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KEYS News Blog

Talk About the Weather

EVERYBODY’S TALKING ABOUT THE WEATHER…

…But no one is doing anything about it, as the old saw goes.

Well, that’s not strictly true. ERCOT is asking Texans to “conserve” during peak hours, and some utilities have reportedly been tampering with customers’ programmable thermostats. So there’s that.

And some environmentalists are clambering to have Biden declare a climate emergency so we can have the Feds bail out our mismanaged grid.

Likewise the Greensters are claiming that renewables, while they failed miserably during Snowmaggedon, are “bailing Texas out this summer,” at least according to Texas Monthly, even though wind power is delivering just “8% of its nameplate capacity during the heat of the day,” ERCOT admits. No doubt they will be pushing to double down on the solar-wind-boondoggle, brought to us by Federal subsidies for the benefit of the C.C.P. That’s heartening.

Last year proposals were submitted to incentivize the building of new power plants, one by none other than Warren Buffett, cuz ya know, he really needs those incentives. The Leg took a pass on that and kicked the can down the road, the way they have for 12 years already.

After the winter grid failure, bills were passed of which Gov. Abbott said, “everything that needed to be done was done to fix the power grid in Texas.”  One bill had mostly to do with weatherization of plants and lines for winter, but oops, it’s summer and the grid is near failure again. If power plants don’t get some down time for routine maintenance, there surely will be some catastrophic failures.

The other bill the Leg passed had to do with “securitization.” Essentially, when the grid failed to keep the energy flowing, ERCOT and the PUC intervened, setting prices at their maximum and keeping them there for days. Then, lawmakers stepped in “to socialize the cost of that failure — some $16 billion — among all ratepayers, orchestrating a bailout that we will still be paying for 30 years from now.” 

Energy Fellows at University of Houston decry these efforts as “Band-aid bills” and “willful disregard of public good.”

And even though heads rolled at ERCOT after the winter storm debacle, the new CEO seems as clueless as the last one. When asked about the threat of rolling blackouts this summer, he demurred that this summer’s temperatures have been “hotter than his models had projected.” Forbes magazine politely called this “a failure of imagination.”  I call it proof that CEO Brad Jones doesn’t live here.

And though between 500-600 thousand people moved to Texas in 2021 alone, it seems ERCOT was also taken by surprise by how much demand on the grid grew. Ok, clearly none of these people live here.

Otherwise they’d know that August is just arriving and our problems are not over, though somehow now  the implication is that it’s the consumers’ fault. Gosh, we’re using too much electricity! We need austerity!

ERCOT’s current pleas for customer conservation seem reminiscent of Biden’s going hat in hand to the Saudi’s to bail him out for his aggressive anti-oil policies. Frankly, all this ineptitude and inaction almost looks like a setup for us to fail and have to admit, at last, that on the face of it, deregulation and our state’s energy sovereignty are a total bust.

To which Texans should say a “Hail NO!” that resounds thru the halls of the Capital. Texans value their independence and, I believe, that extends to having our own grid. But we’d like it to function properly for the 26 million Texans who rely on it.

History has proven that Legislators can’t keep their mitts off. Because for as much as is touted about our deregulated energy market, it really isn’t. It’s a heavy mix of command economics with a dash of free market for flavor. This interjects “distortion” into the energy markets, a word that comes up repeatedly as you dive into this topic. Almost as frequently as “bailout.”

*  Subsidies for renewable energy will cost the state over $900 million this year. Combined with Federal subsidies the total comes to 2.16 billion, skewing the markets irretrievably.

*  Texans pay for electricity even when the renewable power generators fail. In fact, they pay more (something called “variability”)

*  Power companies are pushing hard for a “capacity” market that gives them guaranteed payment for energy production, whether it’s used or not. This is essentially a “bail in,” and it’s proven expensive in other parts of the U.S.

*  As much as $225 million of electricity is lost annually in transmission lines; energy the consumer can’t use but pays for anyway.

*  The Public Utility Commission’s authority to interfere in the market has gradually increased over the last two decades, and neither the grid nor the consumer has benefitted.

*  ERCOT and the Railroad Commission oversee the electricity and gas markets respectively, with little or no coordination between the two. This was a critical point of failure in Storm Uri.

During the winter storm, ERCOT held the price of electricity at its $9,000 cap after emergency conditions had ceased, causing providers to buy on the wholesale market at exorbitant prices. The price tag of this folly is an estimated extra 14 billion that will be “securitized.” In other words, the electric provider’s debt will be amortized to be paid off by us, the ratepayers, over the next 30 years.

Meanwhile, electricity prices have risen 65% even without taking into account the surcharges for securitization, mainly based on the decision to increase “peaker plants,” keeping more generation online in case of emergency, a sort of half step toward a capacity model which is considered by some to distort the market’s dynamics.

But by far the biggest distortion is renewables. As energy expert David Blackmon wrote, “Since the Texas legislature de-regulated the energy market and started heavily-subsidizing the installation of wind farms without the slightest initial plan on how to move the energy they generate to market or properly manage that energy as part of a complex integrated power grid… Texas today leads the nation in wind power generation, and also challenges energy 3rd-world basket case California for the leadership in rolling blackouts.”

But what does ERCOT CEO Brad Jones have to say? “I want as much wind and solar in this market as we can get.” Exactly the wrong response.

According to an article in The Federalist by Brent Bennett, “In a couple of years, Texas electric bills will start to look like California’s instead of the low-cost electricity the state is accustomed to.”

Hopefully reason will prevail and we will recoil from further renewables as from a hot stove.

So, the Leg passed a couple of stop gap measures, none of which solves the real problem. We have an aging grid.  A plant’s life is 30 years, and some of ours are 50 years old. Texas is booming and it takes 4 years to bring a new thermal (non renewable) plant online. 

On the gas side, there is no incentive for gas providers to weatherize their old wells. Retrofit is expensive, and they might opt to shutter wells instead. And since they made out like Madoff during the winter storm anyway, there’s no percentage in it. This highlights the deep disconnect between the electricity and gas markets, so deep that gas providers actually benefit from a dysfunctional grid. It is opined that SB3 and its winterization initiatives actually addressed this, but it remains to be seen. Jim Boyle, former counsel for PUC, said, “Can we rely on the Railroad Commission to do right in the rules and getting winterization in place? The answer is we can’t.” That doesn’t sound bullish.

Finally, ERCOT serves a dual role that looks pretty dicey—it monitors grid reliability and also brokers contracts traded in the wholesale market. In fact, they got sued in the latter capacity, Panda Power company accusing them of “fraud, negligent misrepresentation, and breach of fiduciary duty.”

As one University of Houston Energy Fellow declared, “The PUC and ERCOT have proven they’re incapable of acting in the public interest.”

So what are some potential policy takeaways that can fix this mess?

The following plank points are provided by The Energy Alliance:

Eliminate subsidies for renewable energy

 

Require Renewable Generators to Pay for the Costs They Impose on the Grid Because of Intermittency and Federal Subsidies

 

Resist power companies’ attempts to create a capacity market
 

Eliminate the PUC and Railroad Commission’s authority to manipulate market prices

Allow the market to provide the incentives for power companies to build new capacity to meet our growing demand

Ensure that customers pay only for the energy supplied to them, not the energy transmitted

 

These policy plank points are provided by the U of H Energy Fellows:

Create a Texas Energy Commission that combines the PUC and the Railroad Commission

Do not allow ERCOT to broker contracts on the wholesale electricity market

Reimburse consumers for ERCOT’s gross mismanagement of the Uri Storm grid failure

Incentivize grid operators to build more generation by levying a small fee on consumers

Allow utilities to face penalties and legal liability for grid failures
 

The Energy Alliance’s proposals are purely unfettered free market. The U of H Energy Fellow’s proposals are more geared to recognize the structural problems that plague the Texas Grid. To my mind, the practical approach is a blended one, that aims to free the market from the systemic problems that interference, variability, and distortion have created while not ignoring the crisis that lies directly ahead if inaction continues.