What happened on Valentine’s Day with Texas’s ERCOT power system? There is lots of disinformation and finger-pointing going on about why millions of Texans lost power during the worst cold snap in a century.
The short answer is that a polar vortex drove peak demand for heating and electricity at the same time power plants, pipelines and other energy infrastructure were struggling with the extreme cold. Lots of people want to blame renewables or conventional natural gas and nuclear baseload, but the truth is that all types of generation had trouble.
The monopoly utilities are crowing that ERCOT’s retail energy market let Texas ratepayers down. The Wall Street Journal on Wednesday strangely sided with the monopolist, claiming that Texas’ competitive market has failed to deliver on its promise of lower energy bills.
But as Pat Wood, the former chair of FERC and the Public Utility Commission of Texas, points out, “just a short week after a severe test of our energy markets, every single one of the 88 residential plans on the state-sponsored clearinghouse website are less than 13 cents, and three-fourths of them are less than 11 cents” a kWh.
Wood goes on to say that “numerous regulated utilities that had to purchase additional gas and electricity at high prices last week to supply their customers have already announced their plans to stick them to their captive customers.”
The WSJ quotes an AARP spokesman as saying he expects retail energy providers to similarly increase rates to cover their losses. The difference between customers of monopoly utilities and those who can choose their energy provider on Texas’s open market is that energy choice customers are free to vote with their feet.
“In the competitive retail market, practically all have fixed contracts and are free to choose a more attractive offer if their supplier tries to bill them for past losses. Businesses that bet wrong own that risk, not captive ‘ratepayers,’” Wood writes in a letter sent to the WSJ editorial board.
Retailers also haven’t raised their rates, even a week after the outages, but if they do, customers are free to find a different provider on the competitive market.
“Shifting this risk from regulated utilities to competitive power suppliers has been one of the great victories of the Texas model, yielding price and environmental benefits far greater than originally envisioned.””
“Regulated and competitive markets around the world do this by adopting a formal ‘reserve margin.’ This makes sure that we have extra generation on hand in case of sudden weather changes or unplanned outages.”
Wood, who helped write the rules for Texas’s competitive markets, has previously raised the need for lawmakers to make tweaks to improve ERCOT’s resiliency and reliability, including setting a reserve margin. Back in 2013, Wood likened it to buying an insurance policy for your home.
A lot has changed in the generation mix in the nearly 20 years since Texas first reorganized its power market. The old giant power plants are largely gone, replaced by a vibrant market of diverse energy suppliers generating dispatchable power from clean, renewable sources. As Wood wrote again in 2018, ERCOT’s rules need to evolve to keep up with the state’s changing power mix.
Texas regulators have made updates over the years, adopting pricing rules to ensure ERCOT has sufficient real-time reserves to meet demand and encourage efficiency during peak summer usage periods for example. But more tweaks are necessary. That doesn’t change the fact that ERCOT remains the most dynamic electricity market in the country, delivering low-cost power and innovative services. Affordable energy is a big part of the reason people are flocking to Texas.
The Texas Legislature is meeting to determine what reforms are needed to keep up with the state’s growing demand and changing energy supply. They will no doubt have much to consider as they look at pricing, resiliency, reliability and other issues. The one thing they should not do is give up on competition.