Asymmetrical Information

I am awaiting discussion of the Bush/Rove plot to block out the sun alah C. Montgomery Burns.

Sheesh. I thought NPR listeners would be a bit smarter than that....

The people are spoiled. Sometimes equipment fails. We fix it and move on. They blame Bush now. Soon, Clinton will be blamed. But, the power companies will fix the problem and, then, raise the rates to pay for it all.

I'm pretty sure that if anyone said those things to my face I would cap them, yo.

Why do so many on the right even listen to NPR?

The average NPR listener probably doesn't even know how to put batteries in a flashlight properly. Why would they think they can analyze the lessons to be drawn from a power grid failure?

Judson --

The reason I (a hawkish libertarian) listen to NPR is that here in Cincinnati, there is no other alternative for classical music on the radio. I listen to the music, but then turn the dial when NPR news (i.g., "All Things Left Of Center Considered") comes on.

I don't see how Bush could be culpable in this. But blackouts are a direct and forseeable cost of energy deregulation.

In a cost+ (regulated) environment, the economic incentives is for the energy company to go for the higest cost (and highest reliability) solution. To have backups for everything and quadruple backups for critical things.

But in the deregulated environment, the incentives are just the opposite. The largest profit margins come from doing everthing as cheaply as possible. No reduncancy, no overcapacity. This is especially true when the energy companies don't have to pay customers for the losses they incur from power failures.

So, proponants of energy deregulation ARE to blame here. But I don't really know that Bush is one of them, I can't recall him ever saying either way.

So how come Pennsylvania's deregulated grid survived, and New York's highly regulated power infrastructure didn't, Bones?

Bones, I think you're partially right. Even absent degegulation, the dependence on the grid (as opposed to local generation) would have grown because of the difficulty in finding good local places to put power plants. And sourcing from the grid is actually a reliability *improvement* in most cases, since if one plant goes down, you can get power from another one, possibly 200 miles away. It's only in rare catastrophic instances like this that the grid is a net detriment to reliability. But when it fails,it *really* fails.

Judson - Class trumps ideology. Haven't you ever seen Grand Illusion?

NPR is high-brow and intellectually interesting

i listened to prairie home companion once anf found it great.. except for the political/economic idiocy

cultural production/academia is self selecting: those in our intellectual/economic class who don't really care about money do academics and culture, tend to think that money and greed is bad, and that capitalism is not very nice or fair

those that care about money and just want to get ahead go into business (broad generalisation of course, eg national review, john corzine/ bloomberg)

you just can't incent most rightwing people to take very low paying but "intellectually rewarding" jobs... and most liberals are focused on intellectual rewards vs cash

"academia is self selecting: those in our intellectual/economic class who don't really care about money do academics and culture.."

Maybe. And maybe a significant number of those who pursue academic careers are people who have inherited (or married) significant wealth. Some of the recent discussion at Invisible Adjunct lends credence to this proposition.

I eagerly await the NPR report on Saturday's "Weekend Editon" from Martha's Vineyard on how Thursday's power outage has completely changed the outlook of the island's summer residents about those power-generating windmills that are supposed to be placed just off the coast (...waiting....waiting....waiting...)

>> ... any adversity we face is all about the bad ol' U.S. and its leader

And this of course is the type of arrogance about the power of the US that these same people typically claim to decry.

>>I don't see how Bush could be culpable in this. But blackouts are a direct and forseeable cost of energy deregulation.

>>In a cost+ (regulated) environment, the economic incentives is for the energy company to go for the higest cost (and highest reliability) solution

Note well that the "highest cost" and "highest reliability" solutions are two very separate things -- and that "cost plus" regulatory financing gets you the former of the two, as the blackouts of 1977 and 1965 well demonstrate.

>> But in the deregulated environment, the incentives are just the opposite. The largest profit margins come from doing everthing as cheaply as possible. No reduncancy, no overcapacity...

The profit margins are real high on not being able to meet customer demand? This blackout is going be profitable for the utilities, as opposed to one whopper of an expense??

"So how come Pennsylvania's deregulated grid survived, and New York's highly regulated power infrastructure didn't, Bones?"

ABC reported that the blackout was stopped in Western NJ where a PA utility's command center was able to detach themselves from the grid as they saw the casquade heading towards them. In other words quick thinking and luck preventing everything east of the Rockies from going black.

Robert Kutter had an interesting op-ed piecein the NY Times on Saturday where he pointed out that the Southeast is one region that has kept the old regulated monopoly structure and has continued to have blackout free, inexpensive power. In the West where deregulation was tried we saw massive price increases coupled with rolling blackouts. Now in the Northeast we've seen a major blackout. It's quite possible the blackout is just one of those 'perfect storm' situations that comes around every few decades....like a stock market crash or blizzard in May.

"Note well that the "highest cost" and "highest reliability" solutions are two very separate things -- and that "cost plus" regulatory financing gets you the former of the two, as the blackouts of 1977 and 1965 well demonstrate"

There is a natural tendacy of power generation to lean towards monopoly. In a libertarian universe this would happen because whoever owns that 'last mile' of grid would have a lock on the market. One interesting feature of what you want in a electric system is a degree of overinvestment and a monopoly regulated by a cost plus profit rate set as a % of capital provides you with that.

You want a bit of overinvestment for two reasons:

1. Since the risks of a blackout are much greater than just the direct economic losses to the utilities you want extra capacity to minimize it. This may or may not apply to the blackout of 1967,77 and 03. Those blackouts may be a different type of beast than your usual 'fire at the transformer' or 'too many air conditioners on' small scale blackouts that happen all the time.

2. There's the ability of unregulated markets to create a 'virtual monopoly' where capacity is so close to demand that an individual supplier is able to act like a monopoly even if he has just a fraction of the market. Kutter quoted a figure that said having just 3% of the power market in CA allowed a supplier to exercise monopoly pricing.

>> But in the deregulated environment, the incentives are just the opposite. The largest profit margins come from doing everthing as cheaply as possible. No reduncancy, no overcapacity...

"The profit margins are real high on not being able to meet customer demand? This blackout is going be profitable for the utilities, as opposed to one whopper of an expense??"

No but up until the blackout happens the profit margins favors the one with little or no reduncacy, no excess capacity etc. No individual supplier had the ability to stop the blackout so what incentive was there to build up extra capacity? Any one individual who did this still would not have been able to feed the demands of the entire grid when everyone else on it failed.

There is a natural tendacy of power generation to lean towards monopoly.

Actually, Boonton, I think you mean power distribution; most of the deregulation we've seen has been on the power generation side, and in itself hasn't seemed to cause significant problems. (The main problem has been that the power trading going on shows up the severe limits on the transmission of the power.)

In a libertarian universe this would happen because whoever owns that 'last mile' of grid would have a lock on the market.

I think a libertarian universe would find ways to handle this. Suppose the consumer owned the "last mile"? Or you could build duplicate "last mile" lines for some customers, and other customers could demand equivalent prices.

2. There's the ability of unregulated markets to create a 'virtual monopoly' where capacity is so close to demand that an individual supplier is able to act like a monopoly even if he has just a fraction of the market. Kutter quoted a figure that said having just 3% of the power market in CA allowed a supplier to exercise monopoly pricing.

But no one thinks California was an unregulated market, do they? And I expect the monopoly pricing was over the very short term (which, of course, is how the whole California system was designed). Given power demand fluctuations and the potential profit for providing power at just-under-monopoly pricing, the monopoly pricing couldn't last even in California, let alone an unregulated market.

I suppose the consumer could own the 'last mile'. In theory a consumer in NJ could build a line all the way to Texas to buy from their grid. Is it a sensible solution? What exactly is being gained by this deregulation effort? Lower prices did not happen in California & we have possible under-investment in the Northeast. Kutter's counter example of the Southeast continues to look attractive.

Re: California & monopoly pricing-- I agree that the 'virtual monopoly' would be short lived but that is only because electricty demand can change. In other words, having 3% of the market will stop giving you monopoly advantage when the heat wave finally breaks. That doesn't change the fact that giving generators monopoly power when electricty is most needed is the last thing you want to do.

Private generators still have the incentive to keep capacity near peak demand. It would seem that we would be better off having excess capacity that is usually idle but can be kicked in during exceptional periods.

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