Clearing price for supplying power to Texas grid

Re: Clearing price for supplying power to Texas grid –$31.65

#221

Post by gruez » Sun, Feb 21, 2021, 3:05 PM UTC

sep_field wrote: post #199

gruez wrote: post #196

Earlier quoted context omitted.

>You are right it creates perverse incentives, but so does the current system. 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.

The current system allows rich customers to negligently waste electricity that poor customers need to stay warm. If the system prioritized usage and charged the corporations $5/kWh while charging poor customers the standard rate, people wouldn't have frozen to death.

GP's point still remains. Even if you do charge corporations $5 kWh, that's likely not enough to solve the power deficit. After all, corporate offices aren't exactly power suckers (a 1500W space heater is equal to at least a few dozen LED office lights), and the heavy users (factories) are usually the first ones to go when there's a power shortage. Price signals are still needed to ensure that people are sufficiently motivated to change their behavior. Leaving prices unchanged will basically mean consumer demand remains unchanged.

Re: Clearing price for supplying power to Texas grid –$31.65

#222

Post by cduzz » Sun, Feb 21, 2021, 3:14 PM UTC

ansible wrote: post #192

mrDmrTmrJ wrote: post #54

Earlier quoted context omitted.

Strongly agree. Free markets often fail to adopt low cost protections to tail events. E.g. the free market didn't get us 100% of new cars having seatbelts and airbags, government requirements did. And those standards were fought by the car manufacturers. My point is we need regulations to mandate our energy system to be resilient to outlier events (heat/cold/flooding/high wind etc.) and that's a government function s…

> Free markets often fail to adopt low cost protections to tail events. Especially when they can foist off the costs of black swan events onto their customers, investors, insurance, and/or the government. In the mean time, they will optimize for profit in the average case.

I can't think of a reliable mitigation against "heads I win, tails you lose" such as seen in a privately owned rent-seeking utility, but clearly the existing system is going to fail more and more.

There are certainly valid criticisms of government operated public utilities, but in places I've lived under their umbrellas there weren't any life-threatening fiascos due to under-investment in expert-recommended tail risk mitigations. Maybe the operating cost of power / water was more than elsewhere, but I didn't notice (or have the ability to shop around).

A market approach may be to let utility customers buy service with a distribution of costs including claw-backs if there is a utility failure. Such a contract may incentivize utilities to install whole-house UPSs for customers who have a "$500 per hour of downtime" service contract. One can imagine the government mandating that in exchange for the last-mile monopoly and access to customers you must offer a full range of SLAs (ranging from a griddy-like "you pay for wholesale price + vig" to "you pay more but have a fixed cost but may have service interruptions" to "you pay substantially more but get clawbacks if the utility fails to meet delivery SLAs".

Likely over the next decade we'll see a continued 3rd worldization of more public goods such that those who are wealthy can just buy a powerwall and those who aren't will freeze / boil every 8-15 years.

A less markety approach is to operate the utilities as a quasi-government (IE not-profit seeking) organization with clear goals and governance; such things have worked in the past and also failed in the past and lots of fair-weather zealots will complain that it is government overreach.

There is every reason to predict that we will continue to send the cost of failure to the government/taxpayers and send profits (plus what should be normal infrastructure upkeep) of normal operation to whoever is well enough connected to operate the utility.

Re: Clearing price for supplying power to Texas grid –$31.65

#223

Post by pasquinelli » Sun, Feb 21, 2021, 3:16 PM UTC

burlesona wrote: post #204

Osiris wrote: post #35

Earlier quoted context omitted.

If the market solves all problems why would the government even need to mandate winterization? Wouldn't smart businesses have done the risk analysis and done the work? Maybe the problem here is that loss of electrical power has a significant external cost that isn't absorbed by the utilities. In other words, the cost of winterization was more than the cost to fix the damage to their equipment but doesn't take into ac…

I generally agree that externalities are a common cause of problems from free markets, perhaps the most common. But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market. In this case, it probably would make sense for there to be a penalty that providers had to pay if they failed to deliver service after it was committed. My under…

"But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market."

the big players in a market are the ones who "correct the rules of the market", or in other words regulatory capture. so go ahead and identify bad outcomes and solve the problem with new regulation proposals until you're blue in the face, without power it's just people posting online. as long as actual regulatory power is concentrated in a few people, the regulatory capture is easy, and any discussion about it is a pastime.

Re: Clearing price for supplying power to Texas grid –$31.65

#224

Post by wavefunction » Sun, Feb 21, 2021, 3:16 PM UTC

mikewarot wrote: post #205

I seems to me that the owners of natural gas fired power plants in Texas are being incentivized to find a way to store a few days of natural gas on site, and winterizing that storage, so they can win the lottery the next time things freeze over. [edit - back of the napkin math] Extrapolating from https://www.eia.gov/tools/faqs/faq.php?id=667&t=3 it looks to me like it takes about 8 ft^3 of natural gas for 1 kwh of el…

As someone who just went 6/7 days the past week without power, I'd love to incentivize them via rigorous government regulations requiring winterizing. Just to be sure they're properly incentivized.

Re: Clearing price for supplying power to Texas grid –$31.65

#225

Post by pjc50 » Sun, Feb 21, 2021, 3:23 PM UTC

mikewarot wrote: post #205

I seems to me that the owners of natural gas fired power plants in Texas are being incentivized to find a way to store a few days of natural gas on site, and winterizing that storage, so they can win the lottery the next time things freeze over. [edit - back of the napkin math] Extrapolating from https://www.eia.gov/tools/faqs/faq.php?id=667&t=3 it looks to me like it takes about 8 ft^3 of natural gas for 1 kwh of el…

That doesn't seem that unreasonable compared to https://en.wikipedia.org/wiki/Gas_holder - and those are somewhat above atmospheric pressure.

Re: Clearing price for supplying power to Texas grid –$31.65

#226

Post by jrexilius » Sun, Feb 21, 2021, 3:28 PM UTC

burlesona wrote: post #204

Osiris wrote: post #35

Earlier quoted context omitted.

If the market solves all problems why would the government even need to mandate winterization? Wouldn't smart businesses have done the risk analysis and done the work? Maybe the problem here is that loss of electrical power has a significant external cost that isn't absorbed by the utilities. In other words, the cost of winterization was more than the cost to fix the damage to their equipment but doesn't take into ac…

I generally agree that externalities are a common cause of problems from free markets, perhaps the most common. But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market. In this case, it probably would make sense for there to be a penalty that providers had to pay if they failed to deliver service after it was committed. My under…

Living in Austin myself, I agree completely. A little bit of resiliency is better than large increases in power costs. As it is the mass-migration into Austin is driving costs up for low-income families and fixed-income elderlies here. Driving up their power costs further is another hit they don't need. I'd rather see the city spend some of the property tax windfall they are having helping low income get some resiliency and improving the cities ability to respond to the rare events.

Re: Clearing price for supplying power to Texas grid –$31.65

#227

Post by austincheney » Sun, Feb 21, 2021, 3:32 PM UTC

CraigJPerry wrote: post #183

austincheney wrote: post #181

Earlier quoted context omitted.

> Wouldn't smart businesses have done the risk analysis and done the work? That is complicated. How do you validate costly infrastructure changes that are only testable or necessary once about every 10 to 20 years? Proving winterization for Canada or Wisconsin weather is challenging if you rarely have Canadian weather extremes.

I suspect the parent is fully cognisant of this. They are illuminating one of the fallacies of the free market extremists.

Free market vs regulation are irrelevant to my comment. Neither make rare conditions required for testing less rare.

Re: Clearing price for supplying power to Texas grid –$31.65

#228

Post by orf » Sun, Feb 21, 2021, 3:38 PM UTC

chaganated wrote: post #174

pjc50 wrote: post #166

Earlier quoted context omitted.

No, they're not interesting, which is why they've been downvoted.

With all due respect, they are more interesting than what most of you are posting. Reminds me of old Terry, may he rest in peace.

A car crash is more interesting than an empty road, it doesn’t mean we should encourage them.

Re: Clearing price for supplying power to Texas grid –$31.65

#229

Post by tedunangst » Sun, Feb 21, 2021, 3:38 PM UTC

WalterBright wrote: post #161

leoedin wrote: post #156

Earlier quoted context omitted.

There is absolutely no possibility that the decision to black out a particular neighborhood was made based on the energy plans that individual houses were on. The fact some people on variable price plans had electricity is completely unrelated to that - their neighbours also would have had electricity.

> absolutely no possibility They did have to decide which neighborhoods to cut. Wouldn't you cut first the neighborhoods that had fewer people on the variable plan?

Or did they cut neighborhoods without hospitals first? Is it possible some customers with spot pricing plans lived in the same neighborhood as a hospital?

Re: Clearing price for supplying power to Texas grid –$31.65

#230

Post by jacobr1 » Sun, Feb 21, 2021, 3:38 PM UTC

hexane360 wrote: post #92

kortilla wrote: post #86

Earlier quoted context omitted.

Free markets do account for huge shortages, but we’ve eliminated the motivation for actors to do something about it with anti price-gouging regulations. There would be tons of stockpiles if businesses could appropriately upcharge when there was mass panic buying. Instead we stupidly lock prices, which wipes out most of the point of paying extra storage costs compared to a just in time competitor. The problem is we’ve…

You'd need to make a strong argument to convince me that situation would actually be much better than the one we have currently. At least with the current price-gouging laws, we're able to semi-select for the people who are willing to spend the most time pursuing goods, which has a much better correlation with actual need than who's willing to spend the most money. Furthermore, I'm not entirely convinced that removin…

There seem to be two cases. Rare, but on human scales regularly reoccurring disasters (hurricanes in the east, fires in the west, etc ...) and more-rare "black-swan" events, basically 100+ frequencies.

The more regular disasters seem to be dealt with in markets. Insurance companies will have requirements to reimbursement, some companies will stockpile goods, multi-region firms will have DR plans etc. Alternatively governments regulations can require preventative measures and have stockpiles in place. In practice both happen to varying degrees of success. Price gouging allows for more inter-region support on a for-profit basis, but probably also disincents some charitable actions. On net we probably should allow "entrepreneurial gouging" (like a guy buying a water truck in a non-disaster area, driving it to a disaster area and charging high prices) It might be distasteful, but if it is providing net-benefit of otherwise unattainable resources that is still better. But companies organizing and planning around this, seems much more sinister. Like the water company charging more for potable water, rather than spending their time and effort fixing the system for everyone. That type of thing is probably better prohibited and regulated.

But the more rare events, nobody seems to handle well. Governments and private enterprises alike tend to only prepare for the last crisis. I'm not sure there is a government vs private comparison, so much as a human failure. I suspect good government regulation is going to be better, because it can sustain longer-term initiatives, but getting the policy to be "good" and not corrupted by grift is difficult, especially with out the feedback loop of reality.