It Could Happen Here Texas’ grid experienced an epic failure, but could the same thing happen in Illinois? | "Power Grid" by brewbooks is licensed with CC BY-SA 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-sa/2.0/

It Could Happen Here

The power outages from winter storm Uri have claimed multiple lives. There is no shortage of tragic horror stories coming from Texas. A mother and child in Houston died of carbon monoxide poisoning after using their car to stay warm. A grandmother and her three grandchildren died in a house fire after using their fireplace when the power went out. Twelve people have died of hypothermia, including an 11-year-old boy who froze to death in his bed. The state’s final death toll could be dozens, and that does not include new cases of Covid-19. So far, at least fifty-eight people have died of storm-related causes across the United States. Eight states lost power at some point. In Texas alone, four million people were without power.

Unfortunately, the response to the crisis has strayed into a green energy culture war. When Texas’ governor appeared on Fox News to blame the power outrages on the states’ wind power, progressives and environmentalists quickly pointed out the failures in the states’ natural gas infrastructure. The truth is the factors are all interrelated. Texas’ heavy reliance on wind and natural gas—along with its failure to properly weatherize any of its energy sources—are all consequences of the United States’ deregulated and dysfunctional energy markets. Those markets exist across blue and red states. Liberals might point the finger at Texas’ Republican government, but the leadership within the Democratic party—including many environmentalists enticed by the idea of “natural capitalism”—are also guilty of leaving their grids vulnerable. Democratic controlled Illinois also has deregulated their energy markets, and, if not careful, it too could fall victim to the same type of cascading failures that have inflicted Texas. 

Before deregulation, energy markets in the United States were controlled by vertically integrated monopolies. Utility companies owned both the power plants and transmission lines, and those utility companies’ practices, including prices, were regulated by a state’s public utility commission. Because prices were regulated, the margin that utility companies made had little to do with the day-to-day sale of energy. Instead, utility companies made their profits from investments in large capital projects. Essentially, utility companies would argue before a utility commission that a large capital project was needed, thus justifying a rate increase. Once approved, the company would do everything to reduce the project’s cost to make a profit. While the system was far from perfect, it did ensure a reliable grid, predictable rates, and encouraged long-term investments in energy infrastructure. 

Despite its success, the system of monopoly utility regulation had two major critics. The first was free market ideologues. According to them, the lack of a competitive energy market meant that prices were artificially high. Even though utility commissions set prices, free market fundamentalists argued that consumers were paying too much for their energy. Instead of a regulated monopoly, they argued, states should allow various power companies to compete and drive down prices. The second were environmentalists. Since the 1970s, the majority of American environmentalists have been dedicated to various forms of Malthusianism. For them, ecological destruction is merely the result of individual overconsumption and sustainability mostly consistent of finding novel ways for individuals to live within nature’s metabolic constraints. Energy companies’ preference for stable energy sources—such as nuclear, large hydro, and coal—meant that “soft” forms of energy built around nature’s limits—namely wind and solar—were locked out of the market. Even though rightwing free market ideologues and environmentalists had traditionally existed on opposite political coalitions, the cause of energy deregulation saw a marriage of convenience that eventually flourished into its own ideology. Throughout the 1990s, market evangelicals and greens rallied behind the idea of natural capitalism. Notable eco-intellectuals such as Amory Lovins and Paul Hawkins combined their green posturing with libertarian notions of parochial and distributed power systems. For natural capitalism’s disciples, a coming ecotopia was around the corner if only government regulations and public institutions—including grids themselves—could just get out of the way. Once that occurred, nature’s value would be fully incorporated into all market transactions; green technologies would lead to an eco-libertarian paradise where redistribution was unnecessary, income taxes were low, and private property was sacrosanct. 

Throughout the 1990s, the coalition of free market ideologues and environmentalists were successful in destroying the system of regulated vertical monopolies. In 1992, Congress passed the Energy Policy Act. The 1992 Act allowed for competition in regional energy markets by forcing the regulated vertical monopolies to separate their power plants from their transmission lines. A single regulated monopoly would still own the transmission, but that monopoly would now have to purchase power from various energy sources, including non-utility generators known as alternative retail electric suppliers (ARES). At the time, it was argued that this new system would bring down prices through competition, while providing opportunities for experimental and green technologies to flourish. While the advocates of natural capitalism were convinced that wind and solar were already mature enough to transform energy production in the United States, industry leaders were less confident. To help renewable energy along, Title XXII of the 1992 Act created a new set of tax incentives for renewable energy production. It was the first in a series of massive subsidies to the industry. 

In accordance with the 1992 Act, in April of 1996, the Federal Energy Regulatory Commission (FERC) issued orders 888 and 889. These two orders fundamentally changed the nature of energy markets by moving wholesale distribution to a regional level. With the elimination of the regulated vertical monopolies, energy producers were expected to sell their power on a wholesale market where regional entities, known as regional transmission organizations (RTO) or independent system operators (ISO), determined the demand. Then, monopoly retail distributors would purchase the energy and sell it to consumers for a profit.  

In December of 1997, Illinois lawmakers deregulated the state’s energy market with the passage of the Illinois Electric Service Customer Choice and Rate Relief Law (ESCCRRL). Before the passage of the law, Illinois’s energy market was dominated by two utility companies: Ameren Illinois Utilities (AIU) and Commonwealth Edison (ComEd), which is owned by Exelon. The ESCCRRL separated AIU’s and ComEd’s energy production from their transmission lines and gave large commercial customers the ability to purchase electricity from approved ARES. It also created a mandatory transition period of ten years, during which the state would cap rates for residential customers and small businesses. After those ten years, the market was supposed to kick in and drive down prices.   

The ESCCRRL promised to reduce rates while simultaneously providing new opportunities for wind and solar to take over. It never occurred. Once the mandatory transition period expired, residents and small businesses saw immediate and dramatic increases in their rates. In northern Illinois, controlled by ComEd, ratepayers experienced an average 24% increase; in southern Illinois, AIU’s ratepayers saw a 55% increase. The sudden increase in rates created a political backlash against deregulation. In the summer of 2007, Governor Rob Blagojevich signed into law the Illinois Power Agency Act. The 2007 law provided immediate assistance to ratepayers in a $1 billion electricity relief package. It also created the Illinois Power Agency (IPA). In a soft retreat from deregulation, the IPA was designed to prevent market volatility and rampant price gouging by energy companies through a convoluted process of procurement.  

The IPA was also responsible for procuring renewable energy for Illinois’ Renewal Portfolio Standard (RPS). According to the RPS, 25% of Illinois’ electrical energy consumption needed to come from renewable sources by 2025. Despite the optimistic predictions of advocates, RPSs have been a spectacular failure; Illinois is no exception. When deregulation began in 1997, renewable energy production was virtually nonexistent in the state. Nearly two and a half decades later, the state’s renewable energy production is only approximately 15%, with a large share of that percentage belonging to biomass. In terms of energy procurement, the numbers are even more pathetic. Despite the mandate, only 8% of the electricity consumed in Illinois comes from renewable sources. At best, by 2025, 10% of the electricity consumed in the state will come from renewable sources, not 25%. Also, the cost of forcing those renewables onto the grid has not been cheap for ratepayers. The cost per metric ton of abated CO2 through RPSs ranges from $130 to $460 per metric ton, making it several times larger than conventional estimates of the social cost of carbon. While RPSs have only marginally increased the deployment of renewables, they have led to significant increases in electricity rates. 

Deregulation failed in Illinois for the same reason it failed throughout the United States. Free market ideologues—green or otherwise—do not realize is that energy, even in an optimally designed market, does not operate as a typical commodity. Energy is a fundamental human need, and—more so than any other resource—is connected to every other economic activity. Without easy access to energy, participation in the modern world is not possible. Anything that interferes with people’s access to energy, such as inevitable market fluctuations and prohibitively high costs, means that society as a whole suffers. Also, unlike other commodities, energy must be produced and used simultaneously. It is not economically feasible—and perhaps not even physically possible—to use grid level batteries to store large quantities of energy. For this reason, it is critically important to predict energy needs accurately. Severe overproduction and underproduction cause grids to collapse. If California underproduces in films, people get bored. If Texas underproduces in electricity, people die.

Because a certain level of mishaps and even rare catastrophes are inevitable, it is critical that there are investments in reliable sources of energy that can overcome the occasional crises. Unfortunately, deregulated energy markets have encouraged investments that maximize short-term profitability over long-term security. Without question, natural gas has been the greatest beneficiary in the United States’ deregulated markets. Recent innovations in hydraulic fracking have led to a dramatic drop in the price of natural gas. In many ways, this is a good thing. The low price of natural gas has successfully forced dirty coal off the grid. While natural gas is still a fossil fuel, it produces approximately half as much CO2 as a coal power plant

Additionally, natural gas has aided in the deployment of wind and solar. Indeed, without it, the mediocre growth of wind and solar in the last three decades would have been even more feeble. Wind and solar have critically low capacity factors. According to the EIA, the average solar field’s real-world production in the US is only 29% of its potential. Onshore wind is better with 41%, with offshore wind being only marginally better with 45%. None of these capacity factors are within the 80%-100% needed to power a modern economy. Plus, the irregular production of wind and solar makes it nearly impossible for grid operators to plan around peak consumption hours. Natural gas can accommodate these shortcomings in two ways. First, with a robust capacity factor of 87%, it can act as a baseload source. Second, unlike nuclear and coal, natural gas plants can easily be powered on and off, making them ideal for managing wind’s and solar’s intermediacy. 

 

Dispatchable Energy Sources Capacity Factor % Non-dispatchable Energy Source Capacity Factor %
Coal with 90% CCS 85 Wind, Onshore 41
Conventional CC 87 Wind, Offshore 45
Advanced CC with CCS 87 Solar PV 29
Nuclear 90 Solar Thermal 33
Geothermal 90 Hydro 64
Biomass 83

Table 1: United States Energy Information Administration, 2019

 

Despite these advantages, natural gas does come with major shortcomings. While the CO2 of natural gas plants are considerably lower than coal, they are still not at the level needed for humans to escape climate change’s dire consequences. Even after being supplemented with wind and solar, the emissions from natural gas plants are stubbornly high. And, while fracking has successfully cut the cost of energy, it also comes with its own environmental consequences, including the potential for drinking water contamination, earthquakes, and produced water. Also, as Texas has shown, natural gas is vulnerable to extreme weather. Unless power plant operators invest in a modern weatherization system, natural gas will freeze in cold temperatures, and even if the plants are weatherized, the gas can still freeze along the pipeline route. Unlike nuclear or coal, natural gas is not stored in large quantities at the power plant. Since deregulated energy markets have been restructured around short-term profit seeking, energy supply chains have formed “just in time” infrastructures that saves money by not investing in contingency planning. While this looks good for quarterly profit margins, it means that power plants have little to no room for error. The fact that intermittent renewables, such as wind and solar, have been added on the back of natural gas only compounds the problem. The natural gas revolution has been celebrated for reducing the cost of energy, but that revolution has come at a shortening of our grid. It is important to remember that when the grid collapses, it is poor people who pay. The sellers of electricity, who are often responsible for the crisis, can make out like bandits through price gouging. In deregulated markets, when the supply of energy diminishes because companies did not invest in securing it, those same companies can charge whatever they want to desperate people scrambling to get access to an essential need during an emergency. 

Fortunately, Illinois is not as dependent on natural gas as Texas, but that could change. Even though only about 15% of the states’ energy comes from renewable sources, Illinois is a national leader in clean energy production. Approximately 58% of the electricity produced in Illinois comes from nuclear. The overwhelming consensus of energy experts is that nuclear is safe and environmentally beneficial. Despite this reality, nuclear has been historically opposed by environmentalists. Originally, opposition to nuclear was anchored in an acknowledgment of its benefits. Under the guise of Malthusianism, early environmentalists opposed nuclear because it was believed that an abundant source of clean energy would exasperate overpopulation, as it removed supposedly “natural checks” on population control. When that argument failed to appeal to anyone who was not a proud misanthrope, opponents of nuclear began to emphasize safety and waste management issues. When those arguments failed—especially in the context of catastrophic climate change—opponents shifted to arguing nuclear’s economics. Taking a page from the advocates of natural capitalism, opponents of nuclear have argued that nuclear power fails because it is uneconomical. The free market just will not support it. And, in a certain sense, they have been right.

With steep competition from natural gas, nuclear power plants have struggled to remain solvent. Similar to how natural gas has removed coal from the grid, it has gone after nuclear and forced several power plants to retire prematurely. However, nuclear energy’s solvency issues require some qualifications. Unlike wind and solar, nuclear power is not federally rewarded for its lack of CO2 emissions. It has been left out of the massive clean energy subsidies that began under the 1992 Energy Policy Act. According to the Congressional Budget Office, nuclear receives less than 5% of all federal subsidies. In contrast, renewable energy sources and energy efficiency receive over 58% of all federal subsidies. While nuclear’s clean energy potential is ignored, natural gas’ problems are given a free pass. The owners of natural gas power plants pay no price for the greenhouse gases they emit or when they experience reliability issues. Instead, those costs are shoved onto future generations or current ratepayers.     

 

Energy Source Total Subsidies Percentage
Renewables and Energy Efficiency $12,372 million ~58%
Fossil Fuels $5,280 million ~25%
Other  $2,634 million ~12%
Nuclear $914 million >5%
Total $21,200 million

Table 2: Congressional Budget Office, 2015

 

Still, Illinois’ nuclear power plants are not sheltered from national economic forces that have caused other perfectly operational nuclear power plants to shut down. In June of 2015, four Illinois government agencies—the Illinois Commerce Commission, the Illinois Power Agency, the Illinois Environmental Protection Agency, and the Illinois Department of Commerce and Economic Opportunity—produced a joint report analyzing the various economic and environmental aspects of Illinois’ nuclear power plants. The report concluded that Illinois’ nuclear power plants were far less profitable than similar plants outside of that state. In total, five of the six nuclear power plants in Illinois were economically distressed. If they closed, the gap in energy supply would be filled by natural gas or, even worse, result in the revival of Illinois’ crumbling coal power plants.   

 

Power Plant City Output (Thousands MW/h) 2010 Operating Units Commercial Operation Date License Expiration Date Financial Distressed
Clinton Power Station Clinton 8,612 Unit 1 11/24/1987 09/26/2026 Yes
Dresden Generating Station Morris 14,593 Unit 2 06/09/1970 12/22/2029 Yes
Unit 3 11/16/1971 01/12/2031
Quad Cities Generating Station Cordova 14,796 Unit 1 02/18/1973 12/14/2032 Yes
Unit 2 03/10/1973 12/14/2032
Braidwood Generation Station Braceville 19,200 Unit 1 07/29/1988 10/17/2026 Yes
Unit 2 10/17/1988 12/18/2027
Byron Generating Station Byron 19,856 Unit 1 09/16/1985 10/31/2024 Yes
Unit 2 08/02/1987 11/06/2026
LaSalle Generating Station Marseilles 19,133 Unit 1 01/01/1984 04/17/2022 No
Unit 2 10/19/1984 12/16/2023

Table 3: Table 1: United States Energy Information Administration, 2010

 

Fortunately, the state decided not to take any chances. On December 7th, 2016, Illinois Governor Bruce Rauner signed into law the Future Energy Jobs Act. Included in the law was the creation of Zero Emission Credits (ZECs). ZECs subsidize financially distressed energy sources—specifically nuclear—that do not emit carbon emissions. Unlike the state’s Renewable Portfolio Standard, ZECs have multiple protection to prevent them from being used to price gouge ratepayers. The rate of reimbursement for ZECs is based on the social cost of carbon and capped. If the cost of ZECs results in a rate increase of greater than 1.65%, then utilities can reduce the number of ZECs they are forced to purchase. 

The ZECs saved the Clinton and Quad City nuclear power plants, but it remains to be seen if they are enough. Exelon, the sole owner of Illinois’ nuclear power plants, has requested additional subsidies for its Byron and Dresden power plants. Climate Jobs Illinois, a labor coalition dedicated to creating clean energy jobs throughout the state, supports them. While the need to save Illinois’ nuclear power plants is widely recognized, there is an understandable reluctance to give Exelon another round of subsidies. Although deregulation supposedly “separated” the vertical monopolies of utility companies, this “separation” never actually occurred. In the example of Exelon, while the power company still owns power plants, its subsidiary, ComEd, owns the transmission lines. While the two different companies operate different forms of infrastructure, the profits still flow back to the same source. On November 18th, 2020, federal prosecutors charged four officials—former ComEd lobbyist Michael McClain, former ComEd CEO Anne Pramaggiore, former ComEd lobbyist Jay Hooker, and former president of the City Club of Chicago, Jay Doherty—with bribery. The four were accused of funneling $725,000 to lawmakers and aids in exchange for favorable legislation for ComEd. The corruption charges shook-up Illinois politics and ignited a renewed scrutiny of recent energy legislation. While it is unclear how much, if any, the Future Energy Jobs Act was a product of the bribery scheme, Illinois’ 2011 Smart Grid bill is regarded as a boondoggle for ComEd. It is also evident that Illinois’ utility commission have been overly deferential to the company. In the eight years that the bribery scheme was known to have occurred, ratepayers in northern Illinois saw their energy bills increase more than 30%. In the same period, ComEd’s net annual operating income increased more than 50%. Given this corporate malfeasance, lawmakers are hesitant about passing legislation that could unjustifiably benefit ComEd’s parent company. 

The decision to keep Illinois’ reliable nuclear energy infrastructure intact and potentially entwine the state in yet another corruption scandal or avoid a corrupt company and let Illinois’ vital nuclear power plants flounder is not a great one. Nonetheless, it is the type of decisions that inevitably arise when working to provide clean, reliable, and affordable energy in contemporary deregulated markets. This is the madness of energy markets in the United States. Despite the fantasies of advocates for natural capitalism, deregulated energy markets have not shown any willingness to internalize environmental costs. Instead, the growth of wind and solar—largely through massive subsidies, not market competition—has done little more than greenwash away the dramatic expansion of natural gas. Meanwhile, even though natural gas remains cheap and accessible, it is entirely insufficient for dealing with the United States’ long-term ecological and reliability issues. In the end, there is no substitute for bringing energy infrastructure under public ownership and engaging in good old fashion industrial planning. While the Democratize ComEd campaign in Chicago is calling for the city to municipalize its distribution provider, a fully democratically owned and operated energy infrastructure is a long way off. Still, without working toward that goal, catastrophes like the one in Texas are bound to come to Illinois; they are, after all, the predictable outcome of an inane energy market that combines a lax regulation of fossil fuels with wasteful subsidies on intermittent renewables, and continually puts the short-term profits for a few large energy companies over the long-term needs of people and the planet.