(22) comments Back to story

Robert Braeking

"....House Bill 16, which prohibits electrical retail providers from selling variable rate contracts to homeowners and small businesses."

This is a huge mistake. The problem with the variable rate price hike during the February storm was price fixing and price gouging by the PUCT/ERCOT cabal. Had they allowed the price to float with the market there would have been no problem.

Carlos Ponce

Read pros and cons of HB 16 at:

https://hro.house.texas.gov/pdf/ba87r/hb0016.pdf#navpanes=0

Pro: "After Winter Storm Uri, during which the wholesale price of electricity in Texas reached, and for days remained at, the $9000-per-megawatt-hour offer cap, some customers of wholesale indexed products were left with thousands of dollars of electricity bills. These customers then had to choose between supporting their families and paying their electricity bills, illustrating that such full-blown exposure to the wholesale price of electricity is detrimental to residential customers. "

Con - "CSHB 16 would inappropriately eliminate a product from Texas’ competitive electricity market, which should be treated the same as other markets that carry significant risk, such as the stock or real estate markets."

HB 16 passed the Texas House as amended 123 Yeas, 24 Nays, 1 Present, not voting.

HB 16 passed the Texas Senate 29 -2

Gary Scoggin

Thanks, Carlos. That's a useful summary.

Robert Braeking

If the ignoramuses at the PUCT had not artificially set the wholesale price at $9,000.00/kwh then the bills would not have ballooned. Prior to their meddling the price was hovering around $0.18/kwh. Their excuse was to discourage usage. 18 cents was already doing that.

Mar 06, 2021 · The Public Utility Commission of Texas has declined to reverse $16 billion in charges from the worst of February's winter storm. CNN

They did this in a back room closed door meeting without public witnesses. Please note that they all turned tail and resigned.

Gary Scoggin

I'm of two minds about variable pricing for power. The summary Carlos linked to outlines the pros and cons well.

The question is whether or not to allow an individual take the risk of variable pricing and, if they do, benefit from the premium associated with accepting that risk. For large, sophisticated buyers of energy, like factories or large retail operations, this is a legitimate business decision. For the little guys (like most of us) as Uri showed, it can be a pretty risky move unless there are brakes on prices.

Generally, I'm pretty much a free market guy and have no problems with variable pricing so long as there is good transparency and the deck isn't stacked against the small consumer.

Bailey Jones

I tend to agree, Gary. I still remember the disaster of variable rate mortgages back in the late 70s-80s, so I never take the variable option for anything. Transparency is the key. I seriously doubt that the fine print on these variable price energy contracts indicated the very real possibility of 1000% price spikes.

Robert Braeking

Mr Jones. You are still using variable pricing every day if you buy gasoline or groceries.

Gary Scoggin

The difference with gasoline and groceries is that you know the price before you buy.

Bailey Jones

That's true, Robert. As is Gary's comment. Transparency is the key.

Bill Broussard

Gary. I was consulting at reliant energy when we got a massive heatwave. The professionals had not pre-purchased enough power so under ERCOT rules, they had to supply at market price. The tab ran into the hundreds of millions and put them out of their loan covenants just as the housing bubble burst. Their funding source was one of the chief culprits in creating the bubble caked the loan and thus is the story about how our current Reliant belongs to NRG

Even people who are paid big money to place bets in the market for much of their career get it very wrong.

Bailey Jones

I agree with Mr. King. I encourage everyone to stock up on plumbing supplies before next winter. And while we're on the subject of Texas' teetering power grid - how secure is it from Russian hackers? How about the rest of the energy supply chain?

Robert Braeking

Instead of stocking up on plumbing supplies, it would behoove you to frost proof your plumbing. I was without grid power for 4 days during the freeze. The extent of my damage was one frozen hose bib on the front of the house. Keep in mind that, although it is convenient, the electric grid is not dependable. It cannot, by its nature, be reliable.

Diane Turski

Elections have consequences. VOTE for CHANGE in 2022!! Stop electing the same incompetent individuals and expecting anything to change!

Bill Broussard

Diane. Here is where I come out. Our governor said in public and on the airwaves that the legislators were going to meet until he could assure Texans that the storm and failures would never happen again

Mr King and most of the knowledgeable industry professionals I know say that what came out almost assured it will happen again

I might be strange but I’ll vote for people who keep their word when they make a promise

Jose' Boix

My thoughts are that our Legislators are good and crafty on words; bills that are verbose and convoluted - plus they technically know much about the "fix." An independent investigation sounds and seems like an effective approach, such as "root-cause-analysis (RCA)." Then it comes to the real "fix." How will we know what is the "fix," how and when will it be completed along with the enforcement to ensure "they do" what "needed to be done" or the "fix." Long road ahead and not optimistic of what this future holds! Just my thoughts.

George Laiacona

I have to go along with the idea of ousting the present legislators in 2022 and replacing them with new blood. We just might have a legislative body that can legitimately improve our electricity problem.

Carlos Ponce

George Laiacona, check who funds your new blood. You will find interests other than your own funding both sides of the aisle.

Bill Broussard

Carlos. You made all that up. Best as I can tell, George was talking about competence not sides of an isle. If that’s what George referenced I’m with him. I was surely not thinking red or blue those four days our power was out.

Carlos Ponce

"Carlos. You made all that up." Didn't make it up, Bill Broussard. But I thank you for spelling my name right![beam] That seems to be beyond the mental capability of some Liberals in these forums. But you mis-spelled "aisle".

Bill Broussard

This is from a friend of mine that’s been ceo of two power companies and a professor at a university. Currently he’s serving on the board of the Puerto Rican Power Authority helping them sort out the mess

When you get to the end of his editorial you will see that our government have done neither of the options....just like king says

Externalities, the Texas Blackout and the Missing Markets.

The Texas Blackout exposed widespread vulnerabilities in the ERCOT Area. Power Generators of all types tripped offline. Gas, Nuclear, Coal, Wind, and Solar Units all had problems. But none of these were the fundamental cause of the Blackout. The Blackout resulted from Texas depending on a non-existent market to supply reliability.

To understand the Non-existent "Market, let's look at economic externalities. An externality is a cost or benefit affecting a third party, not a party to the original transaction, and, for which cost or benefit, no market exists. Let's look at an example.

Consider a transaction where a buyer purchases a chemical from a manufacturer. In making the chemical, the manufacturer emits a pollutant into a river that harms a downstream individual. As there is no market for the pollutant, it is an externality, and to control the pollutant, we must either set up a market or regulate the pollutant.

The Electricity Reliability Council of Texas (ERCOT) Market is an energy market. By design, prices in the ERCOT Region were allowed to reach very high levels. Thus as load grew, supply and demand would raise energy prices and incent the construction of new generation capacity. And, in this, the market worked well. But, if you have three cars, none of which will start, you quickly realize the difference between capacity and reliability.

To an energy market, reliability was an externality, and hence reliability was not addressed by market functions. No producer got payments for having units available during cold or hot weather; there was no Classic Supply-Demand Curves to set a price for reliability- there was no invisible hand in Texas guiding reliability.

When there is no market, the other method of addressing externalities is regulation, but Texas had no reliability regulations. There were no regulations requiring producers to "winterize" their units. There were no regulations requiring Gas Turbines to have liquid fuel on site. There were no penalties for not running.

Not only did the ERCOT Model fail to address reliability, but the Model also had economic disincentives for reliability.

Consider a Gas Turbine Power Plant. The operator can purchase gas on the spot market or can buy "firm" gas. Firm Gas gives you higher security of supply, but it also requires you to take the gas when available. As renewable energy grows, electricity prices are dropping. Thus on many days, the difference between the electricity sales price and the cost of generating with firm gas (the "Spark Spread") is negative, and the unit does not run. If a plant does not run, the producer loses money, but buying firm gas or equipping the plant for reliability would cost even more.

In the extreme cold experienced in Texas, no gas was available for units without firm contracts. This problem, however, did not play a large part in the Blackout as even units with firm gas were curtailed as heating for Homes, buildings, etc., have a higher priority than electric generation.

So, why did the gas system fail? Reliability was also an externality to the gas market. Like the electric market, the gas market had no reliability market or regulations and had not prepared for severe cold. As it is impossible to build an electric system with high reliability on a gas system without reliability, the gas system's failure rapidly spread to the electric system.

To ensure Gas Turbine reliability, an operator needs to keep ten days or so of liquid fuel on site as many New England Units do. Gas Turbines are just large Jet engines, and jet engines run fine every day on liquid fuels, at -600F, and at 40,000 feet. However, an energy market will not incentivize fuel storage as storage would raising operating costs and lower profits.

The effects of not having a reliability market or regulations were not limited to gas markets or gas units. One South Texas Nuclear Unit tripped when a pressure sensing line for a Feedwater pump failed; wind and coal units were not set up for cold weather operation, and some solar units were snow-covered.

Had this cold weather occurred in North Dakota, it would not have been a cold wave. It would have been February. There would have been scattered outages but winterized Electric facilities would have generated power. The massive gas production in the Bakken Shale would have continued, Gas pipelines, compressors, valves would have worked, and people would have wondered when Spring would come and gone home at night to play hockey in outdoor rinks. North Dakota prepared; Texas did not. As there was no economic or legal incentive to provide cold-weather reliability, none was provided, and the units failed.

Another significant cause of the Blackouts was the lack of interconnection with other Areas. Texas has about 800 MW of Interties with other States; California has over 20,000 MW. Texas is probably the smallest state of the contiguous forty-eight States in terms of Electric Interconnections. Alaska has no interties, giving Texas the distinction of being smaller than Rhode Island but larger than Alaska in at least one category.

Interconnections will also help Texas achieve its' goal of attaining reliability by relying on market economics. But it also benefits consumers and producers; producers can sell into other states when prices are high elsewhere, and consumers can purchase from other states when prices are lower. Further new entrants are more likely to locate in Texas as they will have access to additional markets.

Another program that must be considered is Demand Side Management. As Amory Lovins has been pointing out for decades, it is cheaper to save a watt than generate a Watt. These programs will produce significant savings for consumers during normal times and help prevent more extreme Demand-Side Management (Blackouts) in troubled times.

Many failures contributed to the Blackout, but they all arose from one failure; relying on non-existent markets to provide reliability. If Texans are to have reliability, they must either adopt reliability regulations or set up a reliability market.

ERCOT can set up a Reliability Market by solicitation yearly bids for reliable units. Operators will then calculate what it will take to winterize their units, keep fuel on-site, etc., submit bids, and let the market choose the cheapest option. This market should include significant penalties for non-performance. Alternatively, Texas can adopt regulations requiring Generators to ensure adequate fuel supplies, winterize their units, etc. Of course, owners must be compensated for such services as an energy market will not compensate them.

Free Market advocates point out that, "The only known violation of the Second Law of Thermodynamics is that Water runs uphill to money." Texas showed that water could not run uphill if there is no hill (a Market) and that ice doesn't run uphill at all. Texas can make the Free Market work, but first, it must set up the market. If it does not set up a market, then it must rely on regulations.

Gary Scoggin

Bill... thanks for this. A very cogent explanation and approach.

Bailey Jones

[thumbup][thumbup][thumbup] Bill, ask your friend if he'll run for governor.

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