What strikes me from a distance are the huge difficulties in trying to 'organize' a market that includes all the required services that go into providing electricity.
Real markets organize themselves (badly or well), and the Gov's role is to provide some basic ground rules. Watching the U.S. Gov try to organize a complicated market for its own services is like watching bad central planning, except actual planning in many instances (e.g., outright public ownership and operation of the required services) would be easier.
Another question is whether all this could have been avoided with more public investment in the grid, even maintaining all the jury-rigged public and private roles in the system. It could come down to simple fiscal idiocy at the legislative level.
In a month or two I'll have a paper on the Federal contracting debate, for any interested.
mbs
-----Original Message----- From: lbo-talk-admin at lbo-talk.org [mailto:lbo-talk-admin at lbo-talk.org]On Behalf Of Jeet Heer Sent: Sunday, August 17, 2003 11:45 AM To: lbo-talk at lbo-talk.org Subject: [lbo-talk] blackouts and deregulation
Howard Hampton is the leader of the Ontario New Democratic Party (the leading Canadian political party of a social democratic orientation). In the article linked below he blames recent blackouts (not just last week but over the last few years) on deregulation. I'm curious to know what economists on this list think of his arguments. Is he right? And if so, can the recent blackout be used as wedge for launching a more broadly based critique of neo-liberal policies in North America?
http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Artic le_PrintFriendly&c=Article&cid=1060985412158
Aug. 17, 2003. 01:00 AM
Private power, public chaos Harris Conservatives' decision to deregulate behind our electricity woes
HOWARD HAMPTON
It now seems clear that the worst blackout in history did not originate in Ontario but in a system failure somewhere in Ohio, Michigan, Pennsylvania or New York, whichever finger of blame you happen to be following. But let's not blame the Americans for the economic damage and great inconvenience suffered here. Ontario's portion of the blackout originated at Queen's Park eight years ago, with two decisions made by the new Conservative government. The first was a commitment to eventually deregulate our electricity marketplace and privatize Ontario Hydro in order to follow the Americans into a fully market-based, private sector, profit-driven electricity system. The second decision was to cancel all the energy efficiency programs put in place by the NDP government during the previous four years. After all, the Conservatives reasoned, private power suppliers want to sell more, not less, energy. Continuing those energy efficiency programs would have depressed the market value of Ontario Hydro's generating assets to potential private sector buyers. The Conservatives were hoping to scoop billions of dollars by selling off our electricity system and use the money to finance even deeper tax cuts. At 4:10 p.m. Thursday, these fateful decisions came home to roost. Ontario has not had enough domestic generating capacity to meet peak summer and winter demand for more than five years and was unavoidably importing about 2,000 megawatts from New York at the time of the U.S. system failure. Because of this chronic dependence on imported power — which has at times reached over 4,000 megawatts — Ontario's transmission grid got caught up in the cascade of blackouts that rippled across the northeastern part of the continent in a mere nine seconds. The blackout should come as no surprise to anyone familiar with the recent history of North America's electricity system and its poisonous embrace of deregulation. The U.S. deregulated its interstate transmission system in 1996. By 1999, blackouts were starting to plague the eastern half of the country, with major outages that year in New England, New York, New Jersey, Pennsylvania, Maryland, Illinois, Arkansas and Louisiana. In late 1999, David Nevius, vice-president of the North American Electric Reliability Council, warned a congressional hearing into the blackouts that under the newly competitive system, "We may not be able much longer to keep the interstate electricity grids operating reliably." Under the old, regulated system, he said, "transmission system users and operators co-operated voluntarily to ensure reliability. Now, however, they are competitors and don't have the same incentives to co-operate." Nevius could have added that more than 150,000 U.S. utility workers lost their jobs in the wake of deregulation. Power systems are not self-maintaining. Something's got to give if you neglect their upkeep. Something did. Yes, there were blackouts prior to deregulation, but you could count all the major ones in the previous 30 years on the fingers of one hand. You would need all the fingers and toes of six or seven people to count all the major blackouts post-deregulation. The 1999 eastern blackouts were followed by dozens of outages in California and other western states in 2000 and 2001. After months of investigation, California's woes, including its skyrocketing power prices, were finally pinned on complex market manipulation techniques invented by Enron and others, not on power system failures. But deregulation was the culprit nonetheless. It was no coincidence that the blackouts and soaring price spikes stopped immediately after retail deregulation was put on hold by the California power authority. Nor is it surprising that there has been a general retreat from deregulation in the U.S. since 2001. Fewer than half of all 50 states have deregulated their electricity markets and most of those who already have wish they had never gone down that road. Back to present tense Ontario: Thursday's blackout was an almost inevitable consequence of:
The failure to build new supply or reverse electricity demand growth through publicly sponsored energy efficiency programs.
An ideologically driven faith that the private sector will somehow, through the magic of the deregulated marketplace, prudently provide for our province's future energy security. That failure must be redressed and that faith must be abandoned, just as the private power industry has abandoned Ontario. The answer does not lie in a re-creation of the old Ontario Hydro, but in a return to the basic values that gave it birth nearly 100 years ago: Power at cost and public ownership and control of the electricity system.
Howard Hampton is leader of the Ontario New Democratic Party.