In episode 3 of the Energy Markets Podcast host Bryan Lee talks with Nora Mead Brownell, who as a state regulator in Pennsylvania helped oversee the state's late 1990s transition from monopoly regulation to a competitive market electricity. She then was appointed by President George W. Bush to the Federal Energy Regulatory Commission, where she teamed with Pat Wood III to promote regional wholesale power markets in the wake of California's historic 2000-2001 electricity market meltdown. The conversation identifies various misunderstandings in the wake of the February 2021 Texas grid failure and compares it to similar misinformation that arose in the wake of the California crisis two decades ago, and which today is often accepted as "common knowledge." Brownell arrived at FERC when the figurative embers of the 2000-2001 crisis in California were still hot, and most recently chaired the board at PG&E, a California utility literally singed by hot embers as its equipment has been tied to historic wildfires in the state. She urges Texas officials to learn from the mistakes of California in order to help limit the economic harm of the recent weather crisis on Texas electricity consumers. Brownell suggests both recent crises, the wildfires in California and the Texas deep freeze, are the result of climate change, and calls for massive federal investment in transmission infrastructure to support renewable energy development nationally.
In episode 3 of the Energy Markets Podcast host Bryan Lee talks with Nora Mead Brownell, who as a state regulator in Pennsylvania helped oversee the state's late 1990s transition from monopoly regulation to a competitive market electricity. She then was appointed by President George W. Bush to the Federal Energy Regulatory Commission, where she teamed with Pat Wood III to promote regional wholesale power markets in the wake of California's historic 2000-2001 electricity market meltdown. The conversation identifies various misunderstandings in the wake of the February 2021 Texas grid failure and compares it to similar misinformation that arose in the wake of the California crisis two decades ago, and which today is often accepted as "common knowledge." Brownell arrived at FERC when the figurative embers of the 2000-2001 crisis in California were still hot, and most recently chaired the board at PG&E, a California utility literally singed by hot embers as its equipment has been tied to historic wildfires in the state. She urges Texas officials to learn from the mistakes of California in order to help limit the economic harm of the recent weather crisis on Texas electricity consumers. Brownell suggests both recent crises, the wildfires in California and the Texas deep freeze, are the result of climate change, and calls for massive federal investment in transmission infrastructure to support renewable energy development nationally.
The Energy Markets Podcast, Episode 3, Nora Mead Brownell
Transcript (edited for clarity purposes)
Intro: Welcome to the energy markets podcast, curated conversations with policy experts and thought leaders on how to chart the best path toward a 21st century clean energy economy. I’m your host, Bryan Lee. My energy and environmental policy expertise stems from more than three decades of experience as a journalist, federal government official and utility executive.
EMP: Welcome to episode 3 of the energy markets podcast. We are engaged in a conversation with policy experts and thought leaders about the best policies for achieving a zero emissions grid, as the Biden administration has proposed, to achieve this at least cost consumers. I’m very pleased today to talk with Nora Meade Brownell. In her storied career, Nora, as a state utility commissioner helped transition Pennsylvania’s electric industry from monopoly-regulated to a competitive-market model. And then, President George W. Bush nominated her to the Federal Energy Regulatory Commission, where with Pat Wood III as chairman, they helped promote development of organized regional wholesale power markets over much of the country. Most recently, Nora chaired the board at Pacific Gas & Electric, helping steer the California (investor)-owned utility through its second bankruptcy. Nora. Welcome.
NMB: Thank you, Bryan. It’s fun to be here.
EMP: Well, I’m so glad to talk with you today. And not simply because we’re friends but because the recriminations and myths that are now emerging in the wake of last month’s Texas grid failure, do more than suggest to me the ghosts of California past. As you and Pat Wood arrived at FERC in, I guess it was 2001, the figurative embers of the (2000)-2001 market meltdown in California were still red hot. And then in your most recent stint at PG&E, you dealt with the literally hot embers in California, as the utility’s equipment helped spark devastating wildfires. And you dealt with two governors, then-Governor Gray Davis, whom voters recalled, and the current governor, Gavin Newsom, who is the subject of an ongoing recall effort. So, are electric industry crises toxic for California governors?
NMB: (laughs) I think it depends on how you manage those crises. And I think both demonstrate the inability to understand the utility sector as a business, as a driver of economic development. And when I say economic development, I not only mean businesses, but I’d include the health and well-being of the citizens, the environment, and all of the tangential things that the electricity sector touches. So, in the case of Texas, it’s a very different situation than California. And we can talk about that. California, in its reincarnation in 1999, 2000, 2001, had a market design that was unsupportable. It just didn’t make any sense, economically. And it failed to consider the extraordinary growth that California has undergone, and the fact that they rely significantly then and now on hydro imports from the Northwest. And at that point, they were in the fourth year, third or fourth year, of a severe drought. So that generation wasn’t available. Their generating fleet was old. It was tired. And nothing much new had been built in a long time and their network, their transmission wires, were completely inadequate. Flash forward to the past couple of years, where you see the effects of climate change, as you did in Texas, and the inability of the state itself to have a coherent, holistic plan for mitigating fires. PG&E was responsible in many ways for not anticipating the dramatic effects of climate change – I’m not sure anyone could have entirely – but failed to do the investment in hardening its infrastructure for that. It subsequently caught up. It has incredible technologies, which I think by the way are going to be the game changer for all of us. And I think they’re doing a better job. But nevertheless, until and unless the state itself undertakes some responsibility for managing fires, you’re still going to have the same issues. Utility equipment causes less than 30% of the fires. Most of them are caused by things like a cigarette butt, a car backfiring – the place is a tinderbox. And yet there’s no integrated plan for managing vegetation along highways, for example, as they do in France and Australia. There’s plenty of examples of countries and states that have gotten ahead of the curve. California is sadly not one of them and relying totally on the utilities themselves to manage what is a problem that is far greater than the utility’s itself. We had in PG&E, for example,120 million dead trees in our service territory, not necessarily directly in our utility corridor. You haven’t – you cannot believe what it’s like in a severe weather event to see a huge tree blow five miles into your lines. So there’s a lot that is not within necessarily the utility’s control. Again, not apologizing for PG&E’s historic mismanagement of its assets. I think its new CEO and its new board have made great strides and will continue to do so.
EMP: Well, do you see parallels between the blowback and recriminations that we’re hearing in the wake of the Texas event and what we saw 20 years ago in the aftermath of California?
NMB: You know, it’s really tragic that people use really horrific events like this to put forth their own political agenda. We had people say that Texas was caused by renewables. We have people that saying – without any evidence whatsoever – people saying that it’s caused by competition. Neither of those things had anything to do with it. It was the third-worst storm in the state’s history. It was the longest in duration. It was the coldest and it covered all 200 and I think 54 counties in Texas. It also hit many of its neighboring states. So while their import capacity isn’t significant, it wasn’t available because those states were facing the same thing. I’ve heard just outrageous claims about competition, which I think people confuse with deregulation. There are as many regulations after you restructure the industry. They just have to be more focused, and more to the point, on what are no longer Black Swan events. I call them, maybe they’re Gray Swans, but they’re part of our day-to-day existence. Whether it’s a polar vortex in the Northeast, whether it’s flooding and high winds and tornadoes and hurricanes in the Midwest and the Southwest, whether it’s freezing temperatures in an area that never anticipated it. So they also had, because it was cold, and most people hate with electric heat, because they're not used to coal, they had the highest demand. So we now know that we need to change the planning horizons, but it was the highest demand ever experienced. And because of the cold, generators were falling offline. Now it’s too soon to tell exactly what happened. But there clearly needs to be better coordination between the gas and electricity sector. FERC is, I believe we were talking about that at first in 2001. It still hasn’t happened. In fact, we need better coordination and better resiliency planning for all of our utilities because the interconnection and codependency of telecommunications, of water, on electricity and gas cannot be avoided. We need to plan for events that we can barely anticipate. So we need to shore up our communities. We need more micro grids. I think we’re going to find that we need better winterization in Texas, and in other places, again, these extreme weather events are happening there. So I just hope that these people who would manipulate information, which by the way this country has suffered from dramatically in the last four or five years, we’ll get to the facts and do the right thing. There are short-term fixes. There are long-term fixes. And Bryan the other thing I’ve seen are these astronomical claims of bills and you know that are in the thousands and hundreds of thousands. Ninety percent of Texans are on fixed-rate contracts. What does that mean? That means unlike in the regulated utility world, the risk is largely on the suppliers, not the customer. So the customers in Georgia, for example, are going to be paying for a long time for the delays in the extreme cost overruns of a nuclear plant, just as they paid in Mississippi for the cost overruns of a coal gasification plant. All of that, because it’s a vertically integrated utility, gets pushed onto the captive customer And captive, just think about that. You don’t have a choice. In Texas, you have a choice. Prices returned to normal very quickly. There were high prices. That’s what happens in scarcity situations. But again, the market actually worked. Do we need to be more focused on resiliency, better planning? Yes. And the most exciting thing that I see coming to the industry is the technologies which give us a lot more data, which give us transparency, which allow us to plan better, allow us to use dynamic line ratings, allow us to reconfigure the grid in the case of an emergency. But most important, and I keep hammering on this, it really shines a light on what is happening with our networks, which is going to allow us a much more effective and efficient way to build for that zero-carbon future in an affordable way. These are these are low-cost capital investments that we make in exchange for data that is going to be extraordinarily valuable, and also bring real value to the customers at a lower price.
EMP: So I take it that you don’t agree with Steve Adler, the mayor of Austin, where they have a municipally owned monopoly utility, who has been prominently saying that the deregulated power system in Texas failed consumers. So the market didn’t contribute to the grid collapse, as he said?
NMB: Absolutely, absolutely not. And I’m sorry that public power largely has not been able to reconcile themselves with a restructured industry. Good heavens, Bryan, every industry at some point, largely driven by technology, gets restructured to bring value to the customers. And I’m afraid for the mayor of Austin, he neglects to acknowledge that they had similar problems because of the cold. So I think that, again, it’s using a horrible event in which an enormous amount of suffering went on to put forth a political agenda that is not borne out in the facts.
EMP: Well, I think, you know, the traditional generators in in all the markets right now are struggling in the marketplace because renewables are driving down their revenues, among other factors. But so maybe he had something there. Was the market not generating enough revenue for the generators to make the investments they needed to make?
NMB: Well, again, I want to wait and kind of make sure I have all the facts. How much of this was that disconnect in the gas markets? How much of it was the lack of winterization? How much of it was that there are no penalties for failing to show up? How much of it was people didn’t have firm contracts? There are a lot of people in a very vibrant market. I think there is some failure, as I said, competition is not deregulation. So there probably should have been some mandate for secure fuel contracts and for winterization. But I think I initially thought, again, which is why I don’t want to rush to judgment, I initially thought that winterization was really the major issue. As it turns out, more of the generators were winterized than I had realized. So, I think that whether they’re being paid enough to winterize, I think, is another issue. I mean, the market is what the market is. And if you’re inefficient, and you’re unable to manage your business, you’re going to be driven out. You’re going to be driven out of the marketplace. And that’s happening in Texas. That’s happened in Pennsylvania, because they are pretty strict rules about who can participate. So I think we need to examine the whole picture before we reach a conclusion that perhaps there wasn’t sufficient income. You know, do you need a resilience tax? Maybe you do.
EMP: Do you need a capacity market, like they do in the Northeast?
NMB: I am notoriously not a fan of capacity markets, because I don’t think they ever achieve what they are intended to achieve. And they are subject to endless tinkering and debate. I think it’s – they are complex administrative fixes, again, that can’t replicate what markets do. I mean, if you look at some of the market effects early in Texas, coal plants, which were inefficient and expensive, got driven out of the market. If you look at what happened in Pennsylvania, we opened markets and all of a sudden we had development in wind – by the way, frankly, none of which we ever anticipated and welcomed, and customers welcomed. Because the other surprise, you know, 20 years ago, was that many of the people who chose to participate in the retail market in Pennsylvania chose green power, even though it was then significantly more expensive. I mean, significantly being relative, because energy is in fact very cheap in this country. So I, you know, maybe people will consider a capacity market, but, that’s also a long time coming. And because of the stakeholder process that we engage in, in the country, it often ends up at the lowest common denominator and not the best conclusion. I want to see the full set of facts, but I also want to have Texas really look quickly at what short-term fixes need to go in. For example, if more generators need to get winterized that needs to start now.
EMP: Maybe it wasn’t the winterization of the generators, it was the natural gas supply system that got frozen up, as I understand it.
NMB: I think it was a combination of both, Bryan. I think to the extent we know, it looks like it was a bit of both. But again, you know, these things take time. And the last thing you want to do with a service and a commodity that is as important as our electric sector, is to rush to hasty decisions. You know, I don’t think that ever, that ever making those decisions in a crisis adds cost and doesn’t often add a lot of value. And I think we’ve seen crises all over the world of a different kind that you know, exactly the same thing happened.
EMP: Well, you know, I just saw so many parallels between some of the misinformation I saw coming out of Texas and some of the misinformation out of California 20 years ago, that’s now common knowledge, i.e., Enron caused the California crisis, and they designed the Texas market. So clearly, the ghost of Enron is at work here, right?
NMB: (laughs) It truly is. I think they’re still hearing California cases at the FERC, actually. Yeah, I am. And that’s, that is to me terrifying, that we’re allowing political agendas to substitute for reality. California had had enormous growth. They had not invested in their infrastructure. So the infrastructure itself was insufficient to support their economy. They had a market design that was economically unsustainable, and drove one company into bankruptcy and put everybody else pretty close. The market rules that that were approved, were either didn’t exist, or they were the wrong market rules. And those are the kinds of things that we had to look at very quickly. Enron was a player, who, by the way, was unwise enough to put their strategies on paper. Under the rules that were in existence, some of those strategies were illegal, some were not. But there were many, many, many other players in that market, including utilities, including public power, who were playing the game and made a lot of money in some cases. And again, so inadequate infrastructure, inadequate market rules, and uneconomic market design and a dependence on imports that weren’t there – were all major contributors to California. Enron was one of many players. But, you know, it’s awfully convenient to find someone to blame in in these situations. Particularly when you have a different agenda. And, I want to point out, the competitive market in Texas has brought huge value for customers. They were 21st in the cost of their average retail cost of electricity. They’re now 43rd. That’s brought a lot of money to the pockets of businesses, which have grown exponentially in Texas. It brings money to the individual consumer who has other things to do, particularly during this horrible COVID which has hurt people financially. So I think that, you know, throwing around accusations without any facts, people should be held accountable. That is very dangerous. We’ve seen the kind of things that can happen. Misinformation about COVID vaccinations has vulnerable people reluctant to get them with. That’s irresponsible. It’s in my mind criminal. But this is the same kind of thing that we’re seeing in the electric markets. And if people want to protect their monopolies and protect their own business model, fine, let them go ahead. But don’t do it at the price of freezing out the value that competitive markets bring. We also see in Texas a tremendous amount of innovation. Digitization of their grid, you know, two-way meters where people can get real information. I was in a control center during a storm and a cyber attack of a Texas utility, and to watch them be able to get information and to communicate to customers in real time. The storm is coming your way. Your electricity will probably be out. We think it will be back on by five o’clock. I recently had an outage in my neighborhood. It lasted all day. It was a cold day. I have a 50-year-old meter and no information forthcoming because they can’t and choose not to communicate with me. And I live with a vertically integrated utility. I’m sorry, I just don’t see any evidence that the competitive market hasn’t added value.
EMP: Oh, I think scapegoating is not new here. I mean, go back to the 2003 blackout, which you were at FERC for that.
NMB: Yes, indeed.
EMP: You know, First Energy – where they were able to place the start of the cascading blackout that occurred – First Energy hired some ‘consultants’ who were blaming the market for that. And you and I both know that the analysis after-the-fact found that it was First Energy’s failure to invest in modern computer equipment and being able to see the grid properly contributed to the outage – and not trimming trees. And so the line sagged and hit the tree, and they blacked out the entire Northeast. And, but you know, they said it was competition, it wasn’t us. And, you know that the FERC staff analysis after the California crisis found that Enron probably lost more money in California than they made. So it’s not new. But you mentioned, you know, how important it is for Texas in the wake of this crisis to get the facts and to act without any demagoguing. I don’t know how successful we’ll be at avoiding demagoguery. But talk about the missteps California undertook in the wake of their crisis 20 years ago that maybe Texas should avoid, because you know that the California consumers are still paying 20 years after-the-fact for this bad market design they adopted.
NMB: Yeah, if there’s a way not to do it, that’s the way. Well, first and foremost, they jumped in at the peak of the market, when scarcity pricing was being sent. Rather than find a way to build better interconnections with the rest of the West, rather than invest in new generation, they signed long-term contracts at the peak of the market, and that’s what people are still paying for. Again, they did not have the facts. It was politically convenient to blame Enron and the market because no one wanted to stand up and say, we made mistakes. I’ve heard Pat Wood, for example, testified last week or this week, articulated exactly what mistakes seem to have happened, and owned fixing it. And we need more leadership in stepping up to the plate and say, you know, in haste we made mistakes, and here’s how we're going to fix it. And unfortunately, we don’t seem to have that accountability. And I think, you know, part of that in the utility sector is there is literally an incestuous relationship between politicians and utilities – in vertically integrated utilities. And it’s not been healthy for the business. It’s definitely not been healthy for customers. I look with horror at what’s happened with First Energy in Ohio, and the amount of bribes or, whatever you want to call it, paid to get increasing subsidies for its plants at a time again, when customers can least afford it.
EMP: How many times are customers going to have to pay for these plants? I mean, they paid for them under regulation, they paid for them in the transition to competition, and now they’re paying another tax on top of that.
NMB: Right, I completely agree. Not only did they pay, did they pay twice, these plants made a lot of money in the early days of competition. And when competition started to work, and we see the extraordinary advances in the cost of solar and wind, and battery storage, yeah, to be asked to pay again is outrageous. It’s outrageous. And we’re seeing it in multiple states. One, you know, there’s the argument that the nuclear plants are somehow as green as you can be. I think Bill Gates and his fellow investors are developing some modular technology that shows great promise. I’m not even remotely opposed to nuclear plants. I hope the country is ready for it. But I think it’s just outrageous to suggest that we subsidize old dogs that have been paid for over and over and over and over again. And who gets the value of that? I’m not sure it’s the environment. I’m pretty sure it’s the investors in the company and the people who manage them. So I think we need to look long and hard at the future of our country, and the inefficiencies and the costs we’re loading onto our economy when we’ve got incredible competition from China. And, I’m not an opponent of China. They’ve taken an economy that was in the tank, and they’ve developed it, and they’ve developed a workforce. You know, we have not taken advantage of workforce retraining, for example, for a lot of our old coal miners and things like that. We’ve not taken advantage of our ability to innovate. I mean, I see the innovation in the market, and I see it going to other countries. Because we’re perfectly happy with our 100-year-old towers. And we don’t really want to see that transparency. And I think you’ll find some of the same people who are opposed to restructuring markets and competitive markets be very slow to adopt some of these new grid enhancing technologies that allow you to optimize existing assets, but also give you a pretty good picture of how they’re being managed and how the asset health is going. I mean, the beauty of some of these new technologies is they have multiple applications. So they help you plan, they could help you monitor for market power, which is one of the reasons I suggest people might oppose them. They drive investment in the right areas with the right tools, as opposed to just having a company decide to build whatever they want to build. Unfortunately, the utility business model in this country is based on what I call the Big Honkin’ Project. So the more money you spend, the more money you get. So there’s no incentive really to invest in lower-cost capital projects that actually would add much more improvement. And people wave the flag of affordability, but they don’t ever really question why we’re not working harder to use existing assets or plan more efficiently for new assets. I mean, I think there’s no question – to achieve the goals of reduced- or zero-carbon – we’re going to need to build interregional transmission to push out some of that valuable wind in the Midwest to neighboring states.
EMP: Well, let’s talk about that Nora, because you’re part of an effort that was organized by Rob Gramlich in which, it was rolled out with you and a whole host of other former FERC commissioners and chairmen. Tell us about that effort and then go on with your explanation as to why transmission investment is important.
NMB: Sure. Well, I think Rob and his team have introduced some studies into the marketplace that suggest the lack of visibility and interregional ties have limited the ability for cheap wind power, for example, in the Midwest, or cheaper solar power in the neighboring states of California, to really be used efficiently around the country. So leveraging a certain region’s value to add value to other states is not being undertaken. Why is that? Because we don’t like to pay for infrastructure in this in this country. You’ve heard me say a thousand times, we largely live on our great grandparents’ largesse. Their willingness to invest in roads, in electricity systems, without actually ever getting the benefit themselves or seeing it in their lifetime. So, we have no real viable mechanism for siting and for determining who pays for interregional transmission. I could argue, and I think a senator might have said this the other day, that the federal highway system was largely paid for by the federal government. Maybe the value that you have in these large interregional projects could be viewed as a national value and therefore paid for in that way. The other aspect of this is, it allows you to have stronger, more resilient infrastructure. So with the new technologies that allow you to reconfigure the network quickly as we see more extreme weather events, as we see, God forbid, cyber events which you know are happening and will continue to happen. We need the strongest grid that we can have, and the most flexible, that we can have, and in my mind, that’s a vital national security issue. So I think that we probably need to give FERC more authority to site interregional transmission, and I think we need to figure out a way to pay for it that puts the larger well-being of our country at the heart of making those determinations.
EMP: Yeah, I saw FERC Chairman Rich Glick quoted the other day as saying that the zero-emissions-by-2035 goal of the Biden administration can’t be attained without building these sorts of trunk lines that you’re talking about the, the ‘super grid’ that helps integrate all of these disparate regional grids.
NMB: I think that’s absolutely borne out by the facts. I think there have been a number of studies. But most recently, the one we discussed with a group of – it was fun to be with all those FERC commissioners, the dishonorables as we called ourselves. Anyway, I think everyone agrees that we have to step back and take a real look at the network. And again, it’s not only to get to zero carbon. You have these extraordinary events occurring around you. You have security issues. But you also have valuable resources that are not being utilized effectively. And that, by the way, is what markets do. They allocate resources effectively. I remember in 2003, a group of Western governors got together – National Grid actually did the study – and they were planning to build transmission lines to export their renewable energy into California, who, you know, early said they had these goals. And unfortunately, one of the primary vertically integrated utilities was sold to a private investor who promptly told the governors that if any lines were to be built, his company would build them. That to me was just, it was heartbreaking. And again, it was an abuse, I think, of financial power to intimidate politicians. Governor Freudenthal of Wyoming was the leader of that group, but just a wonderful person, and it’s really a shame that that never happened.
EMP: What utility was that?
NMB: That would be PacifiCorp, when it was sold to Berkshire Hathaway.
EMP: Yes, Warren Buffett. There’s not a monopoly-regulated industry he doesn’t like.
NMB: That is correct. That is correct. Who just killed retail choice in Nevada? So, again, again, financial gain over what’s best for the economy, I think, doesn’t bode well for us. I think when you are a regulated entity – I was in banking for many years and we had laws that obligated us to serve the low- and moderate-income community. And that was fair, because we had the benefit of basically a monopoly at that point. And with that brings obligations, and obligations I think that are civic, among other things. So, again, this unhealthy relationship between politics and the energy sector hasn’t served this country well.
EMP: Well, from everything we’ve discussed so far, it seems clear to me that the answer to our initial question, what is the best avenue to realizing a zero-emissions grid by 2035, you believe is competition and not regulation.
NMB: I absolutely, well, but regulation, again, competition isn’t deregulation.
EMP: Regulated prices. Regulated prices. Right.
NMB: Well, yeah, so I think one of the things we’re seeing in the healthcare industry is very similar to what we see in the energy industry. There are a lot of regulations, they’re probably not the right regulation. There’s no price transparency – literally no price transparency – and there’s no ability for the customer because ultimately that’s what I am when I consume healthcare services, I’m a customer, and yet it’s the one place in the world I have very little choice and almost no information. That’s changing, again because of technology. There’s a wonderful book, it’s now 10 years old, ‘The Creative Destruction of Medicine,’ and it’s really about how technology is changing. Not fast enough, by the way. And, and again there’s a lot of vested interests who would preserve the current model as hugely, wildly inefficient as it is. Energy has the same situation. It’s in many cases overly regulated, like the wrong regulations. So we need to focus on resiliency. We need to focus on transparency. We need to reconfigure, I think, our regional transmission organizations, who do a wonderful job. And by the way, Ercot did exactly what they needed to do as generation was dropping off. Had they not instituted rolling blackouts, literally, the Texas grid could have been destroyed. And it would have been months and months and months and months before you could get it up and running. So I want to say, well, I think the RTOs themselves need to kind of move on to RTO 2.0 or 1.0, or whatever you want to call it. I think they should be leading the initiative for new technologies to hang on the grid to give us this better information. They should be leading the way to do more robust modeling. Right now, the data is provided by an incumbent utility who obviously has vested interests. I mean they do, and that, you know, that’s what businesses are. But that’s where regulators, and that’s where people who are anointed by the regulators, as the regional transmission organizations are, need to be more independent and need to play a greater role in driving this change. Because we will never get to zero carbon, or even low carbon, unless we get stronger, faster, and expedite changes. And again, these are, these are not huge capital expenditures. I mean they are capital expenditures, but they’re not enormous. We know what they can do. Just as we know what meters can do. And I still hear people saying we’re going to have a pilot for meters and – again I live in Dominion territory – I will never have a new meter or competition, unfortunately. But I think we need to be, I think we need to be a little less willing to hide behind risk, and to really bring this network into this century.
EMP: Well, you know 20 years ago, it seemed a fait accompli that the regulated-monopoly approach to this industry was going away. You know, we had interjected competition in all these different industries – the airlines, telephone, communications, natural gas, which was kind of the model for electricity. And then California was the first state out of the block to restructure, and they did it badly. And the whole thing went skidding off the rails. But you in Pennsylvania, and Pat in Texas, persevered and restructured those states, and along with, maybe a dozen to 15 other states have competition to some degree or another. So for the past two decades we’ve had what Justice Brandeis called the ‘Laboratory of Democracy’. We had two sets of states, the vast majority of states that stayed with the regulated monopoly model, and a number of other states that went with competition to one degree or another, either wholesale, retail or both. And so we’ve got a track record of two decades. We can compare and contrast these two sets of states. What does that tell us?
NMB: Well, I think it tells us very clearly that where you have competitive markets, you have more empowered customers, you have more innovation. I mean, there are so many retail products in Texas, it’s – I'm envious. You have a company that will tailor your billing cycle to when you get your Social Security check. You know, that doesn’t seem like a big deal, but I think if you’re on a fixed income that is a big deal. You have incredible investment, both in their grid, not in the interregional grid but with intrastate, you’ve had huge investment in their network. And, and you’ve had real price competition. So I – you don’t see things like the cost overruns that I referenced earlier for a nuclear plant, or the coal gasification plant that that we saw in Mississippi. You know, one of the poorest states least able to afford it. And, so, I think the evidence is quite clear. But there are very, very strong, vested interests that want to preserve that monopoly status quo, and honestly, you know, if I had a big old fat monopoly maybe I would feel the same way. But where would this country be? Where would this country be if Steve Jobs didn’t say, you know what, I’m going to create products that customers don’t even know they want? That’s one of my favorite sayings. Where would we be if leaders didn’t say, you know what, I think we can put a man on the moon? To me, it’s the height of hypocrisy to think that we live in this innovative society, but for one of the most vital commodities – and network services – that we can get. It’s to me a real crime. And I'm – I don’t want to sound like I’m against capitalism, because God knows I am all about capitalism. And that’s what commanded competitive markets do. Vertically integrated utilities breed market power. They breed complacency. They breed a lack of financial discipline, which at the end of the day, the customer and the communities they live in pay for.
EMP: So how did we get to the point with electricity, where we, you know, I started our conversation earlier about, you know, all of the misinformation that has to be dealt with in these instances. And one thing I always hear about the changeover from monopoly regulation competition was that, well it was supposed to lower prices, and it’s not. And you know we saw in Texas where the public power interests, put out an analysis that I guess the Wall Street Journal picked up, in which they noted that the municipally owned utilities, which are still monopoly utilities, have lower costs than the customers in the, the regions, the areas of the state that have competition. Is that a valid comparison?
NMB: No. I don’t think it’s a valid comparison because what they fail to say is there are very different tax structures for vertically integrated utilities in the private sector or the investor sector than there are public power. I think there has been some analysis that the Wall Street Journal picked up that Pat Wood, actually, sent a pretty compelling letter talking about how inaccurate it is. Again, people are picking and choosing random and unsupported facts to support what is basically their own political agenda. I think that does a disservice to the public. I think that’s why Texas, in spite of some really outrageous mistatements by several of their elected representatives in the Senate and the House, blaming everything on renewables, completely without any factual basis whatsoever. So I think that’s why it’s right that FERC and NERC and Ercot itself and their commission are taking a good solid look at exactly what happened, so that we can make informed decisions. We can learn from this, and we’re not jumping to conclusions that in the long run hurt people. And I think that’s the responsible way to go about it. And I think some – many of the leaders in Texas are – not all, unfortunately, and not all of the news media has been responsible. The Wall Street Journal has typically not been terribly supportive of electric markets, which to me is ironic given, given their position in the universe. But we have an obligation, particularly as spokespeople, and in the media, to make sure we’re challenging the facts and we’re double checking. And again, we paid a huge price in this country in the in the last, I don't know, five, six years as we’ve deviated further and further from fact-based discussions. And it’s had alarming effects on our communities, on individuals – particularly disenfranchised individuals. Again, we’ve seen it in the COVID vaccination rollout and the challenges faced there in getting people to get the vaccination. You know, we pretend these things, you know, our words don’t have consequences. And they do have consequences. Very serious consequences, often for people who are in no position to speak for themselves. And I think customers, electric customers, in many places because they don’t have the information, this is basically considered an entitlement, and they are not given options in education. I think they’re not in a position, I think, to really understand what’s being done to them. I was just looking at a fun app developed by a company that will show customers what their solar is doing, what their generator is doing, what appliances are using it, how much battery power they have left. It would have been enormously useful to have that rolled out in Texas. It, this will roll out in a couple of months. It’s a Texas-based company. You know, again, the world is driven by data. We are actually all interconnected. That’s why I, I must confess, and not all my Texas friends agree with me, that having stronger interconnections, you know, would not be a bad thing. I don’t know. You know, I think the battle is over. Oh, we’re going to keep state control as opposed to FERC-regulated control, I think. I think that’s just a ship that sailed a long time ago. But we’re carrying grudges for a long time, And I think that time has passed.
EMP: Well should Texas be integrated with the other interconnections? Should it be an island unto itself?
NMB: Look, the world is interconnected. You know, I talk to my friends in Beirut. I talk to my friends in Egypt via FaceTime. We, you know, I don’t think it’s necessarily a good thing for them to be an island unto themselves. That’s something they can determine. But, but I don’t, I don’t honestly, in this day and age, I really don’t understand it. I probably will not be allowed to go back to Texas if I’m ever off isolation island now but, you know, it’s their’s to make.
EMP: I think there’s a, there’s a growing sentiment within Texas that maybe they should at least consider what benefits there would be in unislanding themselves. You know, maybe we should connect a generator to Sam Rayburn’s grave because he’s spinning really badly right now.
NMB: It’s (integrating Ercot with the other interconnections) not the most preposterous idea, by the way, that’s come out of this. So why not?
EMP: Well getting back to this, this price-comparison thing, I noted there was a recent R Street analysis that looked at what public power in Texas was saying. And it’s important that you not take a snapshot look, but look at it over time.
NMB: Yeah.
EMP: They pointed out that over time, prices for customers that do have competitive choice have moderated or gone down actually in Texas.
NMB: Almost immediately. Yeah.
EMP: And whereas, in the municipal utility areas, prices have increased for customers in that same period. And I think, too, we, you know, getting back to my laboratories of democracy, we’ve got these two sets of states over 20 years we’ve seen the same thing on a larger scale, haven’t we? Where states have a competitive wholesale market and a competitive retail market they've seen, lower, lower costs, or at least not price increases. Whereas in the states that have stayed with monopoly regulation prices have increased, particularly, you know, look at Georgia and South Carolina, where they’re paying these enormous costs for nuclear power.
NMB: Yeah, I mean, I don’t – you know, what you saw in Texas, at the moment – and again it was a snapshot, that’s a good point – was scarcity pricing. Well, did you buy hand sanitizer a year ago? Because you were seeing scarcity pricing, big time. That’s a tried-and-true economic signal when demand exceeds supply. It happens in other markets. It happens all the time. And, as I said, 90% of the customers in Texas are on fixed-price contracts. So those customers didn’t bear the cost of the risk, their supplier did, and there will be suppliers that go out of business unfortunately because they didn’t or couldn’t hedge. And that to me is a really important message that there are ways to protect retail customers. There are some customers in Texas, and we both know several of them, who know enough about the market to have bet to float with the wholesale and take that variable rate. And, in at least one case, they were able to use other methods to hedge themselves against the high prices. So, we see, you know, look at the cost of houses in Florida and other places because of COVID where people flocked out of cities to buy second houses, you know, you can see scarcity pricing. I don’t know why scarcity pricing is such a surprise and a sin in the electric and gas markets. I mean people are very quick to say there must be market manipulation. Well, you know, I have no evidence to suggest that there was. There’s every evidence to say that there was scarcity. It’s a mystery to me why people in some markets can accept it, and in other markets they can’t. Look at what’s happened to the cost of – I mean this is typical – of phones. You know, when the iPhone first came out, I can’t remember how much it cost but, you know, you now have a lot of competition for the iPhone, the iPhone costs have gone down, and other products are in the market that are, that are cheaper still. Ditto laptops. Ditto computers. I don’t understand why we can’t take lessons learned from true markets and apply them to the electricity sector. Again, with some belts and suspenders because it’s such a vital commodity and affects people’s health and well-being. So you obviously, you know, you obviously have guardrails and, and I think they’re going to look at some of the guardrails in Texas, as they should. But again, it doesn’t mean the whole market is wrong. It just means you need to do things a little bit differently.
EMP: I was glad you brought up the telecommunications angle here, because where I was trying to go, because, not only in the last 20 years with these two sets of states have we seen economic benefits for customers. We’ve seen other benefits have we not in terms of innovation and cleaner energy production?
NMB: Yeah, I mean, literally almost immediately after we restructured the market in Pennsylvania, we saw people announcing wind projects. We saw inefficient generation retire. Ditto in Texas where they, you know, stronger interconnections (would) probably let them export more of that wind that is shut in in the Panhandle. So you know there’s lots of economic benefits to regionalism. I think you see a ton of innovation in the different products that are available to customers in Texas. And I want to correct another kind of ‘Big Lie’ about the Texas market. I’ve heard that a Harvard professor designed the Texas market, and I’ve also heard that Enron designed the Texas market. Pat Wood, and Senate and House members and their consumer advocate visited California. I think they visited New York, and they visited and spent five days in Pennsylvania with us talking about what worked and what didn’t. And on the plane on the way back, they literally sketched out their market design, on, on the proverbial back of the napkin. They did it better than we did in Pennsylvania, to be honest with you, because they got rid of the ‘Provider of Last Resort’ (POLR), which gave the incumbent utilities much more of a market benefit and made a lot of barriers to entry for competitors. So they did it that much better. So, you know, again, any market has corrections, and this market will need a correction. But you don’t throw the market out because of an anomalous situation. Every, every utility in the country, every community in the country is going to have to plan more efficiently for, again, what I call the Gray Swans that are coming our way. And we’ve had plenty of evidence in the last 10 years for sure that – and you can deny climate change, you can, you know, stick your head in the sand for a lot of things, but the bottom line is, weather patterns are getting more extreme. They’re changing and it’s going to impact all of our infrastructure. You saw a freeze on a Georgia highway a couple of years ago where people were stranded for seven hours. You saw, you know, what happened on the highways in Texas. So it’s not limited to electric infrastructure. Just as you see in California, or should be seeing, change in zoning, change in building codes. Unfortunately, you’re not seeing it fast enough. So, people continue to build in high-risk areas supported by, you know, government rules. I think that’s a tragedy. If you go to France, again, where I spent some time during the midst of their fire season, the head of the fire (authority) has huge, huge responsibility and power to make determinations about when the close parks. There’s very strict zoning and building codes. There’s a very well-coordinated firefighting system. There’s great coordination between critical infrastructure, because that was another thing that happened in in Texas. They probably didn’t have the right list of critical infrastructure. California has actually gotten better at that. But there’s just a lot of different ways that you need to change to do business in, in these quite terrifying environmental changes.
EMP: That’s a whole conversation unto itself. We’re running out of time. But I do just want to jump back to the idea that you brought up, telecom, a moment ago. And you know we once had a monopoly in the telephone industry we had Ma Bell and you could get any phone you wanted as long as it was black and you paid Ma Bell for that phone.
NMB: You rented it! You rented it. It was the greatest business model for greed that I ever saw.
EMP: And so Judge Green got rid of the monopoly. And what happened was an incredible innovation explosion, in which we’re walking around with these portable computers and doing Zoom calls. You're on your phone right at the moment, right?
NMB: Yeah.
EMP: So, and we’re, you know, and we went from waiting until 11 o'clock at night to make a long-distance call because they were so expensive. And now we’re probably paying more than ever for this phone, and all the other things, but look at all the benefits that we’re getting. And so is that the model then, if we get the utility monopoly out of the way, as they did in Texas, are we going to see that kind of explosion of innovation?
NMB: I think you are seeing that explosion. It’s not as obvious because you’re not carrying it around in your hand. But what I see happening – well, look at what happened with solar and wind. Look at how quickly the costs came down, how much better the products themselves were. I see it happening in network advances all the time. You know, technology that allows dynamic line ratings which, which means you can optimize old stuff, get better visibility. It’s already happening. It would happen more completely, I think. And I, you know, I think, wires are always going to be, I want to say, always going to be a monopoly. And, and I think that’s what works. But I don’t understand why they’re still vertically integrated. There’s no reason that generation, literally, needs to be part of that. If you had – and I’ve seen the business models in Europe. I’ve seen National Grid. They are a wires company. Wires and pipes. And those are their assets and they spend a tremendous amount of money upgrading those assets and making sure that they’re providing the most efficient platform that they can for their customers and the generation providers. You know, that to me is a business model that is sustainable. We’ve certainly seen it work. And that was, you know, that was the plan when we restructured. But the political interference allowed us to get kind of halfway there, as I think we did in Pennsylvania. You know we didn’t go far enough, fast enough. And so I think we’ll see a lot of innovation. I think we’ll see a lot of service, and I think we’ll see viable business models. I think a wires utility is a very attractive investment. It’s secure. And that’s the kind of investors that utilities attract. It's consistent, but it will also encourage the right economic incentives. I had a CEO of utility say to me, you know what, you’re the regulator, you give me the incentives that – you know, I’m like a mouse, you put the cheese where you want me to go and that’s where I’m going to go. And I think, you know, that’s what we can do with markets.
EMP: Well, this idea of getting the utility out of the way, or, as I’ve heard it put, quarantining the utility, that’s a nice COVID term, quarantining the utility is the way we need to go to get to a zero-emissions grid. Nora, we’re way past our time here. I really, really enjoyed our conversation, and I’m hoping that we, we can both get inoculated and get together over a drink real soon.
NMB: We will do, and I have been inoculated and I’m dancing in the streets. But I’m still double masking.
EMP: Yep, absolutely. All right, thanks, Nora. I’m waiting for my shot. I’ll let you know when I get one.
NMB: Please do. Thanks.
EMP: Thank you. Bye-bye.
NMB: Bye-bye.
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