"Who’s To Blame For The Expensive Energy Bills In Texas?"

 Source:

https://oilprice.com/Energy/Energy-General/Whos-To-Blame-For-The-Expensive-Energy-Bills-In-Texas.html

"For the almost two decades of its existence as an independent system operator, only electricity wonks, neo-liberal economists and systems engineers talked about ERCOT (the Electric Reliability Council of Texas).

Then the lights went out last week, and then the water, and then a radically imperfect market design caused electric bills throughout the state to skyrocket.

Not surprisingly a raft of investigations has begun.

Texas ... as an energy producing state rich in natural, fossil resources, enjoyed electricity prices below the national average.

... the ideological commitment to free markets held sway and Texas decided to deregulate.

After all, the professional consensus among neo-liberal economists was that utility deregulation, embracing free market principles, would lead to efficiencies that would reduce prices drastically in an already low cost electric system.

... electricity prices in deregulated states—places where we were told to expect lower power prices— did not decline relative to price levels in the nation as a whole, after deregulation.

Why?

Our two best guesses are that
1) the savings from deregulation were not actually meaningful or the competitive power market simply transferred wealth internally without delivering any cost savings to consumers.

This is probably what occurred in Texas.

... Before full implementation of electricity deregulation in ERCOT ... power prices in Texas were modestly below the national average.

They rose above the national average during the 2000-2010 period when natural gas prices escalated dramatically.

This is probably because natural gas fired power generation has increasingly displaced coal and lignite as well as the bidding system that determines price itself hinges on natural gas prices.

When natural gas prices fell, Texas electricity prices fell back to moderately below the national average.

... whatever happened to Texas power prices may be due more to fluctuations in commodity natural gas prices than from whatever actions ERCOT may have taken to enhance the state’s energy market.

Also retail prices lag the fuel price changes, both up and down ... because electricity suppliers ... can only change retail prices periodically.

This means that if commodity gas prices rise quickly, electricity suppliers absorb the gas price increase until they can raise retail prices.

This also works to the electricity suppliers economic benefit when commodity prices decline faster than the changes in tariffs.

ERCOT’s electricity market (has) the belief that the market is omniscient and that all of this supposedly reflected in the power price at any given moment.

... every grid to varying degrees needs electric generating resources that sit idle for most of the year but remain ready to be called upon in emergencies.

So the power markets in other parts of the US set up separate economic arrangements for those generators to assure their availability when needed.

Not so in Texas where all incentives for generators are rolled into daily power prices.

Most of the time the state of Texas has managed to maintain enough available electric generating capacity.

However when capacity runs short, price rockets upwards and customers suffer egregiously.

All of which surprisingly ERCOT’s backers say is supposed to happen.

... What does the high power price accomplish especially knowing that
1) consumer demand is inelastic and
2) home heating customers in Texas were consuming electricity prodigiously simply to stay alive in cold weather.

High power prices according to the theory should dampen demand and increase supply.

However, the customer does not reduce demand because he or she does not see the price until afterward.

Generators cannot suddenly increase supply if they don’t have any to offer.

... Of course, maybe some public spirited venture will be inspired to build new electric power generation in advance of the next capacity shortfall.

Does the Texas electricity market really raise capital more cheaply and maintain lower prices than the regulated utility network that existed before?

... Competition, even in this weirdly regulated and formerly monopolistic system, supposedly lowers costs and prices.

But after a quarter century of operation, we still haven’t seen the evidence."