Michael Giberson
In other commentary on ERCOT’s rolling blackouts: “Some Companies Made Millions Off the Texas Blackouts.”
While Texans suffered rolling blackouts yesterday, some power generators were enjoying windfall profits. Starting around 5 a.m., prices in the wholesale market surged to the market cap, $3,000 per megawatt-hour, and stayed there, off and on, until around noon. Prices are typically below $100/megawatt-hour, acknowledged ERCOT CEO H.P. “Trip” Doggett today in a press conference.
There are still more questions than answers but this much is clear: At best, some power generators around the state raked in oodles of money thanks to the way ERCOT has structured the energy market. At worst, some may have manipulated the market to drive up prices.
… ERCOT may have allowed prices to reach the cap in order to maximize the amount of power during the crisis yesterday. In other words, ERCOT was willing to pay whatever it took to secure the system. [Public Citizen-Texas’s David] Power compares it to flinging hundred dollar bills at a taxi driver who’s already got the pedal to the floor.
“You just keep throwing money at the front seat,” he said. “You’re not going to get any more out of him; you’re just going to have a really happy driver.”
(First it should be clarified that most power produced during the emergency was likely paid under a long-term contract, so didn’t get paid $3,000 per. Only to the extent that a generator had the capability to increase output over existing contractual commitments would it be able to earn that price on the increase.)
The $3000 price is part of ERCOT’s “scarcity pricing” mechanism. It is a rule that plays about three or four roles all at once. First off, during emergency shortages you want to motivate every generator out there to take every reasonable step to maximize production. At the same time, you want to motivate large-scale customers that see something like a real-time price to cut back on consumption to the degree possible. In addition, the price is supposed to help motivate longer term investments – generators investing in a little more spare capacity, consumers investing in a little more conservation or the capability to curtail during emergencies. These later effects won’t help during the current emergency, but the hope is to be a little better prepared for the next emergency.
So it isn’t just a matter of making the current taxi drivers happy. We want customers who don’t need cabs so badly to find some other way around, and we want to have more taxi drivers in the city for the next emergency. No doubt, though, with the political attention the event is receiving, the possibility of market manipulation will be and should be examined.
ASIDE: By the way, if you assume 1 MWh of energy would keep 250 homes from being blacked out, at $3000/MWh the cost is about $12 each.* Much, much higher than the typical cost of electricity, but I’m sure many (not all) consumers that lost power yesterday would rather have their monthly bill $12-48 higher and kept their power through the cold. With a fully developed smart grid we wouldn’t have to guess whether or not consumers would want to pay these kinds of prices. Consumers could decide for themselves what their limits were, and set their devices to manage instant responses to system emergencies.
My preliminary assessment of the rolling blackouts was posted earlier today: Cold snap brings rolling power outages to Texas; is ERCOT policy of isolation at fault?
*A very rough ‘back of the envelope’ calculation, not based on consumption data from Wednesday. Feel free to improve upon it in the comments.