Page 47 - Sustainable Cities and Communities Design Handbook

24 Sustainable Cities and Communities Design Handbook

as “Death Star, Get Shorty, Fat Boy, and Ricochet” to create artificial scarcity
and to spike prices. For example, it is now known how reluctant the FERC was
to respond to price crises in California for largely political reasons. However,
most of the people initially responsible for making the decisions to deregulate
believed the economic analysis and assumed these illegal schemes could not
happen.
At the time of deregulation decisions, many analysts were concerned with
the deregulation proposal and expressed concern that an unregulated market
would not invest in enough generation capacity, or that competition would not
be strong enough to control market power (Clark and Lund, 2001; Clark and
Morris, 2002; Clark, 2002). Energy regulators were very familiar with
schemes to manipulate the market, and they understood that the task of
regulation is to control expected industry efforts to make more profit in mo-
nopoly industries than is fair and reasonable.
The problem was that the voices of caution and warning were not heeded,
and the overwhelming enthusiasm for the deregulation experiment got out of
control. When the prices for power were lower than expected for the first
2 years after the plan went into effect and stranded costs were being paid off at
a faster rate than expected, the enthusiasts said “not to worry, we told you so.”
Eventually, however, controls on excessive prices simply did not work because
gaming was perfected in a tight market and events happened that were not
anticipated, though in hindsight they should have been expected.
There is much that cannot be properly known and charted in advance when
public interests intersect with complex large-scale technical systems such as
the electricity grid. In spite of the vast amount of information that was
available and that helped to run the state power system for several years, the
planners forgot that large electricity grids are so complex that it is impossible
to know enough in advance to avoid mistakes. It is expected that power
providers have backup plans if a part of their system fails; policy makers had
no backup plan in case deregulation did not work as expected.
The purpose of this chapter is to explore how power system information
was used and misused. More importantly, complex systems have a language
and organization all their own. The electrical grid is no exception, and as
subsequent events since 2000 have well documented, public policy makers
were sold a “bill of goods” that promised lower prices and efficiency from
economic “mythical models” based on ideal types, situations, and market
forces. Senator Dunn (2002, p. 8), who later headed the California senate
investigation of the energy crisis, tells what he thinks happened:

Everyone in Sacramento was driven by just one thing, across political lines. They
were driven by the desire to deliver to their constituents lower prices; that’s it.
From that point on there was little additional analysis other than for a handful of
folks like Steve Peace. Ninety-eight percent of the legislators just said: “Folks are
telling me it’s going to get lower prices”.