[AnthonyMouse]

Rolling blackouts are inherently a regulatory solution. The market solution in a supply crunch is keep raising prices until demand falls below supply, which creates a market incentive to have excess capacity and capture those profits during periods like this. An unwillingness to do that creates foreseeable market incentives. Not enough suppliers spend the money to have the capacity to meet demand if regulators are going to suppress demand through regulation (rolling blackouts) rather than higher prices.

[yongjik]

I have a hard time understanding how such a system would work in an emergency. So when production is crippled and demand is soaring, some producers voluntarily decide "Well this is too much hassle, I need to be paid more!" and restaurant owners get the electricity bills and say "WTF? Tim, kick out everyone and turn off the light, we're closed now, they're charging us fifty thousand dollars and we can't afford to pay any more!" and all of this is supposed to happen within two hours before the infrastructure melts down?

I mean, who checks their electricity bill every two hours?

[tschwimmer]

You might imagine a world in which everyone knows that electricity prices are dynamic and frequently changing. In a regime like this and under the recent circumstances in Texas, yes, you would expect businesses and people to rapidly change their behavior in order to not incur a giant electricity bill. Under limited generation with hugely inflated prices, only those entities that both need and could afford it will use electricity. What you have under this regime is a much more efficient use of electrical power in constrained circumstances.

Since electricity prices are mostly fixed[1] this type of price discovery cannot exist and everyone pretty much goes on using electricity as per usual during periods of shortage, leading to blackouts.

On the face of it, it seems like the market price regime might be preferable, but one has to remember that economic efficiency isn't the only thing we're optimizing for a society. Instead policy makers have decided that having low electricity prices for everyone is more important than maximizing efficiency with respect to power generation. I'm inclined to agree with them. The downside to this approach is that you have to invest more into making sure that you never run into these shortage events - otherwise you end up with the disaster that happened in Texas. That said, I can't imagine a free-floating price regime would have left Texas better off; instead the real world outcome probably would have been about the same: most people would have voluntarily turned off their power (or would have been 'margin called' by their utilities when they ran up huge bills inadvertently). Better efficiency, but similar outcome.

[1] Apparently one of the providers in Texas was called Griddy, which had a novel model where they did charge floating rates for electricity. Not coincidentally, they advised their customers to switch providers or risk enormous energy bills.

[AnthonyMouse]

They obviously need (and apparently lack) some kind of system for notifying people when prices are spiking unusually high so that exactly that can happen.

[yongjik]

So, let's say I'm a consumer in Texas, and the power company says, "Here's the power plan - there's no flat plan because we don't have to offer you one. But there's plan A which will charge you exorbitant prices when we want to, and there's an even more expensive plan B, but plan B comes with its own alarm system so you will know when the price is skyrocketing. The alarm will activate maybe once in next ten years, and you will just have to trust us that it will work when it needs to."

Then, being a good free-market consumer, I should of course choose plan B... wait, there's no regulation, so there's no reason for me to believe plan B actually works as advertised. So of course I should pay $$$ to hire an auditor who goes through the company's infrastructure and certify that what they're saying is actually correct. Actually, the auditor had better keep an eye on the company from now on, because even if plan B is will-maintained now there's no guarantee that it will continue to be.

But of course I can't afford such an auditor by myself - it would be really convenient if there's an organization that I can join, with a bit of membership fee, and then it certifies these plans, and maybe they need to have some actual teeth, because otherwise how would we know the company isn't lying its ways through.

Hmm, this free market is getting really complicated, it might be nice if there's some kind of blueprint, let's say, a prototypical organization that takes membership fees and holds these companies responsible for their words ...

[rualca]

> They obviously need (and apparently lack) some kind of system for notifying people when prices are spiking unusually high so that exactly that can happen.

I fail to see how this classifies as a free market solution. If customers are not free to choose their supplier, and providers can whimsically just abuse their dominant position to hike prices at will, then that's not a free market at all. It just sounds like a monopolistic market dictating price hikes whenever they feel like it without fear of any consequence.

[yao420]

Funny thing, in Texas there is variable pricing and some people had to pay thousands over the five day freeze[1] in addition to rolling blackouts. I experienced neither as my power was out for 3.5 days.

[1] https://www.dallasnews.com/business/2021/02/20/griddy-custom...

[brundolf]

Griddy is its own thing; it lets consumers buy at wholesale prices which is pretty unique. The great majority of people in Texas have fixed-rates and are unaffected by the price shifts. Traders and providers are eating the brunt of it (and some have gone bankrupt)

[AnthonyMouse]

"In addition to the rolling blackouts" still implies rolling blackouts. If you have rolling blackouts at all then people pay $4000 instead of $9000 and there is that much less incentive for anyone to have built adequate capacity.

Also, this:

> And as blackouts spread across the state, power was cut not only to homes and businesses but to the compressor stations that power natural gas pipelines — further cutting off the flow of supplies to power plants.

Regulatory action exacerbates supply shortage; market blamed.

[cratermoon]

What regulatory action are you talking about? Grid operators cut power to keep the system from failing catastrophically as the generating power available dropped and the frequency dipped from the desired 60hz to 59.93hz and falling. Nobody running the system needed a regulator to tell them to shut down power.

[AnthonyMouse]

"Grid operators" are the regulators. They're the people the government by statute gives regulatory authority over the grid.

The alternative to forcefully disconnecting people is to get people to volunteer because the prices for not doing so are higher they want to pay.

It's plausible that they had an information problem that should be addressed, i.e. people didn't realize that they're paying dollars rather than cents per kWh and correspondingly didn't cut usage. Maybe some kind of messaging system where everyone gets a text message estimating their monthly electric bill at their current usage and price, causing tons of people to say "oh crap" and go do something about it.

[mindslight]

Or recognize that inelastic demand meeting inelastic supply can only produce a terrible price signal, and have a capacity market like every other grid operator.

[cratermoon]

I was kind of wondering when the "it's still too regulated" people would show up and start telling lies that are easily refuted. https://www.pbs.org/wgbh/pages/frontline/shows/blackout/cali...

[AnthonyMouse]

California's infamous corruption and incompetence has now turned the true fact that Texas used rolling blackouts into "lies that are easily refuted".

[cratermoon]

And was that corruption and incompetence allowed to take root and have devastating affects? Was it not the result of insufficient and lax regulation?

[AnthonyMouse]

Competitive free markets for electricity don't exist in general, because the last mile transmission is a natural monopoly. A monopoly isn't a competitive free market. That's the same reason the government itself is so bad at everything -- it's a monopoly that doesn't have to respond to competitive pressure.

Generation can be a competitive market. It's not a natural monopoly. But it's interfacing with the one for last mile power transmission.

The problem you have then is that it's susceptible to regulatory corruption and incompetence. That's not the same thing as "insufficient and lax regulation." The problem isn't that the regulation was lacking in intensity. There isn't a volume knob where you can turn up the general amount of regulation and solve the problem. You need to fix the specific defect. Adding a bunch of other irrelevant rules does nothing.

In California that defect was that the generating companies bought up their competitors and purposely shut down a lot of generating capacity because the regulations were written in such a way that they could only charge high prices during a supply shortfall. So they manufactured one.

There are different ways to handle that. It was plausibly a violation of existing antitrust laws, so the problem wasn't even a lack of regulation, it was a lack of enforcement. The monopoly could have used a different pricing structure that pays generators a given amount to maintain idle generating capacity in case of a shortfall, causing it to be more profitable to not destroy existing generating capacity. Or any number of alternatives.

None of this is incompatible with the idea of having a competitive market for power generation. And it's also still not the thing that happened in Texas.

[curryst]

The issue is not one of supply, but of generation. It wasn't sufficiently weather-proofed. It's entirely possible that it isn't profitable for them to do the winter-proofing. It's only needed once every decade or two.

This also ignores that power demand is largely inelastic during a winter storm in a state where homes are not built to withstand them. That introduces a cap to how high the prices can go. At a certain point, people are going to consume power to stay alive and then just declare bankruptcy on their $15,000 power bill. Or if your free market doesn't allow bankruptcy, they simply won't be able to pay it back.

It's entirely possible that the prices the market can bear before customers start becoming insolvent isn't enough to pay for the winterizing. They keep publishing those studies about how most people in the US can't afford an unexpected $200 or $500 bill. That's not a lot of room for prices to go up. The market rates put some people's power bill up by several thousand dollars for this month.

I can see how having to maintain winterizing equipment for a decade to get 10x the profits for a week might not be profitable.

[AnthonyMouse]

> The issue is not one of supply, but of generation.

Generation is supply. If it freezes, supply decreases.

> It's entirely possible that it isn't profitable for them to do the winter-proofing. It's only needed once every decade or two.

In which case once every decade or two you have to suppress demand through pricing.

> This also ignores that power demand is largely inelastic during a winter storm in a state where homes are not built to withstand them.

You can get your house to zero electricity. Drain the pipes etc. and turn off the main breaker.

You're not going to want to live in it then, but staying in a hotel for a few days costs a lot less than $15,000.

There are also less drastic alternatives which would be taken by people with the ability, e.g. a lot of people have gas generators. Give them a sufficient price incentive and they switch off the grid and use their generator. Which happens at a lower price than it takes to cause people to move out, so it happens first.

Compare this to rolling blackouts where you just freeze people at random without notice and their pipes burst and flood their home etc.

[bradknowles]

You assume that hotels will have power.

You assume that the hotels won’t also be charging market rates of thousands of dollars per day.

You assume that any of these such mythical hotels that have power, and are open, and aren’t charging thousands of dollars a night, will actually have any vacancy that you can fill

All these assumptions were recently proven false down here in Austin.

[tedunangst]

So consumers shouldn't be allowed to sign forward contracts in a deregulated market?

[AnthonyMouse]

Doesn't matter. If people sign those contracts then the floating prices would go even higher for the people who didn't, or the people who made the contracts would start offering to pay people money to shed demand (because they're still paying the floating price for what they're reselling), and the seller risk of having one of those contracts might correspondingly be high enough that people avoid them due to high fixed prices.