    Pipelines head north and east from Texas in addition to west, but no reports of supply problems anywhere else in the country.

    U.S. Natural Gas Pipeline Compressor Stations Illustration, 2008

    U.S. Natural Gas Pipeline Compressor Stations Illustration, 2008. (EIA)

    Posted in Energy markets, Networks, Politics, Regulation | Tagged , , | Comments Off

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    Better living through applied statistics: Cracking scratch-off lottery games

    February 5, 2011

    Michael Giberson

    In WIRED, Jonah Lehrer reports on how Toronto geological statistician Mohan Srivastava discovered a flaw in a lottery scratch-off game.

    As a trained statistician with degrees from MIT and Stanford University, Srivastava was intrigued by the technical problem posed by the lottery ticket. In fact, it reminded him a lot of his day job, which involves consulting for mining and oil companies. A typical assignment for Srivastava goes like this: A mining company has multiple samples from a potential gold mine. Each sample gives a different estimate of the amount of mineral underground. “My job is to make sense of those results,” he says. “The numbers might seem random, as if the gold has just been scattered, but they’re actually not random at all. There are fundamental geologic forces that created those numbers. If I know the forces, I can decipher the samples. I can figure out how much gold is underground.”

    Srivastava realized that the same logic could be applied to the lottery. The apparent randomness of the scratch ticket was just a facade, a mathematical lie. And this meant that the lottery system might actually be solvable, just like those mining samples. “At the time, I had no intention of cracking the tickets,” he says. He was just curious about the algorithm…

    Andrew Gelman comments at his Statistical Modeling, Causal Inference, and Social Science blog:

    “Ticket designers fill the cards with near-misses…”: This doesn’t sound like they’re just slapping down random numbers. Instead, the system seems to be rigged in the fashion of old-time carnival games in order to manipulate one’s intuition that the probability of near-misses should be informative about the underlying probability of hits. …

    In this sense, the story is slightly more interesting than “Lottery designers made a mistake.” The mistake they made is directly connected to the manipulations they make in order to sucker people into spend more money.

    If Gelman’s view is right, it suggests that scratch-off games companies will continue to produce and sell games that can be cracked. Quasi-randomized games can be made more interesting than a truly randomized game, so more tickets will be sold, so more money made by the lottery, so they will keep doing it. Presumably now, however, they watch their payout rates a little more closely and shut down their quasi-randomized games when it appears that someone has figured it out.

    Posted in Economics, Miscellany | Tagged | 2 Comments »

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    Hernando deSoto, property rights, and Egypt

    February 4, 2011

    Lynne Kiesling

    Yesterday the Wall Street Journal featured an essay from Peruvian economist Hernando De Soto, focusing on the socio-economic roots of the current protests against the authoritarian Mubarak government. De Soto’s work on the debilitating consequences of the lack of property rights for individual prosperity and economic growth is outstanding, and he has been working in Egypt for some time. He summarizes a study he published in 2004:

    • Egypt’s underground economy was the nation’s biggest employer. The legal private sector employed 6.8 million people and the public sector employed 5.9 million, while 9.6 million people worked in the extralegal sector.

    • As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title.

    • We estimated the value of all these extralegal businesses and property, rural as well as urban, to be $248 billion—30 times greater than the market value of the companies registered on the Cairo Stock Exchange and 55 times greater than the value of foreign direct investment in Egypt since Napoleon invaded—including the financing of the Suez Canal and the Aswan Dam. (Those same extralegal assets would be worth more than $400 billion in today’s dollars.)

    The entrepreneurs who operate outside the legal system are held back. They do not have access to the business organizational forms (partnerships, joint stock companies, corporations, etc.) that would enable them to grow the way legal enterprises do. Because such enterprises are not tied to standard contractual and enforcement rules, outsiders cannot trust that their owners can be held to their promises or contracts. This makes it difficult or impossible to employ the best technicians and professional managers—and the owners of these businesses cannot issue bonds or IOUs to obtain credit.

    I strongly recommend reading his whole essay; this excerpt cannot convey the eloquence of his argument for formal, transparent protection of private property rights for all individuals at all income levels, and the effects of such institutions on their prosperity and on economic growth.

    I first wrote about his 2004 Egypt report back in 2004, and will reprint that original post here to complement De Soto’s outstanding essay.

    [February 23, 2004] Friday at the Mercatus Chief of Staff Retreat, Hernando De Soto spoke on the work that they are doing in Egypt. Hernando De Soto founded the Institute for Liberty and Democracy in Peru, successfully fighting the Maoist Shining Path guerillas in Peru. De Soto laid out the economic and philosophical argument for why law, liberty and democracy are fundamental foundations of development in The Other Path. His most recent book, The Mystery of Capital, delves into the consequences of the lack of legal ownership and property rights in poor societies.

    De Soto and ILD have been working in Egypt for 4 years, mapping out how much of the asset base in Egypt is actually “owned” and operates beyond the confines of existing law, and how much economic activity takes place in an underground economy. They have found that 92 percent of Egypt’s asset base is in the hands of Egypt’s working poor, and that ownership of these assets is not supported or enforced by Egypt’s legal system. DeSoto and the ILD have been working to persuade the Egyptian government that bringing law and property rights to the Egyptian people will not only create an environment in which they can be economically productive, it will also be a good political move to be the government that empowers such a large percentage of the voting population.

    This was the first time I have heard De Soto speak, and he truly is inspiring. He is able to move from the specific features of Peru or Egypt to the general benefits that accumulate when societies have the legal institutions that support the move from personal to impersonal exchange. Trust is an important precursor to exchange, and institutions that enable trust among strangers and thus facilitate exchange are important precursors to economic growth. Another aspect of trust is the longevity of the business. To paraphrase from De Soto’s remarks, in poor societies you worry more about whether the businessman is going to have a heart attack, because the legal institutions do not exist that support the longevity of his business beyond his life. This lack of longevity shortens timeframes, meaning few or no long-term contracts and diminished investment.

    Another interesting point that he made is that in economically vibrant countries like the US, most small business is initially funded by mortgages and second mortgages on homes. The ability to borrow against your home is not available in many poor countries because of the lack of legal ownership. As he put it, in the US your home can do many things for you simultaneously. In poor countries, it does one thing: provides a roof over your head.

    And as De Soto said, these legal and economic institutions are more important than roads or ports, so if we really want to help the poor in developing countries, we should focus on institutions that create business longevity, facilitate impersonal exchange across larger markets, and enable people to borrow against their assets.

    Posted in Economics, Liberty | Tagged , , | 1 Comment »

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    Texas Observer: Some Companies Made Millions Off the Texas Blackouts

    February 4, 2011

    Michael Giberson

    In other commentary on ERCOT’s rolling blackouts: “Some Companies Made Millions Off the Texas Blackouts.”

    While Texans suffered rolling blackouts yesterday, some power generators were enjoying windfall profits. Starting around 5 a.m., prices in the wholesale market surged to the market cap, $3,000 per megawatt-hour, and stayed there, off and on, until around noon. Prices are typically below $100/megawatt-hour, acknowledged ERCOT CEO H.P. “Trip” Doggett today in a press conference.

    There are still more questions than answers but this much is clear: At best, some power generators around the state raked in oodles of money thanks to the way ERCOT has structured the energy market. At worst, some may have manipulated the market to drive up prices.

    … ERCOT may have allowed prices to reach the cap in order to maximize the amount of power during the crisis yesterday. In other words, ERCOT was willing to pay whatever it took to secure the system. [Public Citizen-Texas's David] Power compares it to flinging hundred dollar bills at a taxi driver who’s already got the pedal to the floor.

    “You just keep throwing money at the front seat,” he said. “You’re not going to get any more out of him; you’re just going to have a really happy driver.”

    (First it should be clarified that most power produced during the emergency was likely paid under a long-term contract, so didn’t get paid $3,000 per. Only to the extent that a generator had the capability to increase output over existing contractual commitments would it be able to earn that price on the increase.)

    The $3000 price is part of ERCOT’s “scarcity pricing” mechanism. It is a rule that plays about three or four roles all at once. First off, during emergency shortages you want to motivate every generator out there to take every reasonable step to maximize production. At the same time, you want to motivate large-scale customers that see something like a real-time price to cut back on consumption to the degree possible.  In addition, the price is supposed to help motivate longer term investments – generators investing in a little more spare capacity, consumers investing in a little more conservation or the capability to curtail during emergencies.  These later effects won’t help during the current emergency, but the hope is to be a little better prepared for the next emergency.

    So it isn’t just a matter of making the current taxi drivers happy.  We want customers who don’t need cabs so badly to find some other way around, and we want to have more taxi drivers in the city for the next emergency. No doubt, though, with the political attention the event is receiving, the possibility of market manipulation will be and should be examined.

    ASIDE: By the way, if you assume 1 MWh of energy would keep 250 homes from being blacked out, at $3000/MWh the cost is about $12 each.* Much, much higher than the typical cost of electricity, but I’m sure many (not all) consumers that lost power yesterday would rather have their monthly bill $12-48 higher and kept their power through the cold. With a fully developed smart grid we wouldn’t have to guess whether or not consumers would want to pay these kinds of prices. Consumers could decide for themselves what their limits were, and set their devices to manage instant responses to system emergencies.

    My preliminary assessment of the rolling blackouts was posted earlier today: Cold snap brings rolling power outages to Texas; is ERCOT policy of isolation at fault?
    *A very rough ‘back of the envelope’ calculation, not based on consumption data from Wednesday. Feel free to improve upon it in the comments.

    Posted in Electricity, Energy markets, Regulation | Tagged , | Comments Off

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    Speed as a for-profit service

    February 4, 2011

    Michael Giberson

    Wednesday’s Wall Street Journal included a story on HOT lanes and other ways commuters can buy through congestion, “American Idle: On the Road.” One excerpt:

    In the early years of the nation, entrepreneurs built toll roads, offering travelers a faster carriage ride in return for money.

    Now, the concept of the toll road is making a comeback. In Virginia, a key element of a $4 billion transportation package proposed by Gov. Bob McDonnell includes expanding the use of “HOT” lanes, an acronym for high-occupancy toll lanes. These fast lanes will be operated by a private company within the existing freeway system. Toll rates could fluctuate according to demand, or be set based on time of day as they are on Route 91 in Los Angeles. Such pay-to-roll roads are in operation or on the drawing board around the U.S.

    Posted in Economics, Networks, Transportation | Tagged | 1 Comment »

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    Cold snap brings rolling power outages to Texas; is ERCOT policy of isolation at fault?

    February 4, 2011

    Michael Giberson

    [Note: This item was originally posted at MasterResource as: "Texas Power Outages: A Preliminary Analysis (Cold snap brings failure--isolated ERCOT an issue)"]

    Wednesday morning, ERCOT, the power grid operator for much of Texas, called upon local distribution companies to cut power to blocks of consumers on a rotating basis. The rolling outages were a great hardship the people throughout the region, and have consumers and policymakers wondering what went wrong and what should be done about it. The following is a preliminary analysis based on public data and news reports. A subsequent post will present more details once more complete information becomes available.

    In brief, extreme cold weather pushed power demand to very high levels for the winter.  At the same time, 50 of the state’s power plants were offline due to the effects of the cold and several more were undergoing planned maintenance. The combination of very high demand and reduced supply left the ERCOT grid perilously short of reserves.  Some wondered whether wind power was at fault, but wind power contributed about 7 percent of ERCOT’s power during the emergency – about the same as this time last year. Rolling consumer outages were employed to protect the system from failing completely.

    No power system is immune to hazards. But policy decisions that increase the likelihood of hazards or multiply the resulting damages ought to be given careful reconsideration. In this case, the choice by Texas policymakers to keep ERCOT isolated from surrounding power systems prevented power companies within ERCOT from accessing excess power capacity elsewhere in the state and in neighboring states.  Other policy issues also are raised by the emergency, but few solutions are likely to be as cost-effective and technically simple to implement as linking ERCOT to its neighbors.

    ERCOT Map

    A more detailed examination of the topic follows.

    Read the rest of this entry ?

    Posted in Electricity, Energy markets | Tagged , , | 7 Comments »

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    Think globally, solve locally?

    February 3, 2011

    Michael Giberson

    Among the casualties of yesterday’s rolling blackouts in the ERCOT power system was a Texas A&M University conference dedicated to helping solve global energy challenges.

    Via the Texas A&M News and Information Service:

    Texas A&M System Gearing Up To Help Solve Global Energy Challenges

    COLLEGE STATION, Feb. 3, 2011—The Texas A&M University System is fine-tuning its game plan for playing a leading role in helping solve global energy challenges, with expert input provided by a host of authorities from both the private and public sectors.

    Texas A&M’s lineup of researchers in a variety of fields—ranging from its high-ranked petroleum engineering department to an oceanographer who gained widespread attention for his environmental findings from the Deepwater Horizon disaster in the Gulf of Mexico—huddled with key representatives from such entities as the Texas Commission on Environmental Quality, Public Utility Commission, Texas Railroad Commission, the Argonne National Laboratory and ExxonMobil.

    It all played out at the 2011 Energy Forum conducted by the Energy Engineering Institute. …

    The 300 conference participants were blind-sided with an up-close and personal experience about dependability and reliance on energy—energy in the form of electricity and lighting. Just as the concluding luncheon for the forum was set to begin, College Station fell victim to the statewide “rolling blackout” prompted by the unusually cold weather and resulting high demand for energy. The result was an unintended candle-light luncheon.

    Speaking with the help of a hastily rigged small lectern light, the luncheon speaker, Texas Railroad Commission Chair Elizabeth Ames Jones, recounted the history of oil in the Lone Star State and praised its ‘vibrant and healthy energy industry.”

    … Ironically, the lights came back almost immediately after Jones concluded her remarks.

    (I’ll have more about the ERCOT’s rolling blackouts tomorrow. -MG)

    Posted in Electricity, Energy markets, Humor | Tagged , | Comments Off

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