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Texas power crisis revealed flaw in market’s design

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Re: Texas power crisis revealed flaw in market’s design

#131

Post by x86_64Ubuntu »

sremani wrote: post #48
kerblang wrote: post #11

Not very informative. Both gas & electric markets did payout MASSIVELY to those who had resources because the pricing absolutely exploded by well over 10,000%. The Brazos Electric Co-Op went to bankruptcy court (ongoing) because they ran up a multi-billion dollar bill over the course of the week because they didn't want their fucking customers to freeze to fucking death . If there's such a thing as financial rape, th…

The gas station analogy is a bad analogy -- understand that demand and supply are being balanced real time on the grid. That is not same with a Gas station or a group of gas stations. A bit more sophisticated thinking is required here -- if you want people to maintain over-capacity, you either pay them during the good times or pay them during the bad times.

The grid went down due to temperatures across the state. That's not a capacity issue, that's a hardening issue. Capacity is having hot spares in a SAN or whatever. But those extra drives won't help you when your RAID array decides to up and die on you which is what happened here.

Re: Texas power crisis revealed flaw in market’s design

#132

Post by abathur »

selectodude wrote: post #109
cool_dude85 wrote: post #39

Earlier quoted context omitted.

I havent studied this in depth, but my intuition tells me that having capacity payments such that the grid as a whole has sufficient overhead for extreme events nullifies any "efficiency" arguments for having these market mechanisms in the first place. Call me crazy, I think that Texas is doing exactly what it set out to do with deregulation. Run the grid more efficiently via market mechanisms. The method that is use…

And then the long-tail events completely wipe out decades of savings. Griddy was charging over $9/kwh last year.

It's worth clarifying that Griddy wasn't "charging" these rates in an effort to gouge, nor was this rate an active decision they made during the crisis. (You likely know this; just providing context for casual readers.)

Griddy charged a fixed monthly subscriber fee, and then passed through delivery charges, taxes/fees, and the 5-minute wholesale electric rate (IIUC, as set by the ercot market). These all came out of pre-paid customer deposits, generally backed by auto-pay when the account was below some amount. Griddy "charged" $9/kWh intermittently while demand was outstripping supply but the system was largely stable. This model was approved by the (de-)regulators.

After the large-scale blackouts, the public utility commission pegged the rate to the regulatory cap in the market for a few days. This was ostensibly to ensure maximum incentive to bring all possible generation back online (though plausible, I personally suspect this ended up just being a reward to large operators who owned both plants that were part of the problem, and plants still online to rake in market-cap rates for several days.)

Any retail power companies whose pockets weren't deep enough to stay solvent while paying ~200x normal wholesale rates for several days went under. In Griddy's case, bankruptcy was a step removed; these rates were passed through to customers via autopay until the transactions stopped clearing, either because the account was empty, or the customer removed the payment method. IIRC none of the providers were legally allowed to cut customers off during the emergency, so these turned into massive bills (though I think Griddy clarified pretty quickly that they wouldn't be pursuing anyone for these). Since Griddy was a pre-pay service, I doubt they had enough of a buffer to absorb these whole-sale costs without payment for long.

Re: Texas power crisis revealed flaw in market’s design

#133

Post by kurthr »

thomascgalvin wrote: post #75
spamizbad wrote: post #58

Earlier quoted context omitted.

What I don’t understand about the Texas electricity market is that, despite how “free” it is, price per kwh isn’t terribly competitive compared to more tightly regulated states - having the highest average residential rates in the West South Central region: https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...

Deregulation isn't about improving consumer outcomes, it's about improving profits. Expecting it to result in lower cost per kWh is a losing game.

Exactly, it's about optimizing profits by lowering cost, and not lowering price. A "free" market doesn't mean a competitive or efficient market.

Re: Texas power crisis revealed flaw in market’s design

#134

Post by 7thaccount »

JaimeThompson wrote: post #66
mhb wrote: post #26

Earlier quoted context omitted.

But they would have similar issues in some more extreme situation. Why is it obvious that the big storm that SPP has anticipated and expended resources on is the right one? Or will there be a report like this when that storm arrives and SPP also has issues?

The SPP has taken steps to mitigate such risks. See their coverage area and other detail here https://spp.org/

There is a winter weather event report that covers what happened in granular detail and lists all the initiatives in progress to lower the chances of something similar happening again.

Re: Texas power crisis revealed flaw in market’s design

#135

Post by thephyber »

salawat wrote: post #85
xxpor wrote: post #19

Earlier quoted context omitted.

ERCOT/TX explicitly creating their own grid so they're not regulated by FERC (which covers literally the entire rest of the country) suggests that perhaps they don't have ratepayer's best interests at heart. I'd love to know if anyone's written anything about say, FERC vs ERCOT's gas pipeline winterization requirements.

I'd advise looking into some Texas history first. Part of the isolated grid was in response to the unreliability of other actors on the National grid. Yeah. When you go independent it sucks when you set yourself up to not be helped by anyone else; but in general you at least know squarely where to place blame when it blows up in your face.

As someone who grew up in Texas, Texas history (not just of their electric grid) is crazy.

The Alamo was about illegal immigrants from the USA fighting for the right to keep cotton-picking slaves in Mexican territory, then revolting when the Mexican military came to enforce the law. And it was a tactical loss for the revolution. It’s crazy that it managed to become a rallying cry.

Re: Texas power crisis revealed flaw in market’s design

#136

Post by thephyber »

trinovantes wrote: post #30
ryan93 wrote: post #7

Earlier quoted context omitted.

How are you so sure that regulators would have required protection against a once in a hundred year storm? What doesnt the Democratic republic of the Congo regulate the poverty out of existence? Hindsight is 20/20

You mean the "hundred year storms" that happened in 1989, 2011, and 2021?

I think this should be discussed more. The frequency of outlier storms is higher than the actuarial tables were designed for. The line that delineates “hundred year storm” seems to be mislocated in the actuarial tables.

This seems to happen with hurricanes, floods, fires, and these polar vortex storms bringing extreme cold down into the lower continental US.

Re: Texas power crisis revealed flaw in market’s design

#137

Post by Spooky23 »

spamizbad wrote: post #58
burlesona wrote: post #4

This is classic “efficiency” vs “antifragility.” There are some things that are okay to ocassionally fail, and for those it’s often good to pursue efficiency. But for something critical like electricity, the market all decided - with good financial justification - that it would be more profitable to just let the system fail occasionally than to be hardened against long-tail events. In systems engineering if we want t…

What I don’t understand about the Texas electricity market is that, despite how “free” it is, price per kwh isn’t terribly competitive compared to more tightly regulated states - having the highest average residential rates in the West South Central region: https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...

Texas is uniquely dominated by energy interests. Most of the quacking about cheapness is just noise.

I have a relative who moved from an “expensive” northeast state to South Carolina. His big bitch was about taxes, but he didn’t really do the math. He saved on property taxes, but between more regressive sales tax, HOA, etc it doesn’t really compute.

Most significantly, he discovered the tyranny of local government is nothing compared to a HOA that actually runs public services.

Re: Texas power crisis revealed flaw in market’s design

#138

Post by caminante »

jatone wrote: post #129
LoveGracePeace wrote: post #116

Earlier quoted context omitted.

My wife got a contract with our provider, we pay normal prices during the day but get 100% free power from 8 PM to I think 5 or 6 AM. Can't really complain.

shit I would invest in a power wall and time shift my power usage to the night.

There are T&Cs like usage caps that make these deals much less valuable than the marketing conveys.

Re: Texas power crisis revealed flaw in market’s design

#139

Post by Spooky23 »

7thaccount wrote: post #124
thomascgalvin wrote: post #75

Earlier quoted context omitted.

Deregulation isn't about improving consumer outcomes, it's about improving profits. Expecting it to result in lower cost per kWh is a losing game.

If you read all the books covering the history of the deregulation of the regulated electric industry in the US, their reasoning was clear. Many years ago, under regulation (and still for those areas of the US that aren't in a market), it was the job of planners to determine the load growth and to build enough supply to meet demand and get a steady ROR. We did really bad at this in (I think it was the 80s), so there…

A big part of that is the 70s/80s inflated destroyed capital budgets and reduced capital spend.

Regulators always have a bias towards rate reduction. Once the deregulation movement set in, power generation became a fat hog ready to be exploited. In some cases, investors even got to use tax free municipal borrowing facilities.

Re: Texas power crisis revealed flaw in market’s design

#140

Post by thephyber »

wsinks wrote: post #3
obblekk wrote: post #2

I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?

Wasn't this the promise of 'prediction markets'? https://www.predictit.org (you can read promise as 'value prop' too, I don't know much about these, just that they exist and are a recent creation)

PredictIt has two large limitations it created to appease the SEC: a max $USD per player per market and a max number of players per market.

Markets need a much less restrictive environment to be liquid enough to have accurate predictions.

Also, the granularity of bets is in 1/100 units and there is a huge market tax on withdrawing funds.

There may have been lots of promise, but there is a lot of friction which explains why PredictIt didn’t live up to that hype.

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