The Electricity Industry’s “Ghost in the Machine”

For as long as civilization has existed, there has been an ongoing question about what the mind is, and how it relates to the body.  Is it an immaterial substance, and if so, then how can it exert control over the physical being with which it is associated?  With the rise of science, there was an increasing realization that the brain seemed to play a central role in both the conscious, voluntary activities of living beings, as well as the unconscious, autonomic functions of their bodies.  But it was still difficult for many – even scientists and philosophers – to accept that what we regard as consciousness, including reason, emotion, memory, artistic inspiration, and genius, is simply a phenomenon generated by the biochemical processes of the body, and specifically the brain itself.  There certainly had to be a connection between mind and body, but it was – and is – hard for many to believe that the body, including the brain, is anything more than a biological machine, which requires something additional to make it a genuine conscious being.  The 17th -century philosopher Rene Descartes, famous for declaring “I think, therefore I am”, in trying to account for the connection between mind and body while maintaining that they were separate entities, argued that the soul resides in the pineal gland, and from there exercises its influence over the brain.  But the 20th-century philosopher Gilbert Ryle famously derided this theory of Cartesian “dualism” by calling it “the ghost in the machine”.  Modern science tends to align itself with the Ryle camp, rather than the Cartesian, but most of us, I suspect, at least in our private moments, continue to believe – or want to believe – that there is something more to us than a physical body: something that accounts for our thoughts, aspirations, feelings, and unique personalities.  We contend that each of our bodies needs this mysterious something to live, to act, to make us who we are.  But by insisting in this belief, we fall back on the original puzzle: how can two entirely separate and different entities – one immaterial, the other physical – interact with one another?

If we descend from the lofty heights of philosophers and theologians, we actually find something eerily similar to the mind-body problem challenging us right here, in the electricity industry.  For here, too, there are two distinct and separate systems, both of which seem to be required to bring the electricity grid to life, and yet again there is no material connection between them.  They seem to operate on two entirely different planes, in entirely different ways, and yet are intimately intertwined.  The most conspicuous system, of course, is the grid itself, with its wires, transformers, and generators.  This would be analogous to the human body.  But the generation of electricity, and its delivery to those who need it, requires something more to happen than just the physical existence of the necessary equipment.  Somebody, or something, must have the incentive to create the physical system, maintain it, and operate it.  But more than this, they have to know how much electricity to produce, when, and to whom it should be delivered.  This entails something that is almost as ethereal and insubstantial as consciousness itself: something that motivates people to produce and deliver – and to consume – the electricity that flows in the grid.  In short, what is required is a market: an economic system that somehow conveys information about choices and preferences in a manner that results in creating a supply of electricity that meets and matches demand.

But while markets for power have come into existence and evolved in tandem with the creation and evolution of the electricity grid itself, this does not mean that there is a consensus on just what these markets should look like, and how they should work.  There are some core principles, of course: some basic features that it seems would be necessary to make any market mechanism successful.  Consumers of electricity should have to pay for it.  And those who produce electricity and/or deliver it should be compensated for doing so.  But beyond these basics, things almost immediately begin to get murky.  How much should users of electricity pay for it?  And in what manner?  Conversely, how much should providers be paid for it?

There are two extreme solutions to the market problem.  One is simply to leave these questions to a central authority – a person or committee – who assigns a value to electricity, perhaps based upon a calculation of underlying costs.  Where such an approach has been attempted with other goods and services, however, the result has usually been something very unsatisfactory, or even catastrophic, because there is no real transmission and exchange of information between providers and users.  At the opposite extreme, providers are allowed to set their own prices, and adjust them in the face of what consumers demonstrate they are willing to pay, and – if there is more than one provider – what the “competition” is charging.  This extreme, referred to as “laissez faire”, is the one almost universally preferred by economists, but as an extreme, it has been demonstrated to have its limits, if, for example, an imbalance of power exists between producers and consumers which allows one to exploit the other.  Even the economist Adam Smith, whose name is often linked with laissez faire capitalism, recognized the potential danger of a completely unfettered market:

The interest of the dealers [i.e., business owners, manufacturers, and merchants], however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public.  To widen the market and to narrow the competition, is always the interest of the dealers.  To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. (Adam Smith, Wealth of Nations)

Regulation constitutes a sort of middle ground, or at least a “safety net” for the laissez faire model in which certain limits are set on how prices can be determined, and services offered – particularly under conditions when competition is “narrow”, or even nonexistent.

For most of the history of the electricity industry, competition was, for all practical purposes, nonexistent, as providers of electricity were determined to be “natural monopolies”, and so regulations were created which limited the extent to which customers incurred an “absurd tax”, i.e., rates that resulted in profits (in the case of investor-owned utilities) that exceeded what was necessary for electricity providers to attract investors.  But with the rise of distributed energy resources, and the increasing capability of third parties and traditional consumers to produce and store electricity, at least to some extent, the market is “widening”.  Competition, which has already been introduced at the wholesale level in many areas as a result of deregulation, may now find its way into the retail level as well.  And so this ethereal thing called a “market” will have to be redesigned and reimagined so that the physical system which is brought to life by its existence can function in an optimally healthy way.

In essence, the electricity system will have to evolve, and just as bodies and minds – however they may be related – have always evolved together, so the evolving physical grid will do so in lockstep with the evolving market operations that comprise the “ghost in the machine”.


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