The alternative, non-market way would be to guarantee revenue even in times when the excess capacity isn't needed (most of the time), by paying more than the spot market price would normally provide. Personally, I prefer that way. But, if you're using a market system for electricity, you need an incentive to build excess capacity. Then, when a non-market mechanism (the order to impose blackouts) interferes with that, you need to make up for that somehow.
Again, I'm not saying I totally buy this, but there is the rationale.
The alternative market based way is to a have an additional "capacity market" for which providers offer bids for committing to provide future capacity. Thus providers who can guarantee they will provide a certain capacity are compensated for it, without needing to have a shortage of electricity to make the dynamic pay out. This is how it is done for the rest of the US.
Texas uniquely forewent the capacity market as a subsidy for wind, since wind providers are unable to supply guaranteed capacity and thus unable to bid in the capacity market. This creates a much more raw dynamic where grid capacity is fine right up until it is not.
If I'm not mistaken, customers have little idea that a price surge is in effect and what the rate is until they get billed. It's not like going to a gas station, seeing a price, and being able to opt in to the transaction, seek alternatives, or plan to self ration your consumption, as you're prepaying for the energy. The way the Texas model works it seems to assume that customers have a financial buffer that they're able to tap into to pay the higher rates. Everyone should plan for such a buffer but for those that don't have one it places hardship on them. It's also a risk for the provider that they won't get paid their windfall. You can't send huge surprise bills and expect people to pay them.
A sensible approach is to charge a bit extra under normal conditions to build a communal buffer that is used to pay for emergency power production. As long as there's good governance, this derisks the system. Another alternative might be energy bill insurance, if such a thing exists. It's easier to plan for a fixed monthly premium than a surprise payment in an emergency.
I agree with your "sensible approach". On a side note, this issue is much like the reason conventionally taxis normally charged more than Uber did, but Uber had surge pricing. If you want enough capacity for the peak times, you need to overcharge at all other times.
The consumers who had been hit by this were the ones who opted in to receive power at the market rate from a handful of shady businesses. They explicitly had to change their service to this model because the TikTok ads told them that the current market rate is $0.02/KWh so they are "overpaying" if they are buying at the utility's price.
The utility rate was not always fixed/negotiated: there's at least one utility company (Griddy) had an arrangement to pass-through market rate + small premium. Before the storm, this mostly meant getting rates modestly lower than the competition. The same customers were exposed to the power market spikes and received bills over $10,000. IIRC, Griddy has since filed for bankruptcy as the Texas legislature was generally supportive of individual customers not paying their bills. Paradoxically, Texas's political leadership allowed the utility companies to recover their losses by billing customers over years, which seems mostly performative/hiding expense from customers, but still decoupled from market forces.
(Emissions limits are especially difficult in cold weather due to a less complete burn off and less atmospheric mixing. But this isn't to spinup new dirty power, so much as to run existing plants at full capacity without having to reduce output to more ideal levels for emissions purposes.)
To dispel a few other points that get repeated without much thought:
Texas' grid isolation didn't contribute. Surrounding grids including in Louisiana and Oklahoma were also undersupplied and operating under emergency conditions with requests for voluntary reduced consumption, and were also dangerously close to blackouts. Connections to grids without surplus power doesn't solve anything.
Wind power was frozen in and decreased over 97% over the previous 2 weeks as blades iced over or wind speed exceeded allowable limits. Solar was also iced over. Which led to a premature demand for gas peaker plants to offset this loss via a 450%+ increase in generation. So peakers were needed to offset intermittent renewables instead of as a buffer to meeting peak demand.
"Winterizing" NG plants, wells and lines is complex. What's simple and mostly ignored, is an overloaded NG system causes pressure drops, and pressure drops contribute disproportionately to condensate (both water and methane hydrates) freezing and reducing flow, which is a runaway condition. Pressure drops affects this much greater than temperature (even propane tanks in summer ice up when used at a high rate for an extended time). An increase in NG supply (more wells and pipes) would have greatly improved things without any "winterizing".
Coal and nuclear plants don't suffer from this fuel supply limitation since they have on-site fuel supplies, and the recent closure of 20%+ of the states coal capacity surely contributed, as do the remaining closures going back a decade+ of increased EPA regulation.
[0]https://www.energy.gov/sites/default/files/2021/02/f82/DOE%2...
It's sort of like asking why Northern or Western coastal cities don't have better hurricane protection or levees. It's not needed or worth the investment, even if New England does get an occasional hurricane. Despite federal flood protection mandates.
Asking what Southern and Gulf Coast cities do to prepare is a valid question, but doesn't justify taking the same precautions.
A better comparison is perhaps a windless summertime high pressure system causing rolling blackouts in California or Chicago. When was the last time you heard the spot price publicized during a summertime blackout?
Was it blamed on the equipment not being sufficiently designed for operation during an infrequent heat wave? Or on lack of planning? Or just blamed on the "freak" heat and possibly global warming?
The Texas event is a bit more complex due to underlying and transitioning infrastructure buildout where NG plays a much larger role, but its roughly the same as far as expectations go.
And the bigger takeaway should be that overdemand/undersupply of NG in cold weather is a runaway condition, but mainly due to pressure drops at the wells, not lack of insulation. Expected spikes don't cause pressure drops.
What sort of societal good is being offered by making it so that people are on the hook for a much higher price than what is needed for guaranteeing supply? What sort of value is added? The point of all this stuff is so that people produce electricity, and others can purchase it at a reasonable price. It's not to find some hypothetical equilibrium using a model that assumes atomicity of actors and some sort of instant feedback loop that didn't actually exist during the blackouts.
If the state's objective is to maximize corporate profits at the expense of ratepayers, they have succeeded.
But if the objective is to reduce the frequency of catastrophes, the state might consider reducing the incentive to produce catastrophes.
welcome to republican lead texas that deregulated the power grid and decided to isolate the grid instead of playing well with others.
There needs to be evidence that the incentives point to scrimping on maintenance. Usually the incentives for capitalists is to preserve their capital and keep it is great repair. The is a strong, rational incentive to solve problems like winterisation because the revenue is higher than normal if someone can (and potential profits are much higher). Capitalism will just try to do it cheaply and to a standard that customers are happy with rather than in a politically showy fashion with gold plated "see I've thrown the kitchen sink at this!" style. But it will nevertheless do it if there is any money at all to be had.
[0] https://en.wikipedia.org/wiki/Waffle_House#Disaster_recovery
We're not talking a percent or two here. We've got people claiming that a company whose sole tactical purpose is to get energy to consumers failed sorta-on-purpose. That claim is more wild than some people in this thread realise. It amounts to giving up free money.
If they'd charged outrageous prices that would be one thing. But failure to supply power, by a company that makes money supplying power? This isn't an incentives problem, they were genuinely caught by surprise.
Arguing incompetence is one thing, but people are calling out incentives here without having good evidence of an incentives problem.
That is the opposite of the collective action problem. There are enormous rewards for an actor the less other people act. Which is one of the reasons bigger corporations do disaster planning, it lets them scoop up profits when prices are higher.
Capitalists don't give up easily if there is a person willing to spend money on something. They have flaws, but motivation to provide goods and services isn't one of them.
And likewise, markets are amoral. If the "market" opts for a failure every decade over a higher-priced day-to-day run... this isnt "rational" or "correct" or "ethical" or whatever. The way a market happens to function is amoral.
You can make the argument that over fairly short time horizons in non-critical areas "meeting consumer demand" in most cases has a certain consequentialist justification. This doesnt carry over, a-priori to all possible cases.
Ie., it is quite reasonable for a society via a democratic expression of ethical judgement to say "the market is not here considering the long-term impact in the right ethical manner"... ie., that being without power when it's -20 outside & affecting the whole population in ways not priced in by the market is a *moral failure*.
It is the prerogative of the collective to say at once "here's how it should be", rather than via iterated interactions "here's how its happened to be".
We're not in a comments section about a theorycrafted threat of that happening, or a comments section about twiddling incentives to encourage WH-like behaviour, we're in a comments section discussing the consequences of capitalist abandonment: namely, they made billions doing it.
You're trying to argue that this quote + greedy heartless capitalism -> give up and let the energy grid go dark.
That needs strong evidence. Occam's razor suggests they were genuinely caught off guard and they'll be better prepared next time. $9k/MWh is a very tempting price for someone who can have a generator set up on standby. Some people like making insane revenue. Possibly even some Texans. The price of electricity was basically infinity here.
What actually happened is insufficient for you? Let me know when sweeping changes are made to prepare the gri--
>$9k/MWh is a very tempting price for someone who can have a generator set up on standby
Oh, I see -- the solution is to let the market "solve" it. The physical-world issues that led to that tempting price will wreak their havoc on the physical-world infrastructure the next time that tempting price is set, but the kind of physical-world prophylactics that could have prevented that tempting price are "too expensive" to implement. Rather than prevent the catastrophe, instead ensure that someone is poised to swoop in and profit from stabilizing some preventable chaos.
>Some people like making insane revenue
If the grid didn't go down, why, no one would be able to make $9k/MWh!
Yeah. Duh. That is why I'm arguing that they were genuinely caught off guard and they'll be better prepared next time - because I don't think what happened is reflective of the incentives here.
> Rather than prevent the catastrophe, instead ensure that someone is poised to swoop in and profit from stabilizing some preventable chaos.
That doesn't make a lost of sense. If someone swoops in at the last minute and prevents the chaos it will still be prevented. And I'm not saying that the Texans are going to do that, just that it is one option. The existing operators might learn from this and harden their infrastructure.
As far as I can read this section, you seem to be hypothesising that there are two options:
1. Overengineer the average case.
2. Have a contingency plan.
And then asserting that 1 is the solution that is acceptable to you and that 2 would somehow be a bad outcome. I don't really understand your position if so - if having a contingency plan for emergencies is the preferred method of the market then that is cool. Good enough, probably cheap. Overengineering solutions is exactly the sort of thing that the free market is set up to avoid - it is wasteful. If it doesn't make economic sense to overengineer then it is much better to have a contingency plan - the average case is cheaper and there are plans and supplies on hand to deal with a crisis when one occurs.
No, I said that someone would "swoop in and *profit from stabilizing some preventable chaos*". You even fucking quoted me saying it! The comment is right above us! You even encouraged this outcome ("Some people like making insane revenue. Possibly even some Texans.")! That incredible misapprehension certainly doesn't make any sense to me, unless--
>I don't really understand your position if so
It's pretty clear you're doing ideological battle here. You're unwilling to face the recorded facts of the situation, let alone what your conversational interlocutor is actually saying, so you replace that with your own imagination. Indeed, you make an argument that you imagine me making, and then admit that you don't understand it -- isn't this definitionally a strawman? Why bother with this?
No matter your position on my position, it's pretty clear we're only ever going to talk past one another: your axiomatic assumption that the free market is the correct way to run a natural monopoly like a utility is IMO as wrong as your position on how the free market should have responded. It's only "overengineering the average case" if your instrumental goal is to "make money by providing power" -- if your instrumental goal is to "provide power, in exchange for money", the calculation changes entirely. Suddenly, it's not about winnowing another few percentage points out of a maintenence budget so some MBA can get a new car -- it's about securing the provision of a necessity of life, for a dollar or two added to the end-user's bill.
If you're still interesting in prosecuting our "discussion", I suggest you go answer this guy's question instead [0] -- if you do genuinely think that they were caught off guard, and that they'll improve the (proven to be fabulously profitable!!) situation in future, go explain it to him. It's not about what should happen or what might happen now, it's about what's already happened and what's just transpired.
If someone has stabilised the crisis then it isn't really a problem for the consumers. In this case, stabilising the crisis involves keeping the grid up and running in an emergency situation. There isn't any point sitting around thumbtwiddling watching a brownout happen, electricity grids often operate at speeds measured in either Hertz or 15 minute windows.
> isn't this definitionally a strawman? Why bother with this?
It'll help you explain yourself if you have some hints about how I am reading your comment. If I just say "explain further" to someone then it is unclear what they need to expand upon. Plus it makes my position clearer and I enjoy typing.
And the dude's comment isn't something I feel a need to answer. I'm not arguing in favour of the Texas electricity providers, I'm arguing that "they've got an incentive to give up and let the grid go dark" is a pretty extreme guess, is probably wrong and at a minimum needs real evidence to support it. Maximum profit probably isn't achieved if the grid goes down. It is much more likely that the incentives align to keep the grid running 24-7-365 with a high tolerance for outlier events and this outage was just run of the mill incompetence in the face of change.
Until a yet another black swan event happens that requires the government to step in and help them with the eventuality they didn't plan for. Like COVID. If there are two companies competing and only one of them pays to be resilient against disaster, they won't be able to compete on price and will lose market share.
Then explain the recurring failure of the Texas energy sector to do so.
For example, at $500/MWh, I'll shut down my glassworks and pottery factory. At $5,000/MWh, I'll shut down the datacenter. At $50,000 I'll hook up a diesel generator from my shed. At $500,000 I'll personally get on a treadmill and start running, because the 100 watts I can generate that way gives me a better hourly wage than I can find elsewhere.
In fact, the reason for grid failure when prices aren't capped is entirely people on 'fixed price' schemes who do not modify their behaviour when faced with extreme prices.
The future is electric meters which have a knob on the front for "max price I'm willing to pay" and shut off if prices exceed that. If someone is happy to pay more, they can set their max price higher.
I think the core issue here (which is honestly my problem with surge pricing as well) is that there are limits in these systems. People in the cold need some heating, so no matter how high the price is there's going to be a floor of how much energy will be consumed. Peaker plants might exist, but there are only so many of those, so no matter how much demand there is supply can only vary by so much.
Given those factors, it feels like the reasonable thing to do is to set price floors and ceilings that are "reasonable". If there needs to be exceptional pricing, honestly this is where the State can step in (and it can buy insurance or whatever for this) to help. But $9000/mwh isn't helping to relieve problems (especially when people don't even know!).
Even in your cutoff knob, it's like... OK you are going to set a max price, and cut off your thing. Are you setting a max price for your fridge or your heating in winter? Or rather, would most people? Hell, what commercial enterprise is "shutting down the datacenter"?
If we are going to say that pricing is a signal for controlling consumption, you need a feedback loop. That implies communicating price changes and giving people time to adjust for that. Generally this has been solved through the easy-to-understand "at these times it's cheaper" and "at these times it's more expensive". You can also have fun with seasonal variations as well. It's not 1-to-1 but hell, just charge more or less right and seasonally it should all average out nicely, and it doesn't require nearly as much futzing around.
Market rate feedback could be done purely at the grid level, without exposing that to customers in real time, and mostly work. It removes arbitrage opportunities for energy providers, but that's a feature in my book.
Not really... If the price were too high, people could decide to move in with a friend for a bit, or live from their car.
This is far better than rolling blackouts, because each individual person can decide if they want to spend $$$$$'s on heating, or to make big quality of life sacrifices. In the rolling blackout case, there is the same amount of electricity distributed, yet users don't get the choice anymore.
The immediate ramp to the $9000 cap was designed to alleviate this. Yes, it's boneheaded, but I imagine any other manual override of the algorithm would have taken longer to get people to agree to.
The conclusion I keep coming to is that so many free market maximalists are absolutely terrible at designing markets.
There's wisdom in this statement but a better phrasing would replace "free market maximalists" to "humans."
Anyone who thinks they can "design a market" assumes all rational, predictable (aka not-human) actors.
You can see as whatever way you want, but Price is signal and it is better overall for the system to let Price to spike to certain insane levels. Should there be some kind of common-sense regulation for curtailing bad behavior perhaps.
If you need people or companies to build in redundancy - you have to pay the price or just run the efficient but fragile system and enjoy the black outs.
This isn't a greedy capitalism problem, it's a govt manifested price hike and long term reduction in capacity, as part of the attempt to kill fossil fuels with no mature, viable, reliable, and affordable alternatives.
The fact checkers clouded this issue by claiming it "false", not because the $1500 floor price isn't true, but based on a manufactured straw-man argument that Abbot requested the DOE waiver instead of ERCOT. And a few other equally ridiculous (but expected) "fact checks".
They aren't allowed to make a judgment call that $7k is affordable but $8k is too costly, and just shut off power to their customers.
There were still govt effects limiting supply and mandating purchases, even at those prices.
And that's not an accident of policy; that's the intent, in artificially manipulating markets in support of agendas they can't outright mandate.
It is the only market not to have one. So you get to set the price when you do run. The price limit is 9999.99 which is the DB column size for price AFAIK.
https://cpowerenergymanagement.com/why-doesnt-texas-have-a-c...
Capacity markets are "the open market". They're a market for a different product - the option to request power during a later period. And when we're discussing power shortages with catastrophic results, that lack of capacity is a lot more important than specific resulting spot price.
Environmentally it's better to keep an extra coal plant operational than to have everyone install their own backup generators (and ad-hoc fuel storage!) to mitigate the problems with "best effort" grid supply.
Are you saying with confidence that was the motivation? And that still isn't much of how they make the decision including how long to override it.
It never ceases to amaze me just how absurd capitalism can be. It's the best system we know of so far but it falls massively short of good enough in its current form.
What you've said follows perfect capitalist logic. And yet, what you've said incentivises those plant operators to ensure there's more outages. Nothing they can do - whether that be to make their operation leaner or make their generation more efficient or whatever else, nothing can compare to a 350x increase in pay per megawatt hour produced for $0 investment.
> best system we know of so far
It's hard to look at the trajectory of society and the world right now and expect the prosperity boom of capitalism to continue. A lot of people just don't see that boom at all. They're living objectively miserable lives under capitalism, and there's no capitalist incentive to change that.
Market based capitalism can handle the negative effects of climate change if producers are forced to pay for the negative impacts they produce.
>it's built-in wealth-concentrating tendencies.
Which economic system doesn't have this?
>A lot of people just don't see that boom at all. They're living objectively miserable lives under capitalism, and there's no capitalist incentive to change that.
>A lot of people just don't see that boom at all.
Who do you have in mind here?
Market-based capitalism could have handled climate change if we had perfect advance information about the infinite horizon adverse effects before it started, and had priced that into actions by pigovian taxes from the beginning of the industrial revolution.
We don't have that information now, and the people against whom such costs would be assessed have incentive to (and actively expend resources) preventing consensus based on the information we do have to prevent the information we do have from being applied that way.
I mean, there are many branches of socialism devoted quite strongly to this. You could call them a core tenet.
> Who do you have in mind here?
You have to have a serious failure of imagination to believe that everyone's just having a party under capitalism. To pick just one example out of thousands, have you heard of the homeless?
Your incredulity is painfully inauthentic and detracts from whatever argument you think you're making.
Ah yes, the intelligence of automated systems with limited visibility
Looks like someone forgot to add grid frequency as an input to the price engines
$9,000 was a cap. If it wasn't for the cap, I'm sure prices would have gone up much higher under market rules. (ie: It's not like the market operators pushed prices up to that point, the operators capped it at that point.)
> (By comparison, the average hourly price in 2020 was $25.73
Commodities markets are notoriously volatile when there is mismatch between demand and supply. (There are also cases where power prices go negative, when there is more supply than demand. What's happening there is that generators are paying for the right to say online, on the premise that a shutdown is more costly. For large baseload units, this can absolutely be the case.)
That's exactly what the article says happened. They brought on extra power generation which dropped the market price, which they then overrode manually.
For example, The Railroad Commission regulates oil and gas production, but not railroads, while insane is not the word I would use, some things about Texas are extra quirky.
The utility (electricity) rates during part of the crisis are rational if eye watering.
Spare the people their money and protect your own service. Win win.
That said, the pay-go market rate plans do make (it's in the electricity facts statement) it abundantly clear that you'll pay more, potentially a lot more, during extraordinary times.
I do recall the legislature (or courts, maybe) stepping in and offering some relief to the people who had "market-rate" plans.
Please don't post comments saying that HN is turning into Reddit. It's a semi-noob illusion, as old as the hills.
> In the hours after the blackouts, ERCOT tried to shore up electricity reserves to stabilize the grid. The computer system that runs the market, though, interpreted this as an oversupply (in the middle of blackouts!) and dropped prices. When ERCOT and the PUC realized what was happening, 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.)
So, ERCOT officials decided to basically input a fake number to short-circuit the broken market, and now everybody is on the hook to pay that price for real? Am I understanding this correctly? It sounds completely insane.