Comment by Retric | Hacker News Reader

Comment by Retric | Hacker News Reader

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Capitalism works really well when their are penalties for failure.

Sell a terrible car and people buy a different product, but when you have local monopolies like rural hospitals you always run into issues.

With Texas electricity markets you make more money if everyone is generating 1/2 power in an emergency when the market hits it’s legal maximum. That set’s up very poor incentives. It all comes down to this: ERCOT can be more susceptible to wholesale price spikes because it does not have a capacity market, which pays power plants to be on standby during peak demand and weather emergencies, for example. ERCOT’s model means consumers are not paying for generation that may never be called into action. https://www.reuters.com/article/us-electricity-texas-prices-...

PS: It’s an often reported lie that the price was set by regulators, they set a limit well before the storm and the market I created the price to 9$/kWh and then was capped by that limit. If sufficient generation was online the wholesale price would have remained anything below that 9$.

> With electricity markets you make more money if everyone is generating 1/2 power in an emergency.

The per-megawatt hour prices might be higher, but is there evidence that overall revenue is higher? I understand that supply is down as well, so overall revenues might be worse or equal to normal levels. Furthermore, people in yesterday's griddy thread mentioned that currently the price is fixed at $9/MGWh by state regulators, which isn't exactly a free market.

Note that it's $9000/mWh, or $9/kWh. That's a regulated maximum wholesale price, not a fixed price.

>That's a regulated maximum wholesale price, not a fixed price.

Seems to be a price floor and/or set price.

> Texas’ Public Utility Commission, appointed by Abbott, raised the wholesale market price of electricity to $9 per kilo-watt hour — a 7,400% increase over the average 12 cents per kilo-watt hour — in response to rising demand. The hope was power generators would be enticed to produce more electricity.

https://news.ycombinator.com/item?id=26244895

They didn’t set the price or make any decisions around the storm, they set a price limit.

“Last week, the price shot up to the legal maximum, set by the Public Utility Commission of Texas (PUCT), of $9 per kilowatt hour.” https://krdo.com/news/national-world/2021/02/24/how-texass-d...

It’s the market that chose that price, with sufficient generation is would have stayed at normal rates.

>They didn’t set the price or make any decisions around the storm, they set a price limit.

This seems to be contradicted by another source:

>The PUC met Feb. 15 to address the pricing issue and decided to order ERCOT to set prices administratively at the $9,000/MWh systemwide offer cap during the emergency.

>"At various times today (Feb. 15), energy prices across the system have been as low as approximately $1,200[/MWh]," the order states. "The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market. Energy prices should reflect scarcity of the supply. If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest."

https://www.spglobal.com/platts/en/market-insights/latest-ne...

The key thing to note is that in the second paragraph, the utility commission thought the free floating price of $1200 was too low, and bumped it up to $9000 to "reflect scarcity of the supply".

From your article: “Real-time locational marginal prices for the Electric Reliability Council of Texas remained at or near $9,000/MWh cap on Feb.” If they set the rate at 9k it would have stayed at 9k not near 9k.

What your referencing is points in the day when the price fell because rolling blackouts where intentionally created. “If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest.” That’s saying if rolling blackouts are implemented then the price should be at the limit. Grid operators can’t simply turn off more people’s power to reduce the demand arbitrarily below the limit. So, prices where adjusted retroactively.

As to why that’s relevant, Grid operators are stuck with the bill. If they can maintain normal prices by simply cutting off everyone’s power to avoid losing billions that’s what their going to do. But, the are not allowed to arbitrarily cut people’s power because they dislike the current wholesale rates.

Again, choice was made about this storm, just enforcement of existing rules.

Real-time wholesale market prices on the power grid operated by the Electric Reliability Council of Texas (ERCOT) were more than $9,000 per megawatt hour late Monday morning, compared with pre-storm prices of less than $50 per megawatt hour, according to ERCOT. https://www.reuters.com/article/us-electricity-texas-prices-...

They where producing less lower but not 50 / 9000 aka 0.56% as much power. That’s how a few people where getting 10k bills for a week spike. Also, prices where capped by regulators, they would have spiked well past 9k/MWh without that regulation. In the long term customers pick up the bill while power generator who generated any power end up making bank.

> while power generator who generated any power end up making bank

I.e. generators, who are well prepared for the adverse conditions, finally got paid for their investment?

That’s assuming independent operators. Companies who had generators online and online where better off because of the supply shortage than if everything had been online.

> prices where capped by regulators

Not true.

Early in the crisis so much generation capacity went offline that there was no way that that it could meet all of the price-insensitive demand (most consumers pay a fixed price, regardless of wholesale prices). If you attempt to run the grid when demand exceeds supply it will damage generators, making the problem worse. To avoid that, regulators shut off power to people who still had a working connection to the grid and would have been happy to consume power at their contracted rates.

As generation came back online, prices dropped quite low because demand was artificially constrained. The regulators then overrode the market and set the price to the maximum allowed by the system to encourage all generators to come online, which would then allow them to start turning people's power back on.

Not quite, prices capped first. Then when that was not enough rolling blackouts where implemented. Those blackouts where excessive and thus reduced the wholesale price below it’s maximum.

As rolling blackouts where implemented by people paying wholesale rates they obviously have an incentive for excessive blackouts. Regulators said, you can only have rolling blackouts while rates are near the maximum because otherwise you’re simply going to keep cutting people’s power off to save yourself money.

Granted, outside of context it seems like really odd behavior. But again this was retroactively filling in periods where prices dropped artificially rather than proactively increasing the prices. It’s no different than the SEC stepping in when someone manipulates a financial market.

PS: That said some of this was simply technical as blackouts aren’t capable of the kind of fine grained second by second control needed to maintain a stable electric grid.

> Not quite, prices capped first. Then when that was not enough rolling blackouts where implemented

Again, no. The cap was in place before the floor, but was never binding: they did blackouts before the price hit the maximum, not after.

> As rolling blackouts where implemented by people paying wholesale rates they obviously have an incentive for excessive blackouts

The decision to do blackouts was made by ERCOT, not by transmission operators or power retailers. (Retailers are the only ones who have an incentive to do blackouts, though transmitters generally also have a retail operation.)

What’s the price on an expiring naked short when their isn’t enough of the stock to meet your demand? All your money.

As utilizes are required to sell at contracted prices to the general public and must buy from insufficient supply that’s the situation. Actually breaking equipment isn’t needed to demonstrate this. If you’re doing rolling blackouts from insufficient supply then your at price infinity or whatever price limit is setup to protect you.

I am using utilities rather than TDU’s as while they are required to provide access to others, enough do both to make the distinction meaningless in this instance.

PS: ERCOT making that decision is only relevant if it could have been avoided. So, if you can find someone saying their was sufficient supply to cover demand then I will withdraw my argument.

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