Industry to ground control: it’s not the market; it’s the wires

Kathleen Davis, Associate Editor

It’s terribly hard to distinguish one voice in an agitated mob-like someone calling your name in a crowded shopping mall. Did you really hear a whine, or was it a trick of rushing air and hollow surface echoes? Such is the burning question ringing in the ears of every company and alliance involved in-or even remotely connected to-the repetitive “crisis” of the “open” electricity market. Politicians and angry consumers have added their voices to industry cheerleaders and naysayers, and just about every last member of the mob is screaming for someone’s head-different noggins from different perspectives.

Was it your name whispered, or are you simply paranoid?

The Summer 2000: Lessons Learned on the Road to Electricity Competition conference in Chicago, hosted by the Electric Power Supply Association (EPSA), made one voice perfectly clear: Speaker after speaker pointed to one major flaw-and it’s not the market itself.

Bring them the collective head of the wires industry.

Roger Hale of Hagler Bailly stated simply, “Is competition working? Yes. Is it working well? Perhaps not.” According to Hale, generation is what we have, either in the hopper or in the works. So what isn’t working?

“Transmission is the weak link,” he commented, pointing to little new construction or upgrades being performed on that side of the industry, as well as reduced maintenance investments.

“The underlying wires market is a monopoly,” stated Mark Cooper, director of research at the Consumer Federation of America, but he also warned the industry not to be greedy in their pursuit though.

“Profit maximization is not the way to fix the wires market and will undermine social support,” he continued.

Peter Gaw, senior VP at ABN AMRO Bank in Chicago agreed with at least half that statement, calling the infrastructure and transmission issues of the industry its “Achilles heel,” and further labeling it archaic.

“It’s easier to build a coal-fired plant in my backyard than run a transmission line through it,” he said.

And that’s about where the industry runs smack into the NIMBY (not in my backyard) movement, which was lampooned by Wall Street Journal writer John Fund as becoming BANANA (build absolutely nothing anywhere near anyone) and was elevated in all seriousness to NOPE (not on planet Earth) by consumer advocate Mark Cooper, who pointed to both health problems and aesthetics as consumers’ main problems with grid expansion.

When asked directly by Fund if these points were merely perception issues or backed by science (specifically referring to the health issue), Cooper was unable to elaborate. He did, however, lay out one jewel of wisdom nearly fortune cookie in quality-that perception is often the point, not just a false wall hiding some glaring truth.

And the “open” market continues to juggle more perception problems than it can keep in the air. When one drops, hits the fan, and splatters for all its worth-well, we end up here, discussing strategies and solutions like WWII generals scowling over battle plans.

Tortoise and hare reconstruction

But, the point is: The war has been neither won nor lost. Truly open markets have yet to exist. California, the summer epicenter of this industry earthquake, is only about halfway through. PJM (Pennsylvania, New Jersey, Maryland market) has been working toward an open market since 1997, and, although they’re making progress, they haven’t completed the process either. In total, 25 states have started this race, but no one has finished it.

Most consumers, however, see restructuring as opening a door-with open markets on the other side. All the state has to do is walk right through. Unfortunately, the process is not as lightning-quick as the hare crossing the finish line (and we all know what happened to his little speedy self anyway). It’s more of the tortoise philosophy: slow and steady wins the race.

Politicians, media and consumers are calling the hare D.O.A. two inches past the ribbon. They’re angry, and they’re scared. The most obvious target to scalp is the utility-and that’s just the tip of the perception problem.

“Many voices are raising alarm, and we cannot afford to be tone deaf,” said Bill Massey, FERC commissioner. He points to the price spikes in the Midwest in 1998 as the point where this issue (consumers dealing with high prices) should have been dealt with. At this point, though, he offers three alternatives: retreat (declaring open markets a flat failure), treading water (what he deemed “resting on our Order 888 laurels”) or aggression (moving forward to finish what we started).

Massey flies high the flag of regional transmission organizations (RTOs) to accomplish that third option and to deal with that pesky wire problem, but he also pointed out that they won’t be a quick fix, industry-wide salve.

“RTOs will be no panacea in solving all market problems,” he stated, asking the industry to shift more power to FERC as well. In a nutshell, he laid out a well-known list of needed steps to form a cohesive solution: politicians decreasing impediments to increasing supply (since this summer proved beyond the shadow of a doubt that we’re running short on generation), rules to balance environmental concerns with market needs, standardized interconnections, adequate capacity (which involves both incentives for grid expansion and siting). None of these steps are new ones to the ladder, but the key doesn’t reside in any industry pocket.

“A large part of the solution rests in the hands of state policy makers,” Massey reported. And those policy makers have their own mob to contend with.

Punchline: politicians are like bus drivers

Explaining the politics weighing on an open market requires a story surreptitiously stolen-or not so surreptitiously if it’s on page one-from John Hughes, a representative of ELCON. He correlated the electric market with deadly Nepalese bus drivers.

Oh yes, he did.

And it made perfect sense, really: If you injure a person in Nepal, you’re better off if they’re dead. It costs you less money. According to both moral and legal practices, you’ll have to pay compensation to the injured. Making sure the victim is good and dead is merely sound economics in Nepal-and in the deregulated market for electricity right here at home, it seems. The running theme in the California state legislature and among California electric consumers seems to be, quite simply: driver, back that bus up one more time please.

“We have a lot of those bus drivers in California,” Hughes commented. But, it’s more a matter of sound politics than sound economics. Deregulation is injured, but still breathing. It takes less effort, explanations, and-well-patience to kill it now-although a number of industry heavy weights are patently begging for the life of deregulation.

“The patience factor in the [California] state capital is a nanosecond. You could wade through the patience and not get your ankles wet,” said John Fund from the editorial staff of the Wall Street Journal as he introduced his panel to the conference.

“Politicians shouldn’t kill the golden goose by painting it insufficient in reacting to customer concerns,” Gale had pointed out earlier in the day, tying this game back to the perception of the open door/open market dilemma.

“Blame stops in Sacramento,” Hughes added at the finish of his story, bucking Massey’s earlier statements by going on to advocate the elimination of single state RTOs and ISOs and single price markets.

“Commissioner Massey seems to be confused on that issue,” he stated.

But no one seems to be confused on one issue: blame. Although the phrase “I will not stand up here and blame” floated through more than one speech, it was clear by the sheer number of “I told you so” utterances (Roger Gale and Mark Cooper specifically) that blame was a heated undercurrent to the conference.

But, hindsight is twenty-twenty, of course, as one representative of a Southwest utility stated flatly in the later regional workshops that afternoon. Commenting on the ongoing investigation of SDG&E and whether or not they should have hedged, he pointed out that specific reason as one in a laundry list of problems with being a distributor in an open market.

“If you haven’t hedged, you’re stupid; if you did hedge, you’re stupid,” he said. There’s no way to win.

“And you don’t want to be stupid,” commented another representative.

And then there was silence.

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