I ask because I broadly understand ERCOT to have delivered the lowest prices and the highest reliability over the last decade. A far better outcome than PJM or CALISO.
Last weeks failure was because the natural gas pipeline infrastructure isn't winterized - a separate issue from the structure of the electricity market.
What leads you to a different opinion?
ERCOT does not pay producers for standby capacity. Just this week the New England grid completed its annual auction for capacity to be available 3 years from now. The prices they will pay are between $3-$5/MWhr. Maybe a little more than electricity in TX in 2024 (but who knows). No power plant operator is going to hit the $9,000/hr “gusher”, but it will be available and they will get paid.
So what was the nature of the failure? Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. Because this infrastructure froze, the state ran out of methane ('natural gas') to run it's massive excess capacity.
Now this isn't hard to do, Siberia, New England, and Scandinavia all have massive natural gas infrastructure that's fully winterized. But Texas never required that winterization, so they ran out of actual methane when they needed it most and then the turbines could not turn.
Said differently, the underlying issue is regulatory and 'energy system' one - having a capacity market (like PJM or New England ISO) would in no way have changed the outcome because the state would still have run out of methane.
Do you see it differently?
Yes. If minute-by-minute retail electricity pricing was there, then there'd be a large incentive to winterize the fuel supply, because the ones who didn't would lose out on the profits from higher electric rates from the ones who did.
I buy your point up thread that more responsive retail pricing would’ve reduce demand faster[1], but I think generators just failed to foresee the failure points of their systems and the potential severity of winter events despite significant incentives to do so.
Since the spot price hit its statutory cap, you might argue that the limit on potential windfall profits rendered winterization ROÍ negative - which might be true but if the only way to keep the lights on is to let the generators plan on pillaging a state in crisis, the state might want to step in to provide support beforehand.
[1] leaving aside the point the ‘reducing demand’, in this instance, means poor people are cold or worse.
And that ERCOT's extreme plan (worst case scenario) had only anticipating loosing [2] 14GW of 'thermal' (i.e. mostly natural-gas) capacity. So 'lost capacity' was 2x the worst case anticipated.
Estimates are that supply was about 20GW below peek demand.[3]
Sources: MIT trained Princeton Professor who was tweeting real time data from ERCOT and is one of the nations leading researchers on energy systems, grids, and reliability.
I highly recommend all of these threads:
[1] https://twitter.com/jessejenkins/status/1361348544154664961 [2] https://twitter.com/JesseJenkins/status/1362062037275279363 [3] https://twitter.com/JesseJenkins/status/1362063819858714633
>I ask because I broadly understand ERCOT to have delivered the lowest prices
These two statements are the opposite of each other. Low costs because no winterization. Low costs because the grid is unreliable.
The notion of fixed electricity rates is the source of most of the problems.
After all, there are regular events where oil refineries go off like, burn down, blow up, etc., and yet I'm still able to buy gas because the pump prices go up, reducing demand to match the supply.
Note that this big freeze also impacted gas deliveries, and gas prices went up, and no shortages. A fixed pump price would have produced shortages and lines.
Whenever there are shortages, there's almost always a fixed price in there causing the problem.
It would work better and much more fairly if the floating rate was scaled by the net worth of the customer.
It also creates ridiculous perverse incentives where people with little money waste electricity in the midst of a shortage because they're not being charged the market price for it, forcing cuts in actually productive alternatives.
I'd rather have poor people using electricity than rich corporations. At least keeping people warm is productive.
[0] https://heavy.com/news/photos-houston-skyline-lit-up-power-o...
Deicing power plants and pipelines requires electricity. If electricity cost is $9000/MWh then paying that money is worth it since you unlock the ability to produce more electricity and sell the additional production capacity you brought online for $7000/MWh. Repeat this with multiple power plants and you are back to $100/MWh.
If you just hand it out to random people you might not have enough electricity to keep the electric grid alive.
Maybe there should be some reserve power in the system to make sure power plants have capacity to heal themselves, sure. But that's really a tiny part of the overall system.
Instead of giving corporations legal status as people, we should be giving the Earth legal personhood. Some countries are already starting to do so. [0]
[0] https://therightsofnature.org/universal-declaration/
How Jet Stream Collapse will Cause Mass Starvation Explained by Dr. Peter Wadhams:
https://www.youtube.com/watch?v=KKilc_oMbrg&feature=yout...
Here are four countries that have given nature the same legal rights as humans. #BeLikeThem. Solutions are everywhere. Let's implement them and protect people and the planet. #ActOnClimate #nature #forests
Does the current system charge customers by minute by minute spot prices? I don't think so. If electricity costs $5/kWh you bet the CFO is going to tell the janitor to turn off the lights.
I remember something about how gas prices quite reliably go up rapidly and go down very slowly, which doesn't at all reflect a market that's allowed to 'float'. It seems as though gas prices are building in their own 'fixed' problem: shock-tremor resilience into a very low rate of decline in prices, paired with a very high rate of incline in prices, in order to buffer against market shocks in a way that "boils the frog" so that consumers don't realize it.
Are there any examples of an industry that transmits price shocks directly to customers, with equal responsiveness in both directions, regardless of the opportunity to sellers exploited by gas prices today?
Most markets neither have nor want this. If there is a freeze in Florida, the price of oranges goes up. If someone discovers a large new deposit of cobalt, the price of cobalt goes down. If there is a flood in Thailand, the price of hard drives goes up. If a patent expires on a drug, the price of the drug generally goes down.
> I remember something about how gas prices quite reliably go up rapidly and go down very slowly, which doesn't at all reflect a market that's allowed to 'float'.
It's just a reflection of imperfect competition.
If the price they have to pay goes up then they raise prices immediately because there is no point in attracting customers with low prices so that you can sell to them at a loss.
Once wholesale prices come back down, not lowering prices until your competitors do allows you to charge higher margins. But lowering your prices increases your customer volume, so eventually somebody does and then the others have to follow. The fact that this doesn't happen immediately is a reflection of the fact that there are only tens and not thousands of local competitors.
Until they didn't. Until any money savings you may have gotten over the last decade was eaten up by what will be the cost of the burst pipes and flooding of your house.
How are ERCOT's prices compared to El Paso's?
> El Paso Electric said they always try to prepare for the future and after a winter storm in 2011, the utility company worked towards replacing and upgrading their equipment. Many generators now have antifreeze protection.
> "We went from plus-10 degrees which was what the original equipment was designed for to a minus-10, so currently everything we install or upgrade is done to a minus-10 degree sustained temperature," said Louie Guarderrama, director of operations for the utility company.
* https://kvia.com/news/el-paso/2021/02/15/el-pasos-not-seeing...
Yeah but that's going to be paid for property insurers or perhaps federal disaster relief funds. ERCOT successfully externalized the cost of coping with frigid temperatures, allowing them to provide power at lower prices.
El Paso Energy is interesting bc it represents the old school community monopoly.[1] I wonder if the JPM buyout will help or hinder its mission.
0. https://nautil.us/issue/55/trust/the-resulting-fallacy-is-ru...
Did were those ERCOT's power plants or ERCOT's companies or was it even ERCOT's purview to tell them to weatherize? Of course not. Does ERCOT serve the same boss as Republicans and energy companies? Absolutely.
I hope that better explains why I hate ERCOT, lest you think everyone who has an opinion different than yours is a fool. I am used to that. Most people have no idea how little Texans care for GOP go-it-alone politics.
In the medium to long term you probably want some central management that can ensure extra capacity exists. When you depend on the spot market for everything, this happens, and you encourage an attitude of "yeah you're begging for power but I very likely won't get paid for it so why should I care?".
This is despite plenty of oil shocks, wars, refinery explosions, the current freeze preventing gas transport, etc. Nobody has reported gasoline shortages in Texas.
This makes the spot prices far more stable, and in case of shortage you don't instantly cripple households. And households that run out can easily get an alternative.
It's a completely different product, so the ideal market is different.
Reagan's first act in 1980 was an Executive Order to repeal all of that. The gas lines disappeared literally overnight, and have not returned in 40 years.
I don't buy that anything is fundamentally different about electricity.
> case of shortage you don't instantly cripple households
The point of market pricing is you don't have shortages. The price rises until demand drops to match the supply. Rolling blackouts and peaker plants would be unnecessary with market pricing.
Demand for electricity is very elastic. I'd change my behavior if rates doubled. Wouldn't you, too? I bet you could easily cut your consumption by 50% without any particular hardship. Put on a sweater, read a book instead of watch TV, lights on only when you need them, turn off exterior lights, shorten the time your computer goes into power saving mode, etc.
A lot better than rolling blackouts.
But most customers want fixed-rate electricity. So in a free market, that's what they buy. The spot market largely only exists for suppliers, and if you run out of suppliers the problems with electricity are vastly harsher than you could ever get with gas.
The combination of market + contracts + consumer preference ends up causing shortages.
I'm not suggesting setting prices or trying to allocate supply. Still have the spot market. But I think it would help if there was also some money that went toward keeping a percentage of extra capacity around even if it's going completely unused and would never make a profit from the spot market alone.
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Alternatively you could use regulation to force variable pricing onto consumers. That would probably work too.
And what they got was no electricity when they needed it most.
> So in a free market, that's what they buy.
Some did buy the variable plan. They had electricity (although at a high price).
Yes. And what I'm saying is that it's a natural outcome of having a market.
As far as I can tell you're arguing for "market pricing" but arguing against government interference in pricing, but I don't think you can have both of those at the same time.
If the government doesn't intervene, most people will buy fixed-price electricity contracts instead of market-priced contracts.
If you want the average person to avoid blackouts in a situation like this ('like this' meaning no huge grid overhauls), then you need to ban fixed-price electricity contracts.
> Some did buy the variable plan. They had electricity (although at a high price).
Are you sure? As far as I'm aware the outages were a function of location, not what type of plan you bought.
Market pricing is prices not set by the government. By definition.
> If the government doesn't intervene, most people will buy fixed-price electricity contracts instead of market-priced contracts.
That's speculation. Even if true, it would be their choice.
> Are you sure?
They were being portrayed as victims in the news because of their high bills. Having a bill means they had electricity.
They did have to decide which neighborhoods to cut. Wouldn't you cut first the neighborhoods that had fewer people on the variable plan?
BTW, the power to my house can be remotely and individually shut off any time the power company wants to (when they upgraded my meter). There's no reason this can't be used to shut off the fixed rate customers and leave the variable rate ones on.
If a fixed rate contract counts as market pricing, then market pricing doesn't solve the problem.
> That's speculation. Even if true, it would be their choice.
It's their choice, but if enough people choose it then we run out of power.
> They were being portrayed as victims in the news because of their high bills. Having a bill means they had electricity.
Some of them had power, just like some people paying a fixed rate had power.
That doesn't mean that having such a contract gave you notably better odds of your power staying on. Even if it changed neighborhood priorities, that only gives you a very slight benefit for picking that plan.
It will when people realize it means they won't suffer blackouts.
Currently, Texas doesn't have a fully market based system. For example, a market based system wouldn't shut power off to neighborhoods, it would be granular to the customer. But it takes time to evolve from the old system of government fixed prices.
I would also expect a market system to offer fixed price users an option when there's a supply crisis - go to a variable plan or get shut off.
You can have a system that reduces power use with blackouts, or one that reduces it by price.
Or you can have a government run system at a fixed price that is far higher, because you'll be paying for an inefficient government operation with all kinds of extra capacity and have peaker plants available at a moment's notice. Besides, that's also the least environmentally sound system.
I was talking in the context of what could help with the current grid design.
And heck if you can get even a fraction of that improvement in controlled cutoffs, then you can avoid this kind of blackout even without anything else. Because it would actually be possible to roll the blackout and only have people lose power for a few hours at a time.
Not necessarily.
In order to have fixed-rate electricity and not have rolling blackouts, the seller would effectively have to carry insurance (or some equivalent) against unexpected price increases and then use that money to bid at a loss on energy to supply it to customers during a shortage. The price of the insurance would have to be passed on to the customer. The more people who buy fixed-price contracts, the higher the insurance premiums would be, because the higher the variable prices would get when demand outstrips supply and customers on fixed-price contracts don't reduce consumption.
The customer could end up having to pay significantly more, hundreds or thousands of dollars a year, in order to have that insurance instead of the variable rate plan. There is a limit to how much people are willing to pay for a fixed rate.
And it's easy to see how someone could come out ahead by e.g. using that money to buy a backup generator and then disconnecting from the grid whenever variable prices are high.
Quickly reading, sounds like this is only a few states and depends on a few other factors?
The gouging laws are stupid, anyway, as they simply ensure there's no gas to buy. Everybody is worse off.
In large, I confess I am ok with that shift. But it really doesn't help more people. Or more at risk people.
Not shifting because there's no supply. The mosquito fleet of entrepreneurs driving in to make a buck selling gas, water, food, supplies, etc., disappeared.
Which would you rather do in Texas: watch your house slowly freeze and know you'll have 5 figures in freeze damage while waiting several days for the government to restore power, or buy a generator and a can of gas from a redneck who threw his own generator into his pickup with a can of gas and drove in from the next state to sell it to you for 3 figures?
> it really doesn't help more people
It really does help more people. Before the anti-gouge laws, there were always stories in the media about these people driving into disaster zones with supplies. But the media always demonized them, and so now they're against the law and you get to freeze.
Of course, there are good people who will still drive in and give away supplies, but they're a tiny fraction of the crowd that trucks supplies in to make a buck.
That is, the best response to many crises is best taken before the crises.
Is especially odd, in that a well regulated power market seems to handle this better. Yes, other places had outages. Not comparable in scale, though.
There is also the oddity that similar arguments could be made that you could get medication on the street market. Why would anyone cut corners there? :). Surely, if you are in need, you should be allowed to buy someone else's medication from them at stupid high prices?
Edit: so to directly answer what I would rather do if I was in Texas. I would rather have had risk of failure properly priced into the market such that they were more ready to deal with it.
While such a policy might maximize economic utility I think you’re correct that it’s advocates gloss the obvious physical - but also social - constraints.
Sometimes gas (or whatever) just can’t be delivered for any price. Since demand obviously drops off with price, it’s hard to believe suppliers could justify mammoth investments in delivery infrastructure.
More importantly, such a policy means rationing a essential resource proportional to wealth. Those with the most get what the need; the well off get a little at a painful price; those struggling under normal circumstances just go without. The argument does that a little at a painful price is better than none at a artificial price. I think that misses the size of the lattermost group, and the risk that expressing a fundamental inequality between humans during exigent circumstances - that if you don’t have money, you can’t have gas or heat, or whatever it is - puts social cohesion in jeopardy. Rationing resources either by explicit (1 gal per customer) or implicit (first come first served) policy might be economically inefficient, but socially expedient
Rationing is particularly stupid because then the supplies are not going to those who need it, they are wasted on people who don't need it. WW2's gas rationing created a thriving (and very illegal) black market of people selling their gas rations they had no use for to people who did. A whole crime industry grew up around this, complete with drive-by shootings.
But the anti-gouging laws put a stop to that, and now people are forced to wait for government relief.
The primary advantage of markets is that they excel at providing value very efficiently. The downside is that they service the most profitable customers first so in fringe cases there will be a large segment of people without service.
The primary advantage of governments is that they can afford to be altruistic and ensure fairness. However, they are inefficient and slow to respond, meaning they will not solve the problem to a satisfying extent and only do the bare minimum.
If you do both you get the best of both worlds. Those who cannot afford private service can wait for government relief. Those who cannot wait for government relieve can pay for private service. The private market keeps the government in check, the government keeps the private market in check. They cover each other's backs.
Additionaly a hydro plant can go from zero to max power production with in seconds.