Joseph M. Rigby (or, Yes We Can End Outages)

August 9th, 2010

In response to We can’t end outages, but we can respond to them better (Pepco President Joseph M. Rigby, Washington Post 8/08/10), Bethesda residents criticize Pepco over numerous shortages: New customers are placing a strain on power grid, utility says (Washington Post 8/09/10), and Energy ‘smart meter’ helps consumers (Wall Street Journal 6/30/08). If my long discussion of externalities, variable pricing, and smart meters is too boring, then skip all that and go right to the Joseph M. Rigby song at the end.

Sorry Joe, but I disagree:
We can end outages, you see.
Listen to my song below,
And then you too will finally know
What it’s like to be without power
For far longer than Pepco’s estimated “about one hour.”
Please accept my apologies if all this seems rude,
But what’s with the can’t do attitude?
— Newsericks


Mr. Rigby blames the recent spate of power outages on the windstorm, but as pointed out in the second Post article cited, growing power consumption and under-investment in capacity also place strain on the grid, leading to outages. There are two ways to solve this problem: supply side, and demand side.

Supply side means more investment to upgrade power supply systems, including better and more reliable generation, transmission, use of smart meters, and pricing (more on that below). Don’t let the name fool you: unlike its intellectually bankrupt parallel in economics, supply side power industry measures are effective, and necessary. But they’re not the only answer, and must be combined with demand-side measures to encourage customers to reduce energy use and improve energy efficiency. Before power sector deregulation (which, by the way, I was and am in favor of, contrary to what you might have guessed based on my other posts about regulation and deregulation), utilities had a greater incentive to actively promote energy efficiency, because their regulators allowed them to earn profits on those investments. In the current market-based system, utilities have much less incentive to promote energy efficiency. The energy efficiency programs that were developed to replace the old demand-side management ones have tended to be smaller and less effective. Those should be upgraded, but more importantly, policies must be developed at the national level that allow external costs to be factored into enduser pricing decisions. The cap-and-trade bill would have done just that by putting a price on carbon, as would a carbon tax. Unfortunately, neither now looks politically feasible, at least in the short term.

Thankfully, there are other options, though they tend to be more costly to industry and less efficient than a market-based price on carbon (ironic that Republicans are forcing adoption of a command-and-control bureaucratic regulatory approach instead of the more efficient market-based ones the Dems wanted). Direct regulation by EPA can effectively also put a price on carbon, though it won’t be as efficient as a cap-and-trade program or carbon tax. Renewable portfolio standards (where state governments require their utilities to provide a minimum percentage of renewable energy) also allow indirectly help internalize external costs and promote clean energy sources.

But some of these problems can also be addressed at the local level. Pepco and other power companies can implement pricing that better reflects their actual costs, including peak pricing differentials and load/usage charges, as are often adopted with commercial customers. With the former, users pay more for power at peak times of the day and year, and less for off-peak times. With the latter approach, users pay a base charge for their maximum expected power use (i.e., for the share of local generating capacity that they plan to use). Conceptually, it’s as if all the power users in the city got together and divvied up the investment cost needed to build the generation and supply network. The system could be set up so that customers could still go over their maximum load, but they’d pay a higher per kilo-watt hour cost if they did. (NB: This same basic result can also be achieved by use of a single-component power price that varies based on actual utility costs over time, rather than a two-component price.)

Why do this, and how would this approach reduce total usage and system stress? Because a maximum usage ceiling, over which customers would have to pay a higher price, gives users an incentive not to run the central air, two plasma TVs, dishwasher, and clothes dryer at the same time. Otherwise, it’s all the same to them, but it’s not the same to Pepco and other utilities, which have to supply that power. That’s why brown- and black-outs happen when it gets hot: because everyone turns on their AC, but they’ve got no incentive to turn off other stuff, and overall power use skyrockets. That is already a problem (viz. Bethesda’s dozen outages since March), and will only get worse as our power transmission networks get older and more over-burdened.

Yes, it’s a little complex, but users could also be given the option of continuing with a fixed price plan, though the variable cost plan would save most users money. This kind of variable pricing can also be combined with the smart-grid technology and pricing systems that give customers a discount for allowing power suppliers to automatically dial down customer usage during periods of system stress (e.g., Pepco gives you a credit of $x/month for the ability to cycle your CAC off or down for up to y hours/week during the summer). Pepco has experimented with variable pricing and supply systems partially along these lines, but has not yet implemented them.

One of the keys to all of these approaches is the “smart-grid technology that includes an advanced metering infrastructure” that Mr. Rigby refers to, or more simply, smart meters. Pepco Holdings is implement a pilot smart meter program in Delmarva, after which it plans to install two million smart meters in Delaware, Maryland, New Jersey, and DC in 2013 (I wish we didn’t have to wait that long). These meters will allow both users and Pepco to more effectively reduce both total and peak power use. That’s important for Pepco, because as with all US utilities, peak usage is it’s most expensive usage (on average, US utilities experience peak demand only 2% of the time, but meeting that demand accounts for 15% of their costs).

All of these pricing systems can and should be combined with incentives to power suppliers and consumers to reduce the environmental and other externalities of their power usage. For example, if a power company uses 0-GHG hydropower (or low-GHG natural gas) for its baseload power and high-GHG coal for peaking power, it baseload and peaking power usage costs should reflect that, which will provide consumers with further incentive to minimize peak power usage. And if the reverse is true (i.e., the utility has high-GHG coal baseload and low-GHG natural gas peaking power), then that gives the utility an incentive to shift its baseload power generation to lower GHG fuels.

Customers pay for reliability, and Pepco’s (and most other utilities’) current pricing system offers Pepco little incentive to improve that. Based on the current pricing system, if my power is out for three days, all I get from Pepco is a slightly lower power bill because I didn’t use any electricity during that time. If instead, the average power bill were 50% load charges and 50% usage charges, and the entire load charge was reversed any month in which Pepco did not attain 99.9% reliability (i.e., less than about seven hours outage/month, with any outage overage carried over to the following month), then Pepco would have a significant incentive to maintain reliability.

Mr. Rigby talks about reducing outages by burying power lines underground. As he points out, that’s expensive (and itself disrupts power supplies during installation). But in particular in areas prone to repeated outages (again, like Bethesda, or the over 300 thousand homes that were without power for up to five days in July), the significant reduction may be worth the investment. Underground lines are also considered by homeowners to be more aesthetically appealing and can lead to improved property values. This economic benefit can be reflected and the cost to ratepayers reduced by paying for a portion of undergrounding costs via property tax assessments, which has the added benefit of reducing the net cost to ratepayers, since property taxes are tax deductible. If the average cost per household of undergrounding is $2000 and half of that is paid through property tax assessments (spread out over several years), then DC residents in those neighborhoods in the highest marginal tax brackets would effectively pay 37.5% less than they would if payment were through electricity rates, which are not tax deductible. Property owners with more expensive homes could pay more than those with lower value homes, reflecting their greater benefit from increased property values, which would reduce the total net cost further, since those people tend to be in higher marginal tax brackets.

And as to my title, I guess Mr. Rigby is technically correct that we can’t completely end power outages. But through a combination of demand and supply side measures, we can for all practical purposes do so. And then, we won’t all have to camp out at Starbucks with our laptops during the next outage.

Not my usual post, but I hope it interested at least some people out there (leave a comment to let me know what you think).

For more information on underground power lines, check out  the following reports:

***

Here’s your theme music for today, the BeatlesElanor Rigby, followed by my original take-off thereon, Joseph M. Rigby (see the original and modified lyrics below). Want to be (marginally) famous? Then download this karaoke MP3, record your own versions and email me the link, or just put the link in a comment. Or, click here to do the Real SuperPass free trial offer and download that and other MP3s for free, or use the upgraded Real player to download one of these YouTube karaokes.

 

Elanor Rigby

Joseph M. Rigby

Ah, look at all the lonely people

Ah, look at all the blacked out people

Ah, look at all the lonely people

Ah, look at all the blacked out people



Eleanor Rigby,

Joseph M. Rigby,

Picks up the rice

You write in your op-ed

In the church where a wedding has been

that blackouts can’t end.

Lives in a dream

Your mistakes to defend.



Waits at the window, wearing the face

Josephy M. Rigby,

That she keeps in a jar by the door

When I called Pepco noone was there.

Who is it for?

Does anyone care?



All the lonely people

All the blacked out people.

Where do they all come from?

Where do they all come from?

All the lonely people

All the blacked out people.

Where do they all belong?

Where do they all belong?



Father McKenzie

They go to the Starbucks

writing the words

Recharging their cellphones

of a sermon that no one will hear

and checking email.

No one comes near

Oh, why did it fail?



Look at him working,

Look at them working,

darning his socks

there with their laptops

In the night when there’s nobody there

At night when there’s nobody there.

What does he care?

Does Pepco care?



All the lonely people

All the blacked out people.

Where do they all come from?

Where do they all come from?

All the lonely people

All the blacked out people.

Where do they all belong?

Where do they all belong?



Ah, look at all the lonely people

Ah, look at all the blacked out people

Ah, look at all the lonely people

Ah, look at all the blacked out people



Eleanor Rigby

Joseph M. Rigby,

Died in the church

You write in your op-ed

And was buried along with her name

that blackouts can’t end,

Nobody came

Or so you pretend.



Father McKenzie,

Joseph M. Rigby,

Wiping the dirt

I’m glad that you have

From his hands as he walks from the grave

that particular name,

No one was saved

But are you to blame?



All the lonely people

All the blacked out people.

(Ah, look at all the lonely people)

(Ah, look at all the blacked out people)

Where do they all come from?

Where do they all come from?

All the lonely people

All the blacked out people.

(Ah, look at all the lonely people)

(Ah, look at all the blacked out people.)

Where do they all belong?

Where do they all belong?

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2 Responses to “Joseph M. Rigby (or, Yes We Can End Outages)”

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