Back to the basics, or at least the Regular Grid, which I’m just going to call the Grid from now on. In this part I’ll be going over Transmission and Distribution. I already explained the physics of how power gets from one point to another: cables, wires, and transformers…or I said that is how it gets from one point to another, I didn’t actually explain how any of those components function. Anyways, today I’ll be covering more of the economics of the situation.
The scene I described before, whereby the Electric Producer watches the Grid and tells it’s Load Following plants what to do, as far as making power or not dependent on the peak load, is true. However, often enough an Electricity Producer finds itself in one of two positions. The first is that it doesn’t have enough electricity to power the demand on the Grid, even when it has all of it’s Load Following plants pumping out power at their max abilities. In this case the Electricity Producer has to go to another Electricity Producer, hat in hand, and buy some of the second producer’s electricity. The company doing the buying generally gets reamed by the company doing the selling. If the buying is done far enough in advance then the reaming is not so bad. Now you ask, how would a company know it needs to buy extra electricity ahead of time? There are a couple of reasons. One of them is that it has to do maintenance on one of it’s power plants, another is historical data tells it that during the summer it’s not going to produce enough juice from it’s own plants. So you have Electricity Producers buying and selling power to and from each other, on the Grids that they are connected to.
Now comes another wrench. In a lot of places, the guy Producing the electricity is NOT the guy Transmitting the electricity, and neither of those guys are the guy Selling the electricity to the consumer, aka businesses and individuals using the electricity. So now, you have three market points. That’s right, three different arenas at which the electricity is being sold. First, the Producer sells it to the Transmission folks, then the Transmission folks sell it to Seller, then the Seller sells it to Customer. Now, add in multiple entities in each of these arenas and you basically have a stock market of electricity going on around the country. From day to day, hour to hour, electricity is being sold by power plants to a variety of transmission companies, who are then turning around and selling the power to utilities who provide you with your electricity bill. The market creates competition and the variety of companies compete against each other to sell the right amount of power at the right time. This leads to companies voluntarily bettering themselves because of the need to be better than the competition.
Now, it’s not like that everywhere. For instance, in many places there is a single company that owns the power plants, the transmission lines, and provides the power to individuals and businesses. Often this is due to government regulations concerning the production of electricity. In these places you general have only a single option on who can power your home, aka “The utility is The Utility and that’s just the way it is.” Monopolies have a tendency to cause prices to consumers to rise sharply, so the government regulations also limit those companies to a certain amount of profit every year, the rest of the money they make has to go into their infrastructure. Not a terrible idea, but not exactly capitalist in nature. Ultimately it forces consumers to purchase from only one source, which does not breed competition, and in practice the power companies in this model don’t put much effort into upgrading their infrastructure, they put their money into maintaining it. So you end up with a “Same old, same old” model whereby we are still operating with transmission and production equipment put in place during World War II, which was OVER 50 YEARS AGO NOW!
That’s some of the nitty gritty of the distribution and transmission of electricity and the craziness of how it gets from the power plants and into your house.
The comment about profit capping on a monopoly actually cracks me up, because that is totally not how it went when the government tried to do the same thing to another “transmission” industry monopoly back in the day – AT&T.
When the gov told AT&T that they could only make X% profit, AT&T jacked up their prices all the same and ACTUALLY spent all the rest on their infrastructure, leading to a RIDICULOUSLY powerful, reliable, and clean telecomm transmission grid. This let AT&T make more money due to higher expenditures, was in no way needed for use of the lines, and is called “gold plating the network”.
In a segway – keep that negative-connotation term in mind next time you go to buy cables – especially if the idiot store guy points you to “Monster” cables.