Hacker News Reader

Comment by Johnny555 | Hacker News Reader

officials decided to bypass the market and, on Monday evening, manually set prices at the maximum of $9,000 per megawatt hour. (By comparison, the average hourly price in 2020 was $25.73.)

I don't understand why the max price is so exorbitantly high -- if they capped it at, say, 10X the 30 day rolling average, then they'd still incentivize everyone with energy to sell to bring it online, but without bankrupting utilities and customers who have to pay over 300 times the normal cost of energy.

A family that normally pays $20 for a day of electricity in cold weather can probably manage to pay $200/day for a couple days, but probably not $7000/day.

View on HN

With renewable energy, there is an amount of storage or peaker capacity you need to handle a typical day. The sun shines during the day, people want to use a lot of electricity at dusk, you have to be able to deal with that.

Then there is the atypical amount of capacity you need for when something goes sideways. There is no wind for a week or it's cloudy and hot so there is less solar even though everybody wants to run their air conditioner.

The capacity to handle that rarely gets used, but you still want to have it. So the price you have to pay to the person who can provide it is really, really high, but (and because) it's only paid for a short period of time. Or nobody will bother to build that capacity and when that situation happens there won't be enough power at any price.

> The capacity to handle that rarely gets used, but you still want to have it. So the price you have to pay to the person who can provide it is really, really high, but (and because) it's only paid for a short period of time. Or nobody will bother to build that capacity and when that situation happens there won't be enough power at any price.

There's a lot of economic theory pointing to the economic efficiency of marginal cost pricing. But the wholesale electricity market is a pretty "synthetic" design, and combined with the technical limitation demand must match supply exactly every second, marginal cost pricing leads to huge volatility.

I'm not really sure what the solution would be, though. I'm not aware of any workable alternative (competitive) market model. There's of course ye olde regulated utility model, but, yeah, maybe we don't want to go back to that.

One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same.

The cheapest insurance provider should then be a company that can provide emergency capacity to the grid, because the time they have to pay out claims is the same time they're making bank by selling power for >$100/kWh. The money from the premiums goes to providing the emergency capacity and then when the event happens the claims and the revenues cancel out.

Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service. For someone with their own generator this could be a good deal (they get to pay a lower rate by not buying the price insurance), and then it drops demand out of the grid when there isn't enough supply.

> One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same.

Sure, that's one way, ultimately all the way to the end user paying a flat fee, which I guess is what a majority of residential customers are in fact doing.

But I wonder, if all the producers and consumers are hedged in one way or other against too low/too high prices, why have that wholesale price in the first place if it's just a fantasy number that affects nobody?

> Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service.

This is in essence what RTO's are doing today, just for the whole region they are serving and not each customer separately. That is, there is a roof price, and instead of the price going over that limit in order to incentivize more generation to come online or customers to reduce demand, there will be rolling blackouts.

So in general wrt marginal cost pricing, I was thinking of something along the lines of https://www.researchgate.net/publication/323378820_The_Use_o...

This is only going to get worse as more and more generation will be near-zero marginal cost like renewables and nuclear.

Seems like it would work fine to pay like 200% of their highest sale price in the last year or whatever (if cold weather operation is more expensive, then benchmark to that, etc).

It wouldn't create the hypothetical incentive to invest in capacity only used in black swan disasters, but I bet there's ~nobody doing that anyway.

Problem with this arrangement was evident in Australia, where the utilities were incentivized to arrange shortages and blackouts so they can get the sweet high tariffs.

This is the purpose of antitrust.

That is not even the stupidest part. Texas grid is entirely isolated and large parts of its generating capacity had simply failed, as had say gas wells supplying them - they weren't incentivizing anyone to produce at that price point that wouldn't be already.

The article explained why - even with the forced blackouts, demand kept rising regardless. They were this close to needing to shut down the entire grid to avoid catastrophic damage that would've taken weeks or months to recover from. Increasing costs exponentially is basically a form of exponential backoff [1].

As horrible as $7,000/day electricity is, it would be worse if the whole grid was down for a month to recover from catastrophic failure.

[1] https://en.wikipedia.org/wiki/Exponential_backoff

While I appreciate the free trade view, could you point to the part where they say setting the price high helped in a considerable way?

ERCOT has authority to load-shed, regardless of price. From the article:

> For the entirety of 2020, Texans paid $9.8 billion to keep the juice flowing. On February 16 alone, they spent roughly $10.3 billion. Costs for the month of February totaled more than $50 billion.

The price reaction time is generally too slow, and judging by the bills incurred, ineffective as a control mechanism - hence the massive outrage on incurred costs. Do the costs seem appropriate?

While I haven't read the whole article, blackouts mentioned were the effect of load shedding and the principal action that prevented grid failure. The price was fixed only after the critical period, by an unknown criteria and questionable need. Yes, you don't want price to drop too low after a load-shed, but do you need it maxed and do you need it for days?

> Yes, you don't want price to drop too low after a load-shed, but do you need it maxed and do you need it for days?

Look, the simple answer to your question is no, of course. But, given that we understand the reason why controllers acted the way they did, these criticisms are taking advantage of hindsight, and hindsight is 20/20. The controllers needed to not just shed load, but to keep demand down until the storm passed. They weren't thinking about price/demand elasticity and how much Grandma's electric bill was likely to be. And furthermore, it's not correct to expect every public operator to second-guess every move they make, because it slows down the public sector, increases public sector bloat, increases cover-your-ass behavior, etc.

If you're going to apply hindsight to arrive at a moral judgement, then it's better to apply that hindsight not at the people who were time-stressed to prevent complete grid collapse, but to the gas industry that refused cold-weatherization for short-term profit.

I'm not unsympathetic to the people who got screwed with five figure electric bills. If a state employee screwed up on the pricing, the state should pay the bills. But I wouldn't throw the controller under the bus for it.

>> do you need it maxed and do you need it for days?

> the simple answer to your question is no

The answer is no and no. IMO, if they did only one of those things, it wouldn't be a big deal. When you set a fixed price at 100-200x normal price and hold it like that for days, you'd better have a very, very good reason and think through the consequences.

What you're saying does make sense, but I wouldn't give them a free pass, unless they can explain their reasoning. I don't know - maybe they did. If you're doing things with such implications, you'd better be able to explain your choices and reasoning. Not just to cover you ass, but to really consider the implications and possible alternatives. And we're not talking about a few critical minutes or hours, they kept the price for days.

But regular consumers weren't aware of the increased astronomical prices. Joe plumber wasn't aware that running his lights would cost so much money. The prices weren't dissuading or decreasing demand.

The free market only works when everyone has full information and a realistic alternative. When the alternative is "freeze to death" and the information is "you'll get a bill next month between $500 and $500,000", it doesn't work, and something needs to step in and protect people.

I feel like this thread is brigaded to death. The fact of the failure is clear. But the one constant in all of these arguments is to introduce uncertainty and attempt to shift blame.

I think it is an odd choice to blame the consumer in this scenario since customers just one state over did just fine throughout this ordeal.

Joe Plumber didn't have to pay any more... and the fact people continue to not understand this makes /every/ thread about the Texas incident last February pointless.

I don't know who's telling the truth: https://news.yahoo.com/5-152-power-bill-texas-192316981.html

Edit: Perhaps in the end consumers didn't have to pay. I haven't found anything saying they didn't.

The very article you link is talking about exactly one small provider that has an entire business focused on consumers signing up to pay wholesale rates live (which are generally much lower than the contract rates) called Griddy. Griddy customers are the ONLY individuals in the entire state who had their power bill go up last February during the storm. According to Griddy they had around 29000 customers in Texas last year and there are roughly 29 Million people in Texas, so that means less than 1/10th of 1% (0.001) of the Texas population had to pay an increased power bill last February.

There are different systems in different municipalities. Houston and Dallas both have systems where multiple providers can offer service which are distinct from the providers responsible for the actual utility infrastructure (power lines to your house). Austin and San Antonio both have municipally owned utilities (CPS Energy in San Antonio, Austin Energy in Austin). For the majority of households they either have a contracted rate based on their agreement when they signed up for service (just like a cell phone contract), or they have a legally set rate which requires a ballot issue.

This is WELL established. There's no dispute here, and if you can't "tell who's telling the truth", it just means you haven't bothered doing any research before deciding. The national media used the snowstorm in February as a political tool to kick Texas while it was down because they see it as a Republican bastion (even though the majority of the population lives in reliably blue cities in national elections and Texas is purple now), and used something truthful for less than 1/10th of 1% of the population to act like it was that way for everyone to make the issue seem larger than it was.

Also from your article "Despite the astronomical prices, Scott-Amos is considered one of the lucky ones, as millions of people across Texas are still without power while temperatures remain perilously low." Griddy customers pay the live wholesale price, they were also immune from forced load-shedding meaning they didn't go without power during freezing weather like most other Texans did, so true to their contract they paid the live wholesale price and in return received guaranteed service. Sounds like they got exactly what they signed up for at the risk they decided to take which 99.999% of Texans opted not to take for the safer (but generally more expensive) financial bet.

Thank you and thank you for the information/numbers.

In regards to "The national media used the snowstorm in February as a political tool to kick Texas while it was down because they see it as a Republican bastion" I agree. However, it didn't help that this problem was spun around by the opposite side and used to blame solar and wind energy sources as the reason for the problem.

From what I gather(ed) the root problem was the lack of winterization to [all] energy infrastructure. But perhaps I'm misinformed on this too. Do you have additional insight?

Thanks.

> From what I gather(ed) the root problem was the lack of winterization to [all] energy infrastructure.

This is mostly the case. The primary issue wasn't that generation infrastructure wasn't weatherized, it's that wind turbines were not properly weatherized and failed, and the NG peaker infrastructure /was/ weatherized and took over, but was having issues meeting demands because the NG well infrastructure was not weatherized, meaning the peaker plants couldn't draw enough gas to meet demands.

Another major confounding factor during the snowstorm was that grid didn't have enough high voltage pathways to support the amount of power that had to be shifted between generation locations and the generation locations were too spread out regionally (Texas is a large and mostly empty state) to maintain grid stability, so there was forced load shedding to prevent phase shifting out of spec or grid islanding.

Also, while we're at it, it's bullshit when people say that "Republicans deregulated power in Texas, which is why it has an independent grid." Texas has ALWAYS had an independent grid. When the national grid started forming in response to New Deal legislation in 1935 states could avoid being affected by federal regulations by not transmitting power across state lines, so Texas chose to not connect its existing grid to the national grid as it was forming. Originally Texas had two independent grids, but they joined during that time, choosing to remain disconnected from the national grid but sharing with each other. ERCOT was actually formed to begin internal regulations of power in Texas in response to a huge national power disaster in 1965 that didn't affect Texas, but made the state realize it needed /some/ regulation.

I don't make any judgements as to whether this situation is better or worse, and it was certainly politically motivated, but it's not new and it's not recent, so most of the things written about it are simply untrue.

I agree with your objective points. But one thing your narrative leaves out is that there were power shortages creating long outages causing substantial damage, regardless of what end users ended up paying. The media latched onto the spot price and Griddy customers because they love red herring sensationalism, but regardless of the media's disinformative narrative there still was a massive market failure here. It was just felt mainly through infrastructure collapse rather than price gouging.

> But one thing your narrative leaves out is that there were power shortages creating long outages causing substantial damage,

Sure, this is true. That was never in dispute though, so I didn't address it. I don't think I have a "narrative". I'm just tired of every single thread about what happened last February in Texas turning into an opportunity for everybody to get their political kicks in on the basis of lies and twists. That behavior does exactly nothing to solve any of the problems identified, and it stokes feelings of undeserved self-righteousness.

The power shortages could have been avoided had wind generation been properly weatherized and had we had properly weatherized gas wells to supply the peaker plants. Neither of those things were true, and therefore this situation occurred. So far, we seem to have improved generation weatherization since, but the wells are still not weatherized, so it's possible this situation (or something similar) could occur again. It remains to be seen.

I just meant 'narrative' as a tying together of facts and corresponding synthesis - an inherent thing rather than a bad thing.

I do think the market failure here is a bit political, in that it's market fundamentalism to rely solely on spot prices, falling back to wishful thinking that short periods of extremely high prices will somehow incentivize new investment into the market. That decision to not have a capacity market is definitely a political one.

Agreed on the physical things that need to happen to prevent this from reoccurring, but the question is how to get those things implemented. A strong regulated market would just declare that they need to be done, and ignore the protests of how burdensome they are. Whereas a deregulated market dynamic really needs a forward capacity market or some other incentive for plants to do the preparation for staying online. And this applies to both the electricity and natural gas markets.

Unfortunately reality is more complex than we would like it to be. You're correct that a proper capacity market would likely have mitigated much of this issue, on the flip side capacity markets in other regions/grids are a major driver behind continued coal power generation as coal is the lowest cost type of generation for capacity markets. The lack of a capacity market in Texas is not motivated by environmental concerns, but nonetheless if such a capacity market were created in Texas it would likely be detrimental to the environment given the current overall incentive structure.

The bigger issue is that ERCOT /has/ made a regulation saying generators need to weatherize, which they have done so and been inspected and verified. But ERCOT can't control the natural gas producers, and they have thus far mostly refused to weatherize their wellheads, and therefore we may once again find that we can't drive peaker generation high enough to meet demand due to inadequate natural gas supply pressure. The oil & gas industry and electrical utilities are regulated independently in Texas, although they are often considered to be the same as "the energy sector", and so there is definitely more that can/should be done here.

I guess we'll see how it pans out. With better weatherized renewables, it's likely we won't see this situation re-occur. There was plenty of wind blowing during the crisis, so had the wind turbines been properly weatherized we wouldn't have needed as much peaker capacity anyway.

It feels like "capacity" is a straightforward measure of what was missing here, but maybe there is a better definition of "capacity" that would favor coal plants less? Off the top of my head, perhaps some statistical modeling that would let a distributed combination of wind/solar count as "capacity", with well-defined pricey penalties if they renege on their commitment?

It's only a form of exponential backoff if the end-users are aware of the prices and can adjust behavior according to the prices. Otherwise it's just another way to stiff the consumer.

The article said that their automated systems priced power too low since it thought there was an oversupply, but it doesn't say that any providers came online at $9000/MWh that wouldn't have also come online at $2000/MWh. There's an artificial pollution cap that loosens supply at $1500/Mwh.

No family was paying this price, this is a wholesale price that utility providers paid. Individual rate-payers have various types of contractual structures that set what price they pay. In many Texas cities, the local utility is owned by the municipality and rate increases require a ballot issue, such as here in San Antonio where CPS is currently trying to get a 3.65% rate increase approved on the ballot.

My utility bill didn't go up at all during last February, nor did the bills of the vast vast majority of Texans. The only individuals who had an increase to pay were customers of a company called Griddy that charges wholesale live pricing to customers, which is generally a discount, but it's customers taking a risk that a price spike may occur. Those customers entered into that agreement with a full understanding they were paying the live wholesale rate at all times for power and consequently Griddy had a very small number of customers compared to other utility offerings that use contractual set rates.

It's a tiny fraction of truth blown out of proportion in the national media that Texan individuals had to pay $9k/kWh. That simply didn't happen for nearly anyone.

Seems odd choice to blame the customer here.

Why? These customers made a choice in a setup specifically designed to allow them to make a choice. Rather than take any of a number of other providers that offer contractual rates they specifically chose a provider that charges live wholesale rate. During most of the time that saves them money, but it also means during these events it costs more money. The flip side is these customers kept their power on while millions of Texans went without power for up to a week which resulted in hundreds dying. They and their families got to get through a weather crisis with power service many others didn't have, but they had to pay the going wholesale rate to do so, just as they agreed to in their contract. Considering that 99.999% [0] of Texans didn't take this deal, it seems unfair to act as if this is a "trick", it was a calculated bet this small number of consumers made and they ended up losing the bet.

[0]: Lest you think I'm being sensational, here's the formula: ([1]/[2] = ~0.001, or .1%).

[1]: https://www.houstonchronicle.com/business/energy/article/Gri...

[2]: https://www.census.gov/quickfacts/TX

Just curious, what industry specifically do you work in? I find it odd that you spend this much time trying to convince me it's a customer's fault their $150 monthly bill is suddenly $20,000.

I don't understand this question? Seems in bad faith, like a subtle dig you think I'm a shill.

Taken at face value: I work in the tech industry, have never had any association to the energy sector. I believe in basic personal accountability and the bounds of reality, which unfortunately makes me a rare individual in the current era.

That doesn't resolve the problem at all; it just shifts money around. If the wholesale price of electricity was set to $9000/MWh but utilities continue to charge lower prices do you expect them to just absorb the difference? Of course not.

From the article:

> The Legislature approved the issuance of what will likely end up being about $5 to $6 billion in bonds to pay back some of these costs. That form of borrowing creates an obligation of about $200 for every adult and child in Texas.

No, most families didn't pay $9000/MWh during the event. But they will pay for it in the form of future taxes or fees charged by the utility.

True, but they will be paying for it any way you slice it. A thing happened, it had a cost, and the cost was paid by shifting money around using government power, fundamentally that power is derived from taxation. There's a ballot issue locally to increase electrical rates by 3.65% to cover the bond payback, if it's rejected the utility (which is government owned) /still/ has to pay the bonds back, it just does so by cutting budget elsewhere or shifting money and increasing taxes elsewhere. Any way you slice it, the cost must be paid.

What's your alternative proposal? A hindsight 20/20 review would have obviously said to not have such a crisis happen in the first place through proper preparation. That didn't happen, and here we are. How do you pay for it?

A key piece is that due to load-shedding, the actual cost to most Texans is significantly lower than had they "kept the lights on" at $9k. Instead, we all lost power and the price was paid only to maintain the necessary generation to recover the grid without a black start that would have been a much larger disaster. Electrical power is common infrastructure, and the cost to sustain it is a common cost, raising that in such a way seems the most reasonable path forward. I'm not happy about my rates going up or my taxes increasing, but I also understanding reality. The net effect on me as a rate payer is still far far far less than had I agreed to pay live wholesale like the tiny fraction of people on Griddy.

I think it’s insane to expect any household to pay $200 a day for basic utilities.

Reply on news.ycombinator.com