Blackouts and the Free Market

As a power systems engineer, I think it is about time that I posted some information on the current state of the power industry, and how the free market has jeopardized the future of reliable power.

I'll start by describing the way things used to be...

In the old days, each power company was essentially a monopoly. In every region of the country, customers could only purchase power from one company. This sounds bad initially, but prices were strictly regulated, so customers could not be exploited in the way that monopolies typically do. Under this system, since each company was entirely responsible for all aspects of power, from generation to transmission to distribution, it was in their best interests financially to maintain a sescure, reliable, and efficient system. Here in Chicago, for example, the Commonwealth-Edison power transmission system was known to be one of the most reliable systems in the country. This reliability came at great financial expense to the company, but it was determined based on the structure of the power market at the time, that this reliablility was much more cost effective than an unreliable system, due to the high costs and lost revenue of outages.

A crucial aspect of the old power market was that each company was required to generate all of the power for their market. In the case of outages, companies could essentially borrow power from neighboring regions, and return it at a later time when they have excess generating capability. Because of this feature, the power transmission system was designed regionally, rather than nationally. Each region was connected to neighboring regions through tie lines, intended only to serve the needs of occasional shortages.

Starting in the early 1990's, in an effort to eliminate the monopolistic aspect to the power market, deregulation has been implimented in almost every state, starting primarily in California. The intention was ultimately to to seperate the regional monopolies into individual generation, transmission, and distribution companies. This was done officially because laissez faire capitalists have such a tremendious faith in the "free market" that they believe that competition will solve everyone's problems and ultimately lead to the most efficient way of doing things, but of course the main reason was just that the giant corporations wanted more freedom to exploit their customers and funnel more money up to the already wealthy executives and investors.

Now, under the current market structure, companies are no longer required to generate their own power. In fact, companies are not required to generate any power at all. Many companies exist entirely to purchase energy from regions with excess generation, and sell it to regions with higher demand, at greatly inflated prices, of course. This new traffic has put a tremendous burdon on the tie lines connecting neighboring regions. Building new transmission is extremely expensive, and there is very little financial reward, so the national transmission system has remained at nearly the same capacity as it was before deregulation, only now, instead of being used to maintain the system in the case of outages, it is needed to supply the base load in many cases due to the increase in buying and selling across the network.

This was a major contributing factor to the Northeastern Blackout in 2003.

Power systems are monitored constantly through sensors placed throughout the network. It is assumed that this data could contain errors, so a sophisticated software system, often involving multiple processors, very quickly combines all of the data and makes an estimate of the actual state of the system. The process is usually updated every thirty seconds. What happened in Ohio was that this system went down, I believe for about seven minutes, and the operator did not notice it. During that time, there was an outage, and since the operator was unaware, he was unable to take immediate action to disconnect the local area from the rest of the national network. A large amount of power flowed in from the region to the east to supply the power that was no longer available from the west. The generators in the east could not ramp up their power output quickly enough to supply the load, and they went out. Now, all of the northeastern United States was drawing power from the network in Canada. Of course, it's generators also could not handle the load and were disconnected. This all occured in a matter of a few minutes.

This outage, while due in a large part to human error, would never have happened if the Ohio region hadn't been relying on the neighboring regions to supply its base load. Also, under the current market structure, companies can not reveal outages to neighboring companies, because as soon as the companies find out that a company has no choice but to purchase power from them, they raise their rates to thousands of times what they normally charge in a competitive market in an effort to put their competition out of business.

This is just one example. In California, blackouts were an almost daily occurance throughout the 1990's. Reliability has been sacrificed completely for the sake of profit. This is the essence of capitalism. There is no incentive to sell a good product, only a product which will sell and generate a good profit. This is evident in every major industry. Auto makers will only recall an unsafe car like the Ford Pinto, or a rollover-prone SUV, if it is deemed to be less expensive than the expected cost of lawsuits for injuries and wrongfull death. Merck just put Vioxx back on the market, despite the fact that it was proven to double the risk of heart disease. This list could go on and on.