Q&A with Meredith Angwin, author of Shorting the Grid: The Hidden Fragility of Our Electric Grid

Q&A with Meredith Angwin, author of Shorting the Grid: The Hidden Fragility of Our Electric Grid

Two years ago, Meredith Angwin published what has become a sleeper hit: a deep dive into the deep dysfunction of the American electric grid. The first of its kind, Shorting the Grid gives laypeople a peak under the hood as to how their lights come on. The view isn't pretty. Given the recent energy crisis, her work is more important than ever. Grid Brief is honored to feature a brief Q&A with Angwin on her book and the ailing American electric grid.

In your book, you write that there are two grids, not one. What are they and how do they interact?

The two grids are the physical grid and the policy grid. The physical grid consists of power plants, solar panels, substations, transmission lines, distribution lines, and all the other actual physical things that connect end-users to sources of electricity. My conception of the physical grid also includes people: the power plant workers, solar installers, linemen, and control room operators that operate, maintain, and control the grid.

The policy grid is basically about what power sources supply electricity and how various entities are paid. There are two main types of policy grids: Vertically integrated and RTO. (RTO stands for Regional Transmission Organization.) In a vertically integrated grid, a utility owns (or shares ownership) everything from the power plant to the connection to the customer. In an RTO grid, “merchant generators” own the power plants and compete against each other in auctions organized by the RTO. In the vertically integrated grid, the utilities are responsible for grid reliability. In the RTO grid, no organization has that sort of responsibility.

How do the physical grid and the policy grid interact? This is impossible to summarize easily. However, for an example of the policy grid in action, we can look at Renewable Energy Credits. A state makes a policy that distribution utilities must buy some percentage of their electricity from renewable sources. To meet this policy requirement, a distribution utility may buy “credits” from renewable generators. That way the distribution utility doesn’t have to worry about how far away the renewable source is from its service area, what time of day the source is available, etc. The electricity (on the physical grid) does not necessarily include electricity from the renewables that provided the credits.

That is an example of the policy grid, which basically decides the big questions about what power sources will be available. The people running the physical grid do the best they can to provide reliable power, within the constraints of the policy grid. Another example: the policy grid often requires intermittent renewables. For a reliable grid, these need to be backed up with “quick response” generating plants (usually natural gas). However, other policies can prevent building natural gas pipelines. The constraints of the policy grid do not have to be self-consistent, and they are not.

Of course, the physical grid also has constraints, but they (like the laws of physics) are not negotiable. Power plants can run, or they can stop generating. Transmission lines can only handle a certain amount of power without overheating. The sun sets in the evening. Demand and generation must always be in balance. However, in current practice, the policy grid constraints are the constraints that control the grid. 

What is an RTO? And why do we have RTOs?

An RTO is a Regional Transmission Organization. Some people call such an organization a “deregulated” grid because the RTO management holds auctions. The assumption is that “auctions” equals “a free market.” However, “deregulated” is a misnomer. There’s plenty of regulation in an RTO! “Differently regulated” is a better description. I just call it an RTO grid. 

An RTO holds energy auctions, which take place every five minutes or so. It often also hold day-ahead auctions, ancillary services auctions, and capacity auctions. (Yeah, I wrote a book about it. It is complicated.) Let’s stick with the energy auctions. The RTO knows that it needs a certain number of megawatts (MW) for the next five minutes. Various plants “bid in” to supply the MW. The RTO chooses the least cost plants, then if it needs more MW, it will also choose some higher priced plants. When the RTO has all the MW it needs for the five minutes, the highest-price plant sets the clearing price. All the plants that bid will get that clearing price, which is the bid price of the highest-price plant that was chosen.

The other plants may have bid in at a much lower price, but they will receive the clearing price. It’s a confusing system. It also means that power plant owners “like” a stressed grid, because then the RTO must choose even expensive plants that are rarely run, and the clearing price skyrockets. That makes the other plants very happy. 

How did RTOs come about? Basically, there is no perfect, fair way to operate a grid. Before the RTOs, electricity was widely considered to be a “natural monopoly” because only one company would run a wire to your house. That company was a regulated integrated utility. The company that supplied your house also owned the local power stations, and it owned the transmission lines. (Utilities sometimes shared ownership in power plants and transmission lines.) Your local utility owned the distribution lines and substations near your house. That company owned or part-owned it all—from the generators to the users. That company was responsible for reliability.

Why was this changed? The regulated utilities were basically paid on a cost-plus basis. The utilities were required to serve their areas, and they were fined if there were too many outages in their areas. Meanwhile, when they invested in power plants and other physical structures, they asked their local regulator to approve their investments. If the investments were allowed, the utility was granted a “rate of return” on their investment. More money spent on infrastructure meant more profit for the utility. 

Many people felt that this cost-plus system was leading to a “gold-plated” grid. The RTO hope was that competition between the power plants would be a better deal for consumers. 

But it didn’t work. RTO areas have more expensive end-user prices. (I have several references on this in my book, Shorting the Grid.) This fact is often hidden in media reports about how much money is “saved” due to the auctions. But when people look at the consumer bills, they can see that RTOs do not save money. 

How has the RTO experiment fragilized the grid?

In an RTO system, the least-reliable power plants are the most likely to make a profit. I named my book Shorting the Grid because I saw parallels with the period right before the housing crash of 2008, as described in Michael Lewis’s book The Big Short. The value of a mortgage no longer mattered to the bank: a mortgage based on a “Liar Loan” made as much money (or more) as a solid mortgage. This topsy-turvy situation was a major cause of the 2008 recession. I see a similar topsy-turvy situation in the grid in RTO areas. The least-reliable plants are the most profitable. The result will be expensive and unreliable electricity.

As a matter of fact, the results are happening already. My book was published in the fall of 2020. One person emailed me after the Texas blackout in February 2021: “Amazing publicity campaign, Meredith! How did you ever arrange for Texas?” (Sometimes I like a snarky comment…) 

I need to briefly mention a few more things.

1. In an RTO, a power plant has no obligation to serve. Even in areas with capacity markets, power a plant can choose to stop generating if it is losing money. 

2. When a power plant invests in maintenance, this investment will not be reimbursed in the auctions. In a vertically integrated grid, the utility could fold most of its maintenance costs into the rates. In general, plants in RTO areas defer maintenance more than plants in traditionally organized areas.

3. A subsidized power plant can undercut everything else on the grid by bidding a “negative” price in the RTO energy auction. Other power plants, no matter how well they are operated, cannot compete with “we will pay you to take our electricity (negative pricing).” 

Are meaningful reforms possible for electricity markets?

There could be. I don’t know where to look for reforms, because the people who benefit from the current RTO system (the “stakeholders” of the Participants Committees) are running the RTOs. There is not much chance of change. RTO voting is “two wolves and a lamb voting on what to have for lunch.”

Okay. Meaningful reforms. We can look to Ontario with its “Global Adjustment” payments that protect reliable plants. Something like that could help our RTOs provide reliable electricity. 

Another possibility could be that an RTO would use the Ancillary Services market to reward plants that keep fuel on-site. Fuel on-site adds a great deal of reliability. Ancillary services payments for fuel on-site would help nuclear plants, coal plants, and dual-fuel plants that store oil on site. It would add a lot to reliability. 

Ancillary Services payments are already made to gas-fired plants that are willing to use fuel to run at low levels. Such plants can ramp up very rapidly for fast response if the grid needs them. These plants are paid for the fuel they use to be ready to provide full power, quickly.

Plants could also be paid for fuel on site. This is truly a case of “all it takes is the willingness to do this.”

What's the most important thing you've learned about electricity since publishing your book?

I have learned many specific things. People who are watching grids send me notes about things they have found or calculated. For example, I learned that over 60% of the electricity sold on one of the RTO grids is baseload electricity: that is, it is the electricity that is available 24/7, every day. In my book, I described how baseload is important, and that RTO charts sometimes hide the percentage baseload by only graphing the variable load. But I had no real percentage data. I feel that I now have an army of assistants who have been looking into such topics on their own but did not have a good way to share their information until I wrote my book. Now, through contacting me, some of these electricity analysts (mostly retired engineers) can get support from other analysts and so forth.

But the main thing I learned was not about electricity. I learned about myself.

 I learned that I’m not crazy.

When my book was first published, I got a fair amount of pushback that I was being alarmist. I didn’t think I was alarmist, but maybe I was? Self-doubt city! I mean, California had had rolling blackouts, but California is always considered a special case.

Since that time, we have had Texas. We have Europe unable to stand up to Russia for fear of losing access to Russian gas. My warnings about over-reliance on intermittent renewables and just-in-time natural gas seem overly mild in retrospect. The world is coming to appreciate reliable energy. 

I wasn’t crazy. I was just early.

Meredith Angwin © 2022

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