The usually-reliable Babbage columnist at the Economist has written a misguided commentary on last week’s power outage in San Diego and its broader implications (and, unfortunately, Glenn has picked it up on Instapundit, which will magnify the effects of its misguidedness). He starts by summarizing what’s known about the fault that led to a voltage reversal that culminated in the outage, but then goes awry with his interpretations of the event:
Managing supply and demand, once the prerogative of the utilities’ planners, has become a process shaped largely by an energy company’s appetite for risk. Meanwhile, independent system operators who schedule the dispatches of electricity have become, effectively, asset managers—using market-clearing prices to equilibrate between bids by suppliers and those from retailers.
By and large, such changes have made energy markets more efficient. For consumers, the competition created by deregulation has kept a lid on electricity prices. But it has had downsides, too. One of the biggest is the way it has removed what little spare capacity the grid once had. In the power industry’s new competitive environment, transmission companies operate their lines at near full capacity, leaving little room for those threatening fluctuations in voltage caused by accidental outages.
This assertion is simply false, as a couple of commenters on the column point out. The statutory reserve margin requirements have not changed. But no system, natural or engineered, is 100% reliable.
Babbage’s interpretations are misguided in two particular, and related, ways. First, he refers repeatedly to “deregulation” in the electricity industry in a misleading manner. Deregulation is a misnomer, especially with reference to California and Arizona, the states involved in this event. Regulatory restructuring in electricity was not deregulatory in general, but focused primarily on liberalizing wholesale electricity transactions. In this particular instance, California has an Independent System Operator-operated wholesale power market, with substantial restrictions and regulations, and Arizona suspended its restructuring and does not participate in organized wholesale power markets. Thus his connection of the San Diego blackout to perverse incentives arising from “deregulation” is more than misguided; it is misinformed.
He also asserts that while smart grid technologies might seem like they would enhance coordination and information in ways that would improve grid reliability, the opposite may be true because of increased cyber-security risks due to the communications overlay. Smart grid capabilities, like all other communications networks, create potential security risks, but system operators and all utility grid owners and all parties involved in scoping smart grid investments, creating cost-reducing and efficiency-enhancing customer-focused interoperability, and implementing smart grid technologies are very aware of those risks, working to mitigate those risks, and are focused on creating a resilient networked system of systems.
Babbage mentions that smart grid technologies will
… add a communications layer to the local electricity-distribution network—so consumers can see at a glance how much electricity they are using at any time of the day, and how much it is costing them. Alerts sent by the utility at peak periods will allow customers to cut back their consumption and save money—or have it cut back for them to reap extra rewards. The real aim, of course, is to save the utility from having to invest in additional capacity.
The aim is to maintain the reliability of the network while making it more efficient, which reduces costs of the regulated function for captive ratepayers … but he totally misses that if we have competitive retail markets that enable consumers to automate their responses to dynamic pricing, their individual, distributed decisions are more likely to make the grid more resilient, leading to better reliability.
A very disappointing and poorly-thought-through article.