Power In The Hands Of Shippers

My friend Jim Johnston is very knowledgeable about energy markets, and he had a commentary in the Chicago Sun-Times last week on how to improve grid reliability.

Thus, we have a new pattern of generation and consumption that overlies the older locally oriented grid structure. It is a prescription for disaster that promises to persist unless we do something about it.

In referring to the two Wall Street Journal commentaries by Bill Hogan and Peter VanDoren & Jerry Taylor that I discussed in this post, Jim says

One Harvard economist, who helped design the failed system in California, suggests a federal takeover of the transmission grid. Two analysts from the libertarian Cato Institute suggest we let the free market find the solution without giving us a hint of what that might be.

We can do better than that. We can look at similar systems to see how they handle the relationship between shippers and the owners of the transmission.

One example is the system of interstate oil pipelines, and another is the system of natural gas pipelines in Texas. What these examples of safe and efficient transportation show us is that the operations, rules and rates are mostly determined by the owners and the shippers, not regulators. Frequently the shippers are also owners of the pipelines on both sides of the deal: Shippers are sometimes producers of oil and natural gas, and sometimes they are large consumers of energy.

He then goes on to develop the idea of using the business model that shippers use for natural gas in Texas as a model to follow for minimally regulated, more robust and creative electricity transmission. A must read.