To Fix the Energy Shortage, Forgot the Blame Game
To keep the lights on, electric generators must produce enough supply to meet demand at any given point in time. A lot of work has gone into trying to produce this supply. Yet far less innovation has occurred on the demand side. Consumer demand for electricity is too often treated as an indistinguishable blob, while the reality is that the value of electricity can vary widely depending on whether it is used to keep medical equipment running or to do the dishes.
Allowing these differences to express themselves in the market could make the difference needed to avoid future blackouts. For example, some areas are beginning to see the rise of “demand response” programs where electric customers can be compensated for reducing their power usage when power demand is reaching the limits of the system. This can happen through a formal program, but also happens naturally if electricity prices are allowed to rise during times of scarcity. Individuals or companies that have the flexibility to defer or minimize electricity use play a valuable social role.
Reaping the full benefits of this consumer flexibility will require a move away from the overly centralized electricity procurement system. Some in California have cited so-called “distributed generation” of electricity (such as rooftop solar) as a culprit behind the blackouts. But the reality is just the opposite. When consumers can rely on self-generation in times of strain, or even put electricity back onto the grid, this can increase the overall reliability and resilience of the system while lowering costs for everyone.
Regulators should also rethink the current one-size-fits-all model of electric reliability. For many consumers a short-term outage is a minor inconvenience. Other individuals may put a greater premium on uninterrupted service. For certain types of customers an electricity interruption of even a fraction of a second could do millions of dollars in damage. Yet current electricity regulation mostly presumes that everyone needs the same level of reliability.
As a result, some people end up paying too much for electricity, while others pay for their own back-up generation because the system-wide reliability level is not high enough. In other parts of the economy, we recognize that not everyone wants the same balance of cost and quality; consumers are allowed to choose between eating at a steak house or at a McDonald’s, yet when it comes to electricity we are feeding everyone the same meal (and sticking them with the same bill). While there should be a baseline level of reliability to ensure public health and safety, consumers should have the option to purchase a higher guarantee of reliability beyond that.
It’s clear that the old system isn’t working. Instead of simply pointing fingers, California and other states should look to the future and adopt new regulatory approaches that will spur the innovation and competition that are needed to provide everyone with the reliable power they need at affordable prices.