Asymmetrical Information

Our local IT manager was hearing about this from folks at offices in the effected cities, including Detroit as well as New York and Ohio. It has just hit the major newsfeeds in the last couple of minutes, after you and the puppy blender already had initial posts up about it. Sounds off the top of my head like a grid control problem.

Many of the Detroit suburbs are blacked out. My wife's office is without power. I'm in a building at Eastern Michigan U, I have power (we have at least a small power station on campus), but I'm told by reliable sources that the Rec Center and other campus buildings are blacked out.

All right, time to put out an APB for John Galt. :-)

On a more serious note, hope everyone rides this out OK.

Metro-North says they've got no power along the main line between NYC and New Haven, certainly nothing's leaving New Haven station except Diesel service on the Shoreline East trains. Traffic lights in New Haven seem to be working, reported not to be working in Darien.

Geez, they can't even keep the power grid working! With this manifest incompetence, and growing discontent fed by widespread hatred of the imperialistic American administration, this is a sure recipe for a bloody quagmire. Better to withdraw with honor now, and let the natives form a nation on their own.

US out of New York!

From CNN.com:

NEW YORK (CNN) -- A major power outage simultaneously struck dozens of cities in the United States and Canada late Thursday afternoon.

Cities affected include New York; Cleveland, Ohio; Detroit, Michigan; Toronto and Ottawa, Canada. The power outage occurred shortly after 4 p.m.

State officials said the Niagara-Mohawk power grid was overloaded. The grid provides power for New York and stretches into Canada. The officials said the outage is likely a natural occurrence and not related to terrorism.

"It's probably a natural occurrence which [struck] the power system up there," Mayor Michael Bloomberg told CNN. "The good news is, Con Ed's facilities have shut down automatically, which they're programmed to do." Consolidated Edison is the New York area power company.

Black smoke coming from a power station on East 14th Street "was a natural thing," Bloomberg said. "No damage was done to the Con Ed facilities," he said.

Uh, come again? I can't think of any "natural," non-emergency instance in which black smoke would be coming from a power station. If a station was "naturally" emitting smoke like that the EPA would fine them into the ground.

Maybe a very large transformer immolated itself...

Follow up: Maybe he was only referring to natural as in "non-terrorist" and wasn't quoted very well in the CNN story...

I live in Houston, Texas--and we are not experiencing any power troubles whatsoever. We have plenty of energy sources throughout the state. Why is this the case? That's simple, Texans did not listen to the screw ball Liberals residing in the North East area of the United States.

As exciting as it must be to blame a catastrophic failure of the power grid on liberals, David, you might want to dig up a shred of evidence. I rather doubt Texas's diffuse network of demand has much to do with the eastern seaboards saturated one, with a gigantic spike in manhattan to boot.....

"All right, time to put out an APB for John Galt."

Who is John Galt?

Am I hitting below the belt? Isn't it possible that this power grid crisis could happen anywhere? Still, my initial suspicion is that this problem could have been avoided if Liberals had not prevented further energy development in the presently afflicted states.

"Well the power is out around the city and in Jersey. It's a familiar feeling wondering what's caused this."

Terminator 3...rise of the machines. ;-)

Just curious . . . what does "places like Cleveland" mean?

It isn't a metter of there not being enough power - it a matter of the distribution network undergoing catastophic failure. Don't think liberals had anything to do with it. (Although the fact that this is the third such event makes me think there are serious probliems in the northeast grid) The California "crisis" was caused by misguided legislators who made the fatal mistake of listening to the proclamations of neoclassical economists, but they were equal parts Democrat and Republican...

"Just curious . . . what does 'places like Cleveland' mean?"

Detroit.

"The California "crisis" was caused by misguided legislators who made the fatal mistake of listening to the proclamations of neoclassical economists, but they were equal parts Democrat and Republican..."

Did you write the above with a straight face? California's troubles are due to listening to Liberals who fought tooth and nail against the building of new energy sources. It appears that you take Paul Krugman a bit too seriously.

Jason: I can't speak with authority for Mr. Thompson, but I'd read his blame of "Liberals" for power outages as being aimed at their (if we're clear that we mean NIMBY/Enviroweenie types specifically, rather than "Liberals" in some other sense) opposition to construction of any useful sort of new power plant.

I imagine the Niagara/Mohawk grid wouldn't have been overloaded (ie, ran out of power) if it had a few (dozen) additional gigawatts of clean nuclear power on it, right?

That seems like a reasonable thing to blame a Certain Variety of Liberal for, if one is careful to specify the variety of Liberal, and to note that the connection between Enviroweenie-ism and Liberalism is more coincidental than anything else.

If Mr. Thompson meant something else, well, I wouldn't know.

“That seems like a reasonable thing to blame a Certain Variety of Liberal for, if one is careful to specify the variety of Liberal, and to note that the connection between Enviroweenie-ism and Liberalism is more coincidental than anything else.”

Coincidental? Gosh, when did this happen? Utopian Liberalism is definitely responsible for the lack of sufficient energy sources in this country. Nobody else deserves the blame. Environmental extremists have done tremendous damage to our citizens. It is no exaggeration to claim that Americans should be paying at least half of what we currently pay for our residential energy needs. Isn’t it a shame that nuclear energy isn’t the norm?

Can we really afford to be dependent on the grid for almost all vital services? Perhaps it would be better if (say) the NYC subways had their own power plants (as they did around the turn of the last century). So if the grid goes down, people could at least get home.

Oh, for god's sakes, at least wait until they give us a straight answer on the cause before tagging it to your regular political enemies.

Crap. The power just went of here in South Orange County (SoCal). Oops. I take that back. I hit the light switch on my way up the stairs.

-Brad

In the 60's it was the UFOs, I wonder if they came back and did it again...

David T:

Let's review what happened in Cali, hmmm?

1.) Deregulation was passed, on the promise that competition would lower prices for consumers. As a sop to doubters, price caps (well above then-current regulated rates) were put on retail prices - but who cared, since prices would soon be so low? The Magic of the Marketplace was on it's way!

2.) Instead of going down, wholesale prices went up. Now, mind you, nothing had happened to the electricity infrastucture. Demand hadn't suddenly gone up, nor had supply gone down. All that had happened is that the market had been changed from a regulated monopoly to a "competitive" market, in accordence to neoclassical dogma. Price Must Equal Marginal Cost! Huzzah!

(For those who are not under the spell of neoclassicalism, and thus permeable to reason: the belief is that the ideal market outcome happens when, under competetive conditions, all producers increase their output until their marginal costs equal the market price. The main problem with this "analysis" (there are many) is that it doesn't caome close to describing reality: real producers have average costs that are far above their marginal costs (in the case of electric utlities, marginal costs - the cost of one more kilowatt - are virtually nil). So, they price at a markup over average costs. If they are placed in a position where they are being forced to sell at marginal costs, they will go bankrupt. Unless, of course, they can collectively reduce their output to the point where prices go back up again. Suddenly, unforseen "maintainance issues" started happening all over the state....)

3.) Suddenly, the utilities were faced with steeply rising wholesale costs and a cap on retail costs. They started bleeding money. Economists blamed themselves. Ha, ha: no, not really - they blamed two things: the price caps that they had left in the system (since, of course, the damn customers should be made to pay for their damn low cost power!) and the laws preventing the power companies from entering into long-term wholesale contracts (which, of course, had been put in there at their insistance, since only the spot market can make Price Equal Marginal Cost!)

4.) The utilites went bankrupt. The environmentalists (who ,truth, to tell, probably were over-zealous in their opposition to new power plants over the years) were suddenly blamed for eliminating extra power capacity (which, of course, was there all along, being "serviced") Once the Grey One got off his ass, he managed to negociate long term contracts (at higher prices than had prevailed before), and suddenly all those maintaince issues started being resolved.

To sum up: there was never a "shortage" of electricity. The suppliers behaved as profit maximizers: reducing their output in order to maintain their margins (of course, once they discovered how much they could increase their margins, they got a bit happy about it...) I don't blame them. I don't blame the environmentalists. I blame the economists who are so blinded by their theories that they try to impose them on an uncooperative world...

Oddly inconsistent, these economists! For dogmateers, I mean. There are thousands and thousands of other markets out there still contaminated by long-term contracts and uncapped retail prices, but you never seem to see any of Jimbo's neoclassicals trying to purify them with California-style deregulatory regulations. Why not?

Jimbo,

The "maintenance issues" must have been legitimate. In an actual shortage, withholding supply doesn't make sense because extra units could have been sold without affecting the price. Why sell X units for $Y/each when you can sell X+1 units for $Y/each? Customers were lined up ready and eager to buy at $Y.

Wait - are you talking about other electricty markets, or commodity markets in general? "Cause electricity, since CA, is still (thankfully) regulated.

As for other markets, they generally don't need regulation (I'm not a socialist - disagreeing with neoclassical economic theory doesn't automatically make you one, y'know...) In a "normal" market, like cars, producers don't generally compete on price. They price their product at cost plus markup, and if they can't sell all their goods at that price, they reduce output until they can. For the most part, they compete through marketing and product innovation - i.e. "we both sell $20,000 cars, but my $20,000 car has a whosewatzis" The fact that they don't have to sell everything all at once means they can build up inventory rather than cut prices in the short term. Both of which means they can maintain their margins, pay their workers, cover their debts, etc.

But say you're an electricity producer. You can't store your output, and electrons are electrons (there was some effort toward marketing "green power", but it didn't go very far) Under those conditions, bidders for electricity while take it from the lowest bidder, and under the normal condition of excess capacity in the system, your bid will be at your marginal cost (since you can't store it, it doesn't make any sense for you to not sell it for whatever you can get for it, and everyone else will do the same...) Only, your marginal cost is virtually nil - and it doesn't begin to cover your actual costs... So, you started looking around for ways to cut costs. You shut down a few plants for "maintainence". Enough people do this, and pretty soon there's not any excess in the system - in fact, there's a shortage. Since the elasticity is virtually nil (the utilities gotta keep juice in the lines, no matter what), the price goes sky-high, and you are now raking in the bucks. Doesn't require any collusion, or even any really dishonest behavior, on the part of the producers - just good sense.

So I'm not arguing for wage and price controls, economy wide. I am saying that public utilities should not and cannot be run on a competitive basis. They can be publically owned, they can be privtely owned (pluses and minuses to both, though I personally prefer private + regulators), but you can't just "leave it to the market", as the neoclassical models show, because the models are bunk.

Kyle -

In what world do additional units on the market have no effect on the price? Oops, I'm sorry, that would be the neoclassical world, where additional units DO effect the market price if you're a monopolist but DON'T if you're a competitive firm...

If I'm a producer, and I'm making money hand over fist keeping one of my plants off line, why would I want to turn it on - especially when I know the overall capacity of the system and roughly how much it would take to get it back to the "0-bid" condition? Like I said - it doesn't take out-and-out collusion - just plain horse sense. Everbody knows what everyone else is doing. As long as I keep my spare plant down, the next guy will do the same - why rock the boat?

jimbo said "Under those conditions, bidders for electricity while take it from the lowest bidder, and under the normal condition of excess capacity in the system, your bid will be at your marginal cost (since you can't store it, it doesn't make any sense for you to not sell it for whatever you can get for it, and everyone else will do the same...) Only, your marginal cost is virtually nil - and it doesn't begin to cover your actual costs..."

Meanwhile, back in the real world, customers that care, write what they care about into their contracts. If they care about minimum capacity and reserve capacity, that's what they insist on. Providers who don't meet the minimums don't get to play the game. Providers who claim to meet the minimums, but fail in the attempt, get fined heavily. This is standard operating procedure for all industries where a supply shortfall causes something expensive to happen (just-in-time factory shippers, highway construction, data transmission, and many others), including industries where peak demand is erratic (e.g., so-called "burstable" data transmission).

It is instructive to look at aluminum smelters. The single biggest line item on their accounts payable is the marginal cost of electricity. A supply shortfall is a catastrophe because they have to dump the crucibles to keep them from freezing solid, or let them freeze and then throw them away and buy new ones. (These crucibles are the size of a small house, full of troublesome molten material, and very, very expensive.) A power supplier that tried pulling a "down for maintenance" stunt would probably not survive the attempt, financially speaking, and possibly medically speaking.

Compare that to the former California approach: don't require any service level, get screwed, pay through nose, don't require any service level, get screwed, pay through the nose, lather, rinse, repeat. Most people would have learned after the second occurrence of "get screwed", but not California, they kept going back for more good generator lovin' week after week. Must be all that free love I keep hearing about.

jimbo, your straw man show is somewhat amusing, though an egregious mischaracterization of the California situation. Why hasn't collusion (tacit or otherwise) led to similar situations in the rest of the country, where electricity generation has also been deregulated?

For the rest of you who may be becoming uncomfortable with the smoke being blown your way from jimbo, you might want to read what an actual economist and expert in the field has written on the topic. See http://ksgnotes1.harvard.edu/people/William_Hogan

I never said you were in favor of wage and price controls economy-wide, Jimbo; I was pointing out the bizarreness of your belief that neoclassical economists are in favor of them.

>>I imagine the Niagara/Mohawk grid wouldn't have been overloaded (ie, ran out of power) if it had a few (dozen) additional gigawatts of clean nuclear power on it, right?

How would changing the *generation* capacity of the network alter its *distribution* capacity? It strikes me as akin to saying that the way to solve traffic jams is to build more car factories.

My understanding of the situation in Ca. was that it was caused by a particularly bad "market" that was established by the state, in the interests of ensuring "fair pricing" for the the most expensive producers - wind/"green" sources. Every day, the transmission system asked for bids to supply power, and they accepted the bids, starting with the lowest prices bid, and moving up the price chain till they filled the daily quota. Then, the prices that was paid to _everyone_ was the cost of the _last_, HIGHEST bid to be accepted. This was done to ensure that the highest cost producers did not get shut out, because they were "socially desireable producers".

As a result, the big, cheap producers were actually submitting bids to supply power at a NEGATIVE cost. They promised to pay the transmission system to carry their power. They knew they would get into the system that day, because they were (1) low cost, and (2) a major producer. They also knew that they would be reimbursed at the price of the highest producer.

This sort of gaming is only possible because the Ca deregulators set it up this way, to accomplish some other "social interest", and because YOU CAN'T STORE LARGE AMOUNTS OF ELECTRICITY CHEAPLY OR EFFICIENTLY.

"My understanding of the situation in Ca. was that it was caused by a particularly bad "market" that was established by the state, in the interests of ensuring "fair pricing" for the the most expensive producers - wind/"green" sources."

Yup, this is the fault of the Luddite Liberals. Californians and New Yorkers have no one to blame but themselves. After all, they voted in liberal politicians. Did anybody put a gun to their heads?

“How would changing the *generation* capacity of the network alter its *distribution* capacity? It strikes me as akin to saying that the way to solve traffic jams is to build more car factories.”

Wow, I feel like the proverbial home run hitter who has just been thrown a slow pitch over the plate. Nuclear energy would have significantly lessened the price to ordinary folks. Thus, there would have been more money available to spend on improved redundancy and distribution systems.

Jimbo,

"In what world do additional units on the market have no effect on the price?"

All together now..... _in a shortage_!

There was an actual shortage of electricity. People were lined up and clamoring to pay $Y/unit, but only some of them were able to get the power they wanted. An electricity producer could have sold additional units to the remaining unsatisfied customers at the same $Y/unit they had already proven willing to buy at. The price would not have fallen until the physical shortage was alleviated -- only then would additional units cause the price to fall.

David - I'm also in Texas, and I can tell you that we have less nuclear power than New England does. We are about 68.9% natural gas, 23.3% Coal, 5.6% Nuclear, 1.1% Wind, 0.7% Hydro, and 0.4% "Other". (PUCTX) New England is about 27% Nuke. (NEISO)

I will tell you this - nuclear is great, and cheap, to use as backbone, but for summer afternoons we need gas, or something similar, which can be turned on and off at will. Turn off a nuke, and it's off for a couple of weeks. It will take some time for the 4 nukes in the blackout to restart.

Other "renewable" sources like wind and solar need gas backup for the times when the wind don't blow and the sun don't shine. Batteries are just too expensive.

"Liberals" may have killed nuclear power, but the reason the lights stay on in Texas is because we've made sure there is enough transmission to move the power around, the system is stable, and there is enough generation to keep things going. Fuel mix affects price, but not stability - at least the mixes anyone uses don't. 100% nukes wouldn't be stable, unless demand were constant.

"Liberals" may have killed nuclear power, but the reason the lights stay on in Texas is because we've made sure there is enough transmission to move the power around,..."

That's the thing about natural gas...it allows generation to be more closely located to load. You'll definitely notice (1200+ MW) nuclear power plant cooling towers, or a rail line feeding a (600 MW) coal power plant.

However, a small gas turbine (1-10 MW) can be located in an industrial complex, and you'd never even know they were generating electricity there.

http://esolar.cat.com/solar/cda/articleDisplay/1,1348,7_1004_10094_10000246____7_1,00.html?prevTemplate=&userMessage=

In fact, relatively soon (probably less 2 decades) many new houses will have fuel cells (

http://www.plugpower.com/products/documents/GenSys5cMP5withstandby.pdf

Microturbines (25 kW to 500 kW) are a possibility, too.

http://www.eere.energy.gov/der/microturbines.html

"Turn off a nuke, and it's off for a couple of weeks."

No, only if something is seriously broken. If the reactor or turbine just trips because of insufficient or excess demand, it's nowhere near that long:

"The problem is when these power plants went off line, they get cold," Michael Gent of the North American Electric Reliability Council told CNN. "The ones that use natural gas can be back in an hour or so, the ones that burn coal might take four to eight hours, the nuclear plants might take half a day."

http://www.upi.com/view.cfm?StoryID=20030814-052400-7429r

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