In Private Call, Texas Regulator Pledged to Protect Wall Street Blackout Profits
texasmonthly.com
texasmonthly.com
Knowing that, it is easy to say that the power providers who signed these deals eat the costs, just like insurance companies. Again, the reality is more complicated. A large number of power /generators/ had to pay very high rates to buy power on the open market when their generation capability went offline and they had contracts to provide power to the downstream providers. That is what happened to the Brazos cooperative. Should they be screwed?
What I do not hear anyone talking about is that the biggest reason for the spike in power was ERCOT adding cost to the market prices in order to entice generators to get more power on the grid quickly. ERCOT has the authority to supplement energy prices with "adders" up to the max allowed cost of $9000/MWh. ERCOT did this for almost the entire duration, even when the market price for power was only at the astronomically high level of $250/MWh. No one is really discussing whether ERCOT should retroactively unapply these adders as a means of clearing things up. Given that $9000/MWh was not enticing /anyone/ back on the grid (burning that money to unfreeze pipes and valves would have gotten capacity back online faster), ERCOT could easily justify pulling those back. Generators who were online would still make plenty of profit, and the rest of the power ecosystem in Texas would not struggle with a bankruptcy event.
What is likely to happen is that consumers will end up holding the bag. Griddy customers already feel this, but everyone else will see this in the form of higher negotiated rates over the next decade. This article shines a light on the true nature of the beast, though. Neither the PUC nor anyone else roaming the halls of the Texas legislature are going to support the consumer. The consumer is simply not represented by the lobbyists in downtown Austin.
> D’Andrea’s views carry more weight than usual because he speaks for the entire three-member utility commission following the resignations of chairman DeAnn Walker and commissioner Shelly Botkin in the wake of the crisis. Both were also appointed by Abbott.
> D’Andrea indicated that he expects to remain the sole regulator over the electric markets for the foreseeable future. He said he doesn’t think Abbott is interested in appointing new commissioners during the legislative session, when appointees would have to be confirmed by lawmakers. “I went from being on a very hot seat to having one of the safest jobs in Texas,” D’Andrea said. “I think it’s just going to be me for a while.”
> Given the focus on the PUC and its oversight of the market, new appointments would likely be “a big slog of a fight,” he said. Instead, he believes Abbott will wait at least until the end of the regular session in May before nominating anyone. “I think they probably enjoy having just one person up there because they can secure promises from me and I can’t say, ‘Oh, well, my fellow commissioners wouldn’t go along.’ It’s easier for everyone, actually. At a time like this when I’m communicating all the time with the Legislature, it’s easier to just be going through one person.”
Wow, that's free market thinking gone mad. High prices can't conjure power stations out of thin air on short notice.
Except it can... With high enough prices businesses requiring power will shut down because it's more profitable to shut down and sell the electricity you no longer need than it is to stay open.
The key thing stopping this working well is how few people who have the ability to do arbitrage. If I run a Subway shop and I have paid my power provider $0.10/kWh for power for my ovens for the year flat rate, then when the price spikes way up, I should be able to take that power I've already paid for, switch the ovens off, and sell it back to the grid for $99 /kWh, keeping a tidy profit, and effectively acting as a virtual power plant.
A few big companies can already do this, but unless that ability is given to most market participants the market will always be vulnerable to collapse.
>> Wow, that's free market thinking gone mad. High prices can't conjure power stations out of thin air on short notice.
> Except it can... With high enough prices businesses requiring power will shut down because it's more profitable to shut down and sell the electricity you no longer need than it is to stay open.
> The key thing stopping this working well is how few people who have the ability to do arbitrage. If I run a Subway shop...
Nope, sorry. For one, that's basically a fantasy. Few business, and certainly not little sandwich shops, are going to have electricity traders on staff to jump at once-in-a-lifetime arbitrage opportunities (we hope). If sandwiches shop owners are spending their mental energy being ready for electricity arbitrage opportunities of the sandwich business, we're living in a dystopia. Secondly, apparently the high prices were meant to "get more power on the grid quickly," not encourage shuffling the grid's insufficient amount of power around market-style. Your idea doesn't actually solve the problem.
I know there has to be reasons for this type of communication to occur, but I am having a hard time with examples. My question is in earnest; it's not rhetorical.
A more relevant example might be:
A public official is looking at various failure modes of the electric grid. He wants to raise money (or redirect funds) to shore up "the biggest" problems. Private discussion might include hyperbole like "this risk is worse than you realize"- and this might unnecessarily worry the public.
Of course, CSPAN is public, and no one watches that. So, whatever.
ERCOT is not responsible for power generation or for natural gas availability. The PUC is broadly responsible regulating power generation (not withstanding the responsibility of the companies actually operating power generation plants). The Texas Railroad Commission is broadly responsible for natural gas pipelines (again, not withstanding the responsibility of the natural gas extraction companies).
ERCOT is the entity that told many power distributors to shed load (including the one that feeds my house). So many people have gotten mad at ERCOT. I'm sure it's fine to be mad at ERCOT, but it's kind of like getting mad at the manager of a grocery store who tells you they're out of food. They may not have done all they could to keep the place stocked, but they can't magically make trucks with food appear.
ERCOT sets prices. The dispute is that they set them dramatically higher than necessary to "incentivize" maximum supply. Because the supply was structurally constrained on a very short-term basis and distribution and consumption was already completely unhinged from market forces, it was predictable that such extreme pricing would have done diddly squat to change the supply or demand curves. What it did was unnecessarily shift money from the pockets of consumers to the pockets of those holding supply contracts.
And it's also beyond dispute that the people enjoying this windfall are simply going to walk away w/ their money. Nobody is under the delusion that they're going to invest that windfall into upgrading the infrastructure; least of all Arthur D’Andrea, who literally said on the call that paying (directly or indirectly through surcharges) for infrastructure improvements was an entirely separate, future concern, mostly on the part of the legislature. That's because it's not the suppliers enjoying the windfall, but those holding the contracts.
Most of the time ERCOT's price control powers are merely nominal; they seem to act as a market clearing house, resolving bids and asks into a single, set official price. But in this case the market wasn't functioning at all, so ERCOT's nominal powers devolved into the discretion to set an effectively arbitrary price, and they stupidly choose to set the maximum possible and for a longer time than was prudent if they had any concern for consumers' (i.e. Texans') welfare.
This is what you get when people adopt "free market" principles as a religion, rather than understanding them as a set of dynamic, natural forces. In this case, our devout believers set some absurdly high price (the maximum allowable under the law) ostensibly according to their understanding of the kindergarten model of supply & demand, where every increment of price increase should marginally lessen demand and marginally increase supply. But, again, it was obvious that principle was irrelevant in context and they should have exercised their judgment as administrators holding public trust rather than as priests performing scriptural commands.
D’Andrea's interest in reassuring investors--who are otherwise important for a well functioning, highly liquid market--would be understandable but for the context of it all, including the fact the price was at ERCOT's discretion both at the time and (presumably to a more limited extent) afterward. Part of the whole point of a regulator building that trust is to be able to leverage it during emergencies; to reassure investors that they (along with everybody else) will come out the better so long as they cooperate during the emergency rather than run for the doors. But if you show that you'll simply give away the store at the drop of a hat, you haven't earned any trust or respect, you've invited greater volatility in the future.
https://www.puc.texas.gov/agency/resources/pubs/news/2021/PU...
Can you imagine the headline if they’d said “PUC chair terrifies energy industry causing unanticipated price spikes on a random Tuesday”?
> During that call, which was closed to the public and news media, D’Andrea took pains to ease investors’ concerns that electricity trades, transacted at the highest prices the market allows, might be reversed
> At one point, during a discussion about whether natural gas, which also saw huge price spikes during the crisis, would be “repriced,” D’Andrea said no, adding that most legislators understand that gas is priced by global markets and is out of their purview. “But I’ll let you know if I hear anything crazy on it,” D’Andrea said.
And this was after this:
> The PUC mandated that the $9,000 prices stay in effect for 32 hours after the market had returned to normal, a move that has angered many municipal utilities and retail electricity providers.
No, it absolutely was about "You'll be getting your money, at the expense of consumers".
> Tim Morstad, associate state director for AARP Texas, said instead of offering assurances to investors, D’Andrea should be offering them to consumers.
Even Texas Republicans argued over repricing.
But never fear, D'Andrea was there to make sure:
> “It’s a contentious political issue. The best I can do is put the weight of the commission in favor of not repricing.”
And that BOA analysts just needed to hang tight:
> D’Andrea noted that ERCOT requires that all trades be finalized in thirty days, which means the last of the maximum-priced contracts will be settled this week. After that, he said, any repricing discussion is moot. D’Andrea said he doubted lawmakers could get a bill passed in time to force repricing
This sounds like someone who is absolutely committed to making sure the banks make money off the market, and does a very good job of making sure that is or appears to be his sole priority.
He was on a call with a bunch of investors. He wants those investors to be reassured everything is OK. He might tell them the truth. He might lie. At face value, it looks like there was a contractual agreement: gas costs X, you will get paid X. And nothing can change that.
Except something CAN change that contract. Bankruptcy courts are empowered to retroactively change contracts (IANAL!)- AND some groups (like Brazos Electric) are suing ERCOT to reduce the cost.
So ERCOT might be in a tough spot: they pay investors lots of money, and they don't get paid lots of money from consumers like Brazos Electric.
D'Andre might be setting ERCOT to be tossed around by the court or perhaps to become insolvent.