Alberta's electricity system is Canada's example of this. "de-regulation" meant the separation of generation, distribution and retail. Decades after this was supposed to lower the price of electricity, it's done the opposite. Big corporations are now guaranteed a profit at each layer of the system. There is no competition, because why would they compete if they're guaranteed a profit?
So the result is Albertans pay more than most other Canadians for electricity. Even if the actual rate is low (which it isn't), the cost of electricity is usually only 10% of my bill. The rest is "transmission" "distribution" etc. It's insanely expensive compared to next door in British Columbia.
Electric production and transmission is interesting from an economic perspective, as the physical infrastructure is almost as perfect an example as it's possible to make for something which should be governmental (or under its direct control). You just can't get working competition there. While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
> While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
Markets don’t seem to want to solve for outlier situations like extreme weather events or significant hardware malfunctions. Basically I’m talking about what happened in Texas. When it’s a safety issue, it can be hard to align incentives to make planning for outliers worthwhile to market actors.
The market way to deal with outliers is to have an options market. Basically, it is an insurance market for providing electricity on a tight day. Texas has a different way of handling it that I don’t like.
A big problem in the electricity market is that most customers don’t respond to supply shocks. They pay the same price in an emergency as in normal times. So, when it got very cold and power plants started shutting down, they used more electricity because they needed more heat! The one electricity provider who did pass on higher prices to customers and reduced consumption, Griddy Energy, was roasted in the media. Because customers didn’t respond to the shortage, utilities had to. They instituted “rolling blackouts”, which we really just blackouts for any grid that didn’t have a hospital on it.
It’s more than that - it’s that if price is your only signal, it’s always going to be cheaper as a producer to ignore long-term sustainability, which means the companies which do so will “outcompete” the companies which plan for the future, leaving you with a market full of companies utterly incapable of handling an adverse event when it comes around. It’s not just greed, it’s a fundamental problem with how the market compresses signals about companies and products.
In a spherical cow market, the power producers in Texas would have sold contracts for "electricity (except when below 40 degrees)" so consumers would have known what they're getting into.
Since contracts are superior to everything else in a spherical cow market, CEOs of companies who sold contracts for "electricity" and then couldn't supply it would have had their homes raided and everything they owned traded for generators and fuel until their customers had electricity again. Maybe the customers would've even had the right to do the raid themselves.
But given the relatively low incidence of these events, even in a spherical cow market, won't there always be a non-zero number of companies willing to make contracts they can't always fulfill, under the assumption that the risk is relatively low? And wouldn't those companies then be able to outcompete anyone else in the short term?
Which is why we have ancillary services and grid regulations.
We aim for those to be real-time markets as well. But for some services that doesn’t fit so we instead buy the services on longer contracts.
The goal is of course to have the ancillary services to be as small and few as possible since it is a supplement creating market based pricing for the things the marginal net energy market itself doesn’t provide adequately today.
> While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
Nome, it only works for fossile-based power, for any other power source (be it hydro, nuclear, solar, geothermal or wind) the marginal cost of supply is zero and all the cost is upfront cost. In that situation, the (classical economics) market equilibrium simply doesn't exist mathematically.
Marginal value (which is the relevant measure) of Hydro is not zero, because the used water has a potential value in the future when it could have been used instead. Hydro plants calculate a monetary value of the water based on a guess on future prices where the water could have been used, in addition to all kind of other smaller factors (like increased maintenance cost of shutting of, and legal requirements for minimal water in the rivers, etc). And then they bid based on this.
Any power-source which can move its production has this feature, independently of renewability.
But if you have some points in time where all the energy is delivered by intermittent power-sources, and there is insufficient power lines to transport this power elsewhere, prices can to 0, and if too much power is offered, the price becomes negative, and power producers has to pay to push in power. This is not just theoretical, it has happened in the European power market. But the equilibrium still exists. And because there are some costs associated with turning them off, it does not actually drop immediately to 0 production at negative prices.
> Marginal value (which is the relevant measure) of Hydro is not zero, because the used water has a potential value in the future when it could have been used instead.
That only describe a small fraction of hydro power: the majority of hydro in the world is “Run-of-the-river”, which means it has little storage capacity if any.
> Any power-source which can move its production has this feature, independently of renewability.
Not really. For instance, Nuclear gives you the illusion of marginal price because you can think of the cost of the uranium rods, which will be consumed faster or slower depending on your supply, but in practice your maintenance (which are also when the fuel replacement happens) are planned years in advance and are mostly paced by a mix regulatory constraints and staffing needs (your maintenance experts are in limited supply in the country, and you want to keep them busy, so you make sure the maintenance of your park is well ordered with minimal overlaps. Source: my wife makes the long terms plan nuclear maintenance at EDF, here in France).
> This is not just theoretical, it has happened in the European power market.
I know, but this has nothing to do with the question, which is in fact theoretical (“equilibrium prices” are a purely theoretical concept).
> But the equilibrium still exists.
Nope, not in the meaning of this word in the classical model (i.e. the intersection of the marginal cost curve and the demand curve).
What exists is a market price, but it's not the “equilibrium price”, and it cannot be because it doesn't exist in this setting.
Transmission is privately owned and operated but publicly controlled. Like other natural monopolies, the regulator tells the operator what to provide and how much they get paid for it.
The main reasons for this arrangement are political -- debt stays off the government's balance sheet, and labour disputes aren't "the government's fault".
There's no reason for not separating generation, distribution, and retail.
Those are completely different activities, with completely different competency requirements, economical and political characteristics.
Also, bundling them is an anti-competitive measure. What is important for generation in particular, that is a competitive market where you can have private companies.
Hydro One in Ontario is infinitely worse and was a government spearheaded privatization effort. "Sorry, not sorry" from kathleen wynne still echoing in the ears...
This whole "but government is inefficient" argument has never convinced me. Our local electric provider has as bad or worse bureaucracy and ever-increasing rates. Bureaucracy is just a symptom of aging human systems, and it can be fixed. Monopolies that serve the public good should never been profit driven, full stop.
One of the great acts of human creativity has been to convince the masses that if you install a bunch of middlemen who are looking to profit, goods and services will be cheaper and better.
I think part of the success of this message is that it’s so obviously silly that people feel silly questioning it.
if you factor in how private industry exploits negative externalities, the mystically infallible free market is quite bad. a great example is people saying nuclear energy doesn't make sense and never will when compared to fossil fuel burning energy production, but that's entirely ignoring the million+ people who die every year from illnesses directly attributable to pollution from fossil fuel energy. and the whole irreversibly killing the planet thing.
It might come from other factors than aging. The incentives are different and the way the structure evolve too. In public institutions, political tempo affects operations.. every new head of minister will reorganize things for a short while and then issues start showing up, until the next election. It makes people unable to care for efficiency after a while because they know how often friction will grow again.
Maybe small difference in finances too, very often public sector struggles with basic tools. I "feel" that private sector is a little more prone to renew that part (to satisfy the efficiency gods). That said it often backfires because they will also replace perfectly good tools or software to get the latest shiny.
Then there's mass.. but large private corps will have the same issues.
Bureaucracy is rarely ever fixed in those old institutions, even with changing leadership. The only common examples you see are usually a result of technical innovations that they fight against and later adopt 10+ years late, not from organizational reform.
Also this is not the sole purpose of companies.. SpaceX is a trillion dollar company with 0 profit.
The free market has created everything you use the more we turn the keys over to government's the worse things get.
Companies can't get infinite profits because they will be undercut by other companies COMPETING. The government can get infinite power and control though.. they have no competition.
mig39 1 day ago
So the result is Albertans pay more than most other Canadians for electricity. Even if the actual rate is low (which it isn't), the cost of electricity is usually only 10% of my bill. The rest is "transmission" "distribution" etc. It's insanely expensive compared to next door in British Columbia.
Epa095 1 day ago
Electric production and transmission is interesting from an economic perspective, as the physical infrastructure is almost as perfect an example as it's possible to make for something which should be governmental (or under its direct control). You just can't get working competition there. While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
MobiusHorizons 1 day ago
Markets don’t seem to want to solve for outlier situations like extreme weather events or significant hardware malfunctions. Basically I’m talking about what happened in Texas. When it’s a safety issue, it can be hard to align incentives to make planning for outliers worthwhile to market actors.
mdnahas 19 hours ago
A big problem in the electricity market is that most customers don’t respond to supply shocks. They pay the same price in an emergency as in normal times. So, when it got very cold and power plants started shutting down, they used more electricity because they needed more heat! The one electricity provider who did pass on higher prices to customers and reduced consumption, Griddy Energy, was roasted in the media. Because customers didn’t respond to the shortage, utilities had to. They instituted “rolling blackouts”, which we really just blackouts for any grid that didn’t have a hospital on it.
roughly 1 day ago
cowlevel 1 day ago
Since contracts are superior to everything else in a spherical cow market, CEOs of companies who sold contracts for "electricity" and then couldn't supply it would have had their homes raided and everything they owned traded for generators and fuel until their customers had electricity again. Maybe the customers would've even had the right to do the raid themselves.
tga_d 17 hours ago
roughly 9 hours ago
ViewTrick1002 23 hours ago
We aim for those to be real-time markets as well. But for some services that doesn’t fit so we instead buy the services on longer contracts.
The goal is of course to have the ancillary services to be as small and few as possible since it is a supplement creating market based pricing for the things the marginal net energy market itself doesn’t provide adequately today.
https://en.wikipedia.org/wiki/Ancillary_services
stymaar 1 day ago
Nome, it only works for fossile-based power, for any other power source (be it hydro, nuclear, solar, geothermal or wind) the marginal cost of supply is zero and all the cost is upfront cost. In that situation, the (classical economics) market equilibrium simply doesn't exist mathematically.
Epa095 1 day ago
Any power-source which can move its production has this feature, independently of renewability.
But if you have some points in time where all the energy is delivered by intermittent power-sources, and there is insufficient power lines to transport this power elsewhere, prices can to 0, and if too much power is offered, the price becomes negative, and power producers has to pay to push in power. This is not just theoretical, it has happened in the European power market. But the equilibrium still exists. And because there are some costs associated with turning them off, it does not actually drop immediately to 0 production at negative prices.
stymaar 1 day ago
That only describe a small fraction of hydro power: the majority of hydro in the world is “Run-of-the-river”, which means it has little storage capacity if any.
> Any power-source which can move its production has this feature, independently of renewability.
Not really. For instance, Nuclear gives you the illusion of marginal price because you can think of the cost of the uranium rods, which will be consumed faster or slower depending on your supply, but in practice your maintenance (which are also when the fuel replacement happens) are planned years in advance and are mostly paced by a mix regulatory constraints and staffing needs (your maintenance experts are in limited supply in the country, and you want to keep them busy, so you make sure the maintenance of your park is well ordered with minimal overlaps. Source: my wife makes the long terms plan nuclear maintenance at EDF, here in France).
> This is not just theoretical, it has happened in the European power market.
I know, but this has nothing to do with the question, which is in fact theoretical (“equilibrium prices” are a purely theoretical concept).
> But the equilibrium still exists.
Nope, not in the meaning of this word in the classical model (i.e. the intersection of the marginal cost curve and the demand curve).
What exists is a market price, but it's not the “equilibrium price”, and it cannot be because it doesn't exist in this setting.
kyralis 1 day ago
stymaar 1 day ago
ViewTrick1002 23 hours ago
But it is a problem for legacy thermal electricity producers being undercut by renewables and storage.
cperciva 1 day ago
The main reasons for this arrangement are political -- debt stays off the government's balance sheet, and labour disputes aren't "the government's fault".
marcosdumay 1 day ago
Those are completely different activities, with completely different competency requirements, economical and political characteristics.
Also, bundling them is an anti-competitive measure. What is important for generation in particular, that is a competitive market where you can have private companies.
MrFantastic 1 day ago
They regulated nat gas in my state and the service fee is more than the gas consumed.
marcosdumay 1 day ago
You mean they privatized it?
downrightmike 1 day ago
canadiantim 1 day ago
skipants 1 day ago
newsclues 1 day ago
solfox 1 day ago
lukewrites 1 day ago
I think part of the success of this message is that it’s so obviously silly that people feel silly questioning it.
whimsicalism 1 day ago
i think it is beyond clear that some of you all have never worked in federal government to have such a rosy outlook
93po 1 day ago
agumonkey 1 day ago
Maybe small difference in finances too, very often public sector struggles with basic tools. I "feel" that private sector is a little more prone to renew that part (to satisfy the efficiency gods). That said it often backfires because they will also replace perfectly good tools or software to get the latest shiny.
Then there's mass.. but large private corps will have the same issues.
dmix 1 day ago
nodrog3000 1 day ago
geraneum 1 day ago
financetechbro 1 day ago
nodrog3000 1 day ago
Also this is not the sole purpose of companies.. SpaceX is a trillion dollar company with 0 profit.
The free market has created everything you use the more we turn the keys over to government's the worse things get.
Companies can't get infinite profits because they will be undercut by other companies COMPETING. The government can get infinite power and control though.. they have no competition.
lostlogin 1 day ago
Isn’t that what this very link is about? Where is the competition and lower prices?
Power, water, food etc the story is the same - or at least it is where I am. New Zealand.
cowlevel 1 day ago
zerot_ 1 day ago
nodrog3000 1 day ago
stouset 1 day ago
boothby 1 day ago
And it got there in part through the evisceration of NASA.
> The free market has created everything you use the more we turn the keys over to government's the worse things get.
Government funds research that has brought us such advances as moon landings, computers, and the internet. What an odd example you chose in SpaceX
nodrog3000 1 day ago
Yes after the monopoly of NASA ended we now have several real space companies doing real advancement.
I personally have never used one of these "government computers" have you?