[WaylonKenning]

I've seen a lot of news reports talking about people receiving $16,000 bills. Yes, that's because they're with a power company that charges the market rate for electricity. When there's a scarcity of electricity, the market rate goes way up. In fact, during those events that price increase is what encourages generators to bring on more supply to capture that revenue.

All of that in itself isn't evil. But the retailer could have been more proactive to say "During terrible winter storms, paying the market rate is a bad idea. Switch companies now." Or a better idea would have been to charge $X a day as insurance, that would cap the price per kWh to $X. That way people have certainty as to what their maximum charge is. Imagine if the power company said "Pay $10 extra a month, and we'll make sure that in an adverse event, your bill for your normally consumed 1000 kWh would be $1000".

The New Zealand electricity market is similarly deregulated like Texas and has some of the same benefits and problems. The great thing is you can choose your power retailer, that all have different types of plans that work for different people. Some only buy from 'green generators'. Some allow you to buy 'packs of electricity' in advance, a bit like buying a hedge. Imagine having 1000 kWh in your bank to spend during this peak event. Some don't charge daily rates for your holiday home. I like the innovation in the retail market.

But that doesn't prohibit transmission companies, and generators from investing in their assets. Transmission companies are a natural monopoly so should be constrained from the free market. In NZ most of those have a maximum rate of return they're allowed to extract from their assets, so their profit is restricted. In turn they lobby to invest more into their assets which in turn increases their allowed profit. This leads to an outcome of overinvestments in assets, which in Texas's case might not be such a bad thing.

Generators make their typical profit based on stable generation. They make their windfall based on adverse weather events, different hydrology, competing generator capacity going offline etc. The NZ market would have automated 5 minute auctions where the Grid Operator would purchase the cheapest bid from generators to meet the grid demand in that 5 minute block. There would also be diesel generators that would be guaranteed to provide the most expensive supply if things went wrong, so that would be the upper limit on the market.

If all of this is interesting, check out the real time market pricing at https://www.em6live.co.nz/

[TulliusCicero]

> But the retailer could have been more proactive to say "During terrible winter storms, paying the market rate is a bad idea. Switch companies now."

I thought they did exactly that? https://www.bloomberg.com/news/articles/2021-02-15/texas-pow...

> One power supplier, Griddy, told all 29,000 of its customers that they should switch to another provider as spot electricity prices soared to as high as $9,000 a megawatt-hour. Griddy’s customers are fully exposed to the real-time swings in wholesale power markets, so those who don’t leave soon will face extraordinarily high electricity bills.

> “We made the unprecedented decision to tell our customers -- whom we worked really hard to get -- that they are better off in the near term with another provider,” said Michael Fallquist, chief executive officer of Griddy. “We want what’s right by our consumers, so we are encouraging them to leave. We believe that transparency and that honesty will bring them back” once prices return to normal.

[WaylonKenning]

One problem is when an event like this happened in New Zealand, other retailers didn't accept new customers at this time. I mean, would you accept new customers paying 20 cents a kWh when the market rate is 500 cents a kWh?

[brianwawok]

And that is the age old problem. People sign into a "deal" contract to save $5 now, but with a 1/1000 chance of someday losing $1000. And then they hit the spike and what happens?

a) Extra charge is forgiven?

b) Someone else picks up the tab?

c) They are stuck paying it?

And how do you deal with this big picture?

a) Require better legal language in the contracts to sign up for this

b) Ban these kind of contracts, because the user isn't "smart" enough to know how they work

Similar things happen in a floodplain where no one will issue flood insurance. It's mostly fine, until it isn't.

[WaylonKenning]

That's where I think things like Tesla's Powerwall becomes so handy. Imagine 95 kWh just sitting there on your wall. Or in your Model-S. When there's an adverse power event, use your battery. Or, sell it back to the grid if there's money to be made.

Having a massive virtual peaker plant (https://en.wikipedia.org/wiki/Peaking_power_plant) is a neat idea. Telsa, another new business idea for you!

[brianwawok]

What sucks is powerwall cost $7.5k for 6.5 kWh of storage. A decent sized house is going to need 2-4 to handle a reasonable outage, and if you want to be able to power an AC.

My Model Y has a 75 kWh of battery just sitting in my garage, and S/X owners have 100 kWh (maybe 90 after refresh?). Really wish Teslas could use a vehicle to grid to somehow tie into a homebase powerwall for this kind of situation. My understanding is there is no inbuilt way to get more than what is needed to charge the 12V out of a Tesla...

[AtlasBarfed]

Well, the banks do this as a part of business, knowing the US will bail them out when their insider trading house of cards crash down.

Flood insurance for a house purchase is very different from a afterthought utility bill that, really, you have no "choice" on procuring.

[brianwawok]

Wait, but you did have a choice in picking this utility bill. Your choice was:

a) (default choice): Use as much power you as you want, 12c a kWh, it never changes.

b) (other supplier choice): Pay market rate! Currently only 9c a kWh, save 3c per kWh! (Until this event, when it went to $1000 a kWh).

Consumer opted into B to save some cash, but got hit with the downside of their bet.

[Spooky23]

...and somehow everyone is surprised that consumers do a bad job at assessing risk.

It’s an unconscionable business model with no guardrails. Commercial users don’t sign up for rates like that without breakers or hedges.

[TulliusCicero]

In this case the regulated/government-run provider was an option I think.

[sandworm101]

>> during those events that price increase is what encourages generators to bring on more supply to capture that revenue.

True, in a perfect theoretical world where infinite capacities can be achieved through price increases. In the real world, there are only so many operational power producers. Raising the prices does literally nothing for powerplants physically incapable of coming online soon enough to enjoy those prices. And as this was such a short-term boom, there is no incentive to weatherize in anticipation of the next boom as the potential yields still outweigh immediate costs. Despite the bluster, Texas's power grid is not a free market utopia where supply and demand solves all problems. Texas simply isn't big enough for such principals to act before running up against hard practical realities.

[AtlasBarfed]

OR, you could collude and not bring power online to reap massive amounts of money in short term predatory bursts, since people can't switch providers quickly when there's no power, internet, etc.

Basically that is some of what caused the California blackouts back in the Enron days. The elasticity of the market with respect to consumers choosing a different provider is pretty inelastic, in the best case it's one month. Meanwhile, Enron was doing hourly manipulations of power plant shutdowns.

What you're posting here, even though it's a garden variety laissez faire microeconomic argument, actually advocates for the opposite: regulation to eliminate spike pricing.

In this case, regulation would have made a more robust system, with better ability to pull from surrounding grids, and avoided the shock pricing.

Can you imagine you show up at a hospital during, say, a large scale pandemic that has reduced the capacity of the hospital, and told that your necessary emergency surgery was going to cost 100x more than normal in order to "incent" more surgeons to work?

And do you think people should be actively switching power providers on a daily basis? Should everyone have a TV "dashboard" indicating energy market conditions? And should they quit their day jobs to do that?

Pure market microeconomics is a fantasy, human computation for market prices is far too limited, information is far too limited. When its pushed to the extremes, chances are what is happening is the Enron-type market manipulators are creating opportunities for them to extract money from created chaos.

[mikepurvis]

> Imagine if the power company said "Pay $10 extra a month, and we'll make sure that in an adverse event, your bill for your normally consumed 1000 kWh would be $1000".

Alternatively, imagine if critical services like this were managed directly by the state, so that the cost of these adverse things was absorbed into the tax base rather than privatized by insurance companies (which eventually go bust and end up bailed out by the state anyway).

[WaylonKenning]

I live in Ontario at the moment, which is a very regulated power market. I can only buy from one retailer. They in turn get charged a singular price from the generator. The government can mandate what that price is, which is lower at the moment because of Covid.

That stuff is great for me as a consumer. But selling power below the cost of production seems like a weird economic model. And you still pay for these reductions somehow. In Ontario, the government mandates a rebate (https://www.torontohydro.com/for-home/ontario-electricity-re...). But who pays for that rebate? The taxpayers! So you get a discount on your power, paid for from your income!

I'm not an 'all-in free market' guy. I do think regulation is required to constrain the free market to operate within certain parameters. But I also don't agree that all 'critical services' should be managed directly by the state. I remember that the state used to run the Telephone network in NZ, and it would take 6 weeks to get a new phone line. Why? Because there's a process, there's a queue, and there's no competition, so what else will you do? Stuff like that is a crappy experience.

[mikepurvis]

Yup, I'm in Ontario too. Fundamentally the issue is that electricity is an essential service, much of the demand is inelastic, and most of the costs are fixed. This is why you have embarrassing situations like having to raise rates to cover those fixed costs because everyone did too good a job of conserving [1].

But it's also why this kind of service is a good fit for a government monopoly. And if that means that some of the mostly-fixed-costs end up covered by the general tax base, that's fine with me: the general tax base is taken on a progressive model where the wealthy pay more into it, and there isn't really a good way to make the wealthy pay a different rate for power (yes, I'm on the upper end of middle class, and I absolutely deserve to pay more for these things than someone else who is just scraping by— not just more because I use more, but also more on a per-kWh basis).

[1]: https://www.fraserinstitute.org/sites/default/files/demand-s...

[cycomanic]

Well if we talk about the phone market. There's lots of stories about people trying to cancel their phone contract in the German deregulated market and the companies just continuing to charge or not freeing up the line for the customer to change to a competitor. There is a famous case where a debt collector went into the the central office of Telekom (parent of t-mobile) and took a printer, because they were not paying back overcharged money. Just to say that things aren't all rosy in deregulated phone land either.

[adamc]

Imagine if we took those managing the power companies out and shot them. That is the mood of many in Texas.

[star_light]

Retailers charging wholesale rates did say "please switch now", as early as the weekend before the cold snap hit on Sunday evening. The issue was that few retailers were willing to take on those customers, because most didn't have the spare pre-purchased electricity supply to supply these new customers without buying more electricity futures - and futures were already spiking by this point.

[matthewdgreen]

> Or a better idea would have been to charge $X a day as insurance, that would cap the price per kWh to $X.

What mechanism incentivizes customers to pay for the insurance, though? It seems to me that people are going to buy the cheapest possible electric plan available during normal times, and just forget about black swan events altogether -- unless you find some useful way to force them to.

[donatj]

> Transmission companies are a natural monopoly so should be constrained from the free market.

They’re only a “natural monopoly” in so far as the government has disallowed competition by preventing development of new competing lines and limiting access to local poles. Doesn’t seem very natural.

[Spooky23]

Lol.

Yeah... companies are just lining up to spend billions to build out redundant electric lines, only to be thwarted by the heavy hand of Texas energy regulators. </s>