Opinion | Why Texans are cold and in the dark

February 19, 2021 ☼ texaspower-failuregopderegulationeconomyenergy

Source: The Washington Post - Link

The deregulation of the California electricity grid in the 1990s generated profit opportunities by commoditizing electricity and creating trading regimes presented to voters as a way to lower electricity bills. The charge to “deregulate” the larger Texas grid was led by the innovative energy trading firm Enron. Gov. George W. Bush (R), his successor Rick Perry (R) and the state legislature bought into the free market narrative. The state split apart the utilities. Only the transmission companies and local distribution companies remained fully regulated by the Public Utility Commission of Texas — there’s no real need for a dozen power lines to one’s home.

The operation of the electrical grid was consigned to the Electric Reliability Council of Texas. It is a nonprofit consortium that operates the grid for about 85 percent of Texas. Understand, ERCOT has no ability to invest in generation or infrastructure. It acts only as the air traffic controller for electrons on the network. ERCOT is accountable to no one, but it reaps hundreds of millions in fees. Because it is contained within Texas, ERCOT is not subject to federal oversight.

ERCOT created a system whereby generators, companies that own power plants, compete by bidding to provide electricity for the “day ahead” and in real time during the day. It is called an “electricity only” market. Think of it this way: If the players on the Washington Nationals were paid in the same fashion, only those players on the field for the game that day would earn a paycheck. Everyone else on the roster would be unpaid. Players would offer bids to play for the next day, each undercutting the other.

Like the Nats in my example, the generators, to sell any of their power, often bid their power so low they don’t make a profit. Some generators, strapped for cash, began to defer maintenance. Others played an even smarter game by closing power plants or not building new capacity to serve the growing population of Texas. As demand inexorably increased, they could look forward to charging more for their electricity because there was less of it. Really, not much different than what Enron did in the California electricity market in 2000-2001. Except that market manipulation was illegal in California, but not in Texas, thanks to ERCOT. It was destined to come crashing down, and the polar vortex of 2021 was the assault that finally broke the Texas grid.

So begins an article by Ed Hirs, professor of energy economics at the University of Houston.

Fox News and the state GOP are trying to deflect blame onto renewables. This is a bald-faced cynical lie. Sure, half the wind turbines froze up (because of lack of maintenance), but that accounts for less than 5% of the energy lost to the storm.

Introducing market economics into a utility without safeguards is a recipe for disaster.