“Are RTOs central planning entities subject to the Mises/Hayek/Lavoie critique of access, pricing, and service quality? Is the ‘knowledge problem’ and ‘fatal conceit’ a defining issue for RTOs/ISOs compared to a private sector, unregulated approach to power coordination?”
“Vernon Smith: I don’t know”
It is a strange world in which a classical liberal espousing F. A. Hayek tries to justify a “market” based on a systemic violation of property rights and governmental central planning for an enormous territorial grid.
But this is the case with Lynne Kiesling, and maybe even Nobel Laureate Vernon Smith. I’ll let the reader decide from this social media exchange:
Kiesling: I’m pleased to report a new publication in the journal Energies, “Opening Up Transactive Systems: Introducing TESS and Specification in a Field Deployment,” available to read below. If you have wondered about the transactive energy platform that I’ve mentioned and have been working on for the past several years, this is the latest development. If you are one of my Hayekian market epistemology friends, you will see here how our design is based on the importance of processes and feedback effects for price discovery.
Kiesling: You will also see how strongly we rely on Vernon L. Smith’s pioneering work using double auctions.
Bradley: I am very suspicious of this whole demand-side exercise, which seems to be premised on a lot of (government-enabled) renewable energy penetration, which ruins the market with price spikes and ‘greenouts’ that, in turn, requires a whole lot of demand-side technicality.
I just want to buy my electricity per month and not fool around with an expensive apparatus in my home that can be controlled from outside in ways that can (and probably will) go from voluntary to mandatory. Austrians understand that supply-side regulation/distortions lead to demand-side regulation (Mises interventionist thesis).
I see this demand-side complexity as peculiar–sort of an economist’s plaything in a second-best or regulated world. But maybe the authors of this study would be SVPs of Integrative Coordination within firms in a true free market ….
Smith: same for automobile. It was a mistake. Dangerous killer, brought regulation and intervention, to say nothing of marring countryside beauty with concrete and asphalt paving.
Bradley: I am missing your analogy completely. Why central planning of electricity when the firms themselves can make those decisions? Vernon, do you see RTOs/ISOs as free market?
Smith: No. I would have tried a different structure in which the RTO/ISOs were a joint venture of the users operating under rules such as he who invests gets property in the capacity added by the investment. I do not know if it would have worked, but the principle is to sustainably link decentralized effort to its product in creating new value.
If the states had not been duped into intervening to rescue declining industry profits some sort of merger-cooperative-ventures structure would have emerged to capture the high WTP for electrical energy. Foreign countries opted for government ownership/operation which unraveled because of budget busting bad management.
Bradley: This is very helpful. So if ISOs/RTOs are governmental and reach across what private firms would call control areas, is central planning the right term? Whereby historians can judge performance using the Mises/Hayek/Lavoie framework? And specifically, the ‘economic calculation’ problem involves pricing that was more-or-less solved by two-part pricing (via the Wright meter).
So what takes the place of private-firm two-part pricing in an ISO/RTO framework (if I am understanding this correctly)? This seems to be a major quandary that only a market discovery process can answer (and there could be multiple approaches).
After no response, I tried again after four days:
Bradley: Are RTOs central planning entities subject to the Mises/Hayek/Lavoie critique of access, pricing, and service quality? Is the ‘knowledge problem’ and ‘fatal conceit’ a defining issue for RTOs/ISOs compared to a private sector, unregulated approach to power coordination?
And then again two days later:
Bradley: One more time …. Are RTOs central planning entities subject to the Mises/Hayek/Lavoie critique of access, pricing, and service quality? Is the ‘knowledge problem’ and ‘fatal conceit’ a defining issue for RTOs/ISOs compared to a private sector, unregulated approach to power coordination?
At this point Lynne Kiesling intervened:
Rob Bradley Please stop badgering Vernon on my thread. My thread, my rules.
Bradley: “Don’t mean to. It took two tries last time. (I have no idea of his schedule.) Can you answer this question?”
But then came an answer from Vernon Smith!
I Don’t know
Yea! I then answered:
Vernon L. Smith The ‘ERCOT Nodal Protocols‘ document is 1,876 pages. I think there is a lot of central planning in here for Texas’s 26 million captive ISOers, even enough to get Hayek to have spilled his coffee. [the above link is updated and live here]
To which I then asked Kiesling: “Lynne, do you have an answer?” to no answer.
—————-
I have many questions for Lynne Kiesling (see here) who claims to be classical liberal and Hayekian but espouses a position that can certainly be considered the opposite of both–and responsible for the greatest debacle in the history of the electricity market (the Texas Blackout of February 2021).
Why will Kiesling not answer basic questions in the heart of her area of expertise? Why is Vernon Smith vague in an area that Lynne has led him into?
Final Comment
I have many questions for Lynne Kiesling (see here) who claims to be classical liberal and Hayekian but espouses a position that can certainly be considered the opposite of both–and right in the mix for causing the greatest debacle in the history of the electricity market (the Texas Blackout of February 2021).
Why will Kiesling not answer basic questions in the heart of her area of expertise? Why is Vernon Smith vague in an area that Lynne has led him into?
It is not enough to just complain that the old utility model was monopolistic and inefficient, and therefore ISOs/RTOs must centrally plan the wholesale market to allow retail ‘competition’. There is another approach–the free-market, classical-liberal one, which I have outlined here and here (critical comments welcomed).
My initial take is that Lynne and others are doing their best to engage with electricity institutions as they are now (challenged by subsidized wind and solar), and advocating market-friendly policies given the status quo and huge political/special interest pressure.
Maybe advocacy for micro-grids be an alternative way to promote market-based energy tilting at embedded state and federal subsidies and regulations? Let green energy enthusiasts have their own greenish micro-grids. Sort of like advocating charter cities around the world rather than hoping central governments will someday become less corrupt.
Greg:
First, is the ISO/RTO wholesale monopoly model central planning? Is it distortive? The idea that you can gain with a ‘competitive’ retail market based on a governmental wholesale market is where Austrian insights come in. Why not a free market at wholesale and let the market decide otherwise?
Second, the Texas ideal (she co-authored a book on this) was blown up in February 2021. As it turns out, the old utility model would have prevented much of what happened under the ISO model facilitating renewable penetration. The “obligation to serve” got lost when the utilities were more or less forced out of the integrated provision business.
Third, now that the supply side is distorted and prone to blackouts at the peak (winter and summer), the ‘central planning’ is on the demand side. So Lynne is working on models that will regulate the home and business with a slew of options from “smart meters”.
The original rationale of Lynne was that she is a ‘directionalist’, not ‘destinationist.’ But as her positions weakens, she keeps going down the central planning road with more technology and engineering.
This has little-to-nothing to do with classical liberalism or Austrian economics, including Hayek. I can only wish she would take a few months to step back and write a critique of her whole agenda of the last decade from a classical liberal/Austrian perspective. She knows, more than anyone else, the problems…. But I fear she is more interested in collecting academic positions and being a player in one of the most regulated, politicized sectors of the US economy.
I again offer these questions for Lynne to answer: https://www.masterresource.org/electricity-policy/questions-kiesling-ii/
Demand side protocols are infiltrating much of Vermont, the only state in New England with a vertically integrated electricity model. Green Mountain Energy,of Vermont is promoting power walls and interconnection of household devices of relatively large power consumption to the grid as a method to shave peak hour demand. Vermont is within the ISO-NE realm and is likely to be subjected to area blackouts/brownouts issued by the ISO.It’s great to be progressive until the piper comes calling.