What can we learn from Texas' power grid failure?

[Office_Shredder]

That seems unlikely. Do you have a source?

https://www.reuters.com/article/us-usa-weather-texas-power-idUSKBN2AQ2ZM

Wholesale prices, which last year averaged $26 a megawatt hour, soared to $9,000 per MWh for days as grid operators tried to quench a severe shortage that left up to 4.3 million residents shivering in the dark last week. The state’s total bill for electricity over seven days rose by $45 billion from the prior week, lawmakers said on Thursday.

Prices increased by more than 100x, I assume most of the 45 billion dollar increase is pure profit.

 

[StatGuy2000]

I have some questions for @Vanadium 50, @russ_watters and @Office_Shredder :

1. If the issue with Texas (as opposed to other states in the US) is that the electric grid does not have sufficient capacity to provide electricity to its citizens, for whatever reason (my own suspicion is major population growth over the past many years without sufficient investment in building greater capacity), then how much needs to be invested now to increase capacity and winterize the grid (among other required changes)?

2. Depending on what the cost is, who do you think should bear the cost? The state of Texas (through their existing operating budget, or through new taxes)? The (private) energy companies (out of their profits, or through levies applied by them by the state government)? Or the private citizens through their electricity bills? [My own leanings are to Texas sate or the energy companies, because the poor or middle-class are not unduly burdened with additional costs and the responsibilities should fall on both the state and their energy companies, but I have a feeling that each of you may have differing opinions on this]

 

[Office_Shredder]

The answer to #2 is easy, the private citizens are going to pay no matter how you pretend to do the accounting.

 

[StatGuy2000]

The answer to #2 is easy, the private citizens are going to pay no matter how you pretend to do the accounting.

The question is not if the private citizens will ultimately pay. The question is HOW it will be paid.

The fairest and the most sensible way to do so would be to increase state income taxes, or for the state of Texas to charge a special levy on the energy companies, to spread the cost out so that the the poor or middle-class are not unduly burdened.

The more relevant question is #1 -- how much would this cost? And how long should this cost be spread out?

For example, if someone is paying $130 monthly in their electricity bills now, but their bill is increased to, say, $140 over, say, 10 years, then the impact on the average citizen shouldn't be that severe, while ensuring that ($10 x 12 x 10 x 6 million) = $7 billion dollars is available over that period of time (the 6 million is a guess on the number of households exists in the state of Texas, given that the state has a population of ~29 million).

 

[russ_watters]

https://www.reuters.com/article/us-usa-weather-texas-power-idUSKBN2AQ2ZM

Prices increased by more than 100x, I assume most of the 45 billion dollar increase is pure profit.

Wow. It's not clear to me who is paying who for what there, or if those charges will ultimately stand, but fair enough.

[edit]
And @Vanadium 50 and @anorlunda IMO part of the problem with variable-pricing for electricity is that it requires the buyer to be paying attention to the spot price and have the ability to reduce consumption if the price rises. That's a level of sophistication and flexibility most consumers and even commercial users don't have. I'm in agreement with the sentiment I've heard here before that on the retail side the prices should be fixed. I wouldn't quite go so far to advocate for the "regulated monopoly" model pre-1990s, just that we should probably make the consumer choice a little more user friendly.

 

[russ_watters]

The question is not if the private citizens will ultimately pay. The question is HOW it will be paid.

The fairest and the most sensible way to do so would be to increase state income taxes...

I don't think electricity works that way anywhere in the US. It's a privately-provided consumer product, not a government service.

...or for the state of Texas to charge a special levy on the energy companies, to spread the cost out so that the the poor or middle-class are not unduly burdened.

"A special levy" doesn't make sense to me, as the government isn't providing the service, but whatever you charge an electric company gets spread out amongst the customers on pretty much a per kWh basis. It doesn't do what you're hoping to see; using this as an opportunity for wealth re-distribution.

1. If the issue with Texas (as opposed to other states in the US) is that the electric grid does not have sufficient capacity to provide electricity to its citizens, for whatever reason (my own suspicion is major population growth over the past many years without sufficient investment in building greater capacity), then how much needs to be invested now to increase capacity and winterize the grid (among other required changes)?

It seems like in Texas the primary culprit here was winterization, and if any grid lacked capacity it was probably the natural gas grid, not the electric grid.

I don't have specifics, but I would think on an ongoing/moving forward basis the added cost of providing a more robust generating capacity (like buying winterized wind turbines) is not very significant. Going back and retrofitting a lot of equipment as a one-time charge would be expensive though. But here's the thing: we're in the midst of a massive energy transition already. If this is a once a decade problem, maybe making new equipment more robust moving forward would be good enough to avoid a repeat in 10 years.

 

[Office_Shredder]

Statguy, if you make the electric companies pay for it it's going to be passed through by higher electric bills no matter how you try to spin it. Texas doesn't even have a state income tax, so that's a non starter. It looks like the bulk of the state income is from sales tax (actually the single biggest income source is federal grants, which holds no small amount of irony in my mind), which is probably just as regressive as raising electric rates.

https://courses.lumenlearning.com/odessa-texasgovernment/chapter/budget-revenue/

 

[StatGuy2000]

I don't think electricity works that way anywhere in the US. It's a privately-provided consumer product, not a government service.

This shows my bias from living in Canada. In my home province of Ontario, all electricity services are provided by a Crown corporation (i.e. a corporation wholly owned by the provincial or federal government -- in this case provincial). So electricity in Canada is a publically provided good, not a private-provided consumer product (but which is still paid for through electricity bills).

"A special levy" doesn't make sense to me, as the government isn't providing the service, but whatever you charge an electric company gets spread out amongst the customers on pretty much a per kWh basis. It doesn't do what you're hoping to see; using this as an opportunity for wealth re-distribution.

Again, since electricity is a crucial public good for all citizens of a given US state, then I would have thought that there would be legislation at the state (or possibly federal) level which strictly regulates under what condition that these private producers can operate in that state. So the state could (at least in theory) charge a levy or otherwise tax these firms as a pre-condition to operate, with the funds being potentially used to strengthen the grid (if the companies either cannot or will not do so).

But then again, perhaps my living in Canada (and lack of familiarity with how Texas, or other US states regulate the electricity market) skews my own perspective on these matters.

It seems like in Texas the primary culprit here was winterization, and if any grid lacked capacity it was probably the natural gas grid, not the electric grid.

I don't have specifics, but I would think on an ongoing/moving forward basis the added cost of providing a more robust generating capacity (like buying winterized wind turbines) is not very significant. Going back and retrofitting a lot of equipment as a one-time charge would be expensive though. But here's the thing: we're in the midst of a massive energy transition already. If this is a once a decade problem, maybe making new equipment more robust moving forward would be good enough to avoid a repeat in 10 years.

You may well be right that with the energy transition already occurring, this could serve as an opportunity to fully upgrade all equipment to prevent future problems of the kind we have seen with the Texas power grid failure. And for the sake of the residents of Texas, I hope this does occur.

I suppose we'll just have to wait and see.

 

[StatGuy2000]

Statguy, if you make the electric companies pay for it it's going to be passed through by higher electric bills no matter how you try to spin it. Texas doesn't even have a state income tax, so that's a non starter. It looks like the bulk of the state income is from sales tax (actually the single biggest income source is federal grants, which holds no small amount of irony in my mind), which is probably just as regressive as raising electric rates.

https://courses.lumenlearning.com/odessa-texasgovernment/chapter/budget-revenue/

Out of curiosity, is Texas unique for not having a state income tax, or are there other states that are in a similar situation? I was under the impression that all states had their own form of an income tax.

 

[vela]

Statguy, if you make the electric companies pay for it it's going to be passed through by higher electric bills no matter how you try to spin it.

This notion almost always strikes me as simplistic. It's like answering the question "what happens to the energy released when an engine burns gas?" by saying "it all eventually turns to heat." Sure, that's technically correct, but it ignores important details like producing useful work along the way.

Also, I don't think it's necessarily true. What if the government were to cap rates at the pre-storm values yet require the companies to modernize their infrastructure? The company will have to go with lower profit margins or even operate at a loss for a while to pay for the upgrades, employees don't get as big of a raise as they otherwise might have, etc. The end user isn't paying more, but the shareholders and employees are bearing the brunt of the cost.

 

[Office_Shredder]

This notion almost always strikes me as simplistic. It's like answering the question "what happens to the energy released when an engine burns gas?" by saying "it all eventually turns to heat." Sure, that's technically correct, but it ignores important details like producing useful work along the way.

Also, I don't think it's necessarily true. What if the government were to cap rates at the pre-storm values yet require the companies to modernize their infrastructure? The company will have to go with lower profit margins or even operate at a loss for a while to pay for the upgrades, employees don't get as big of a raise as they otherwise might have, etc. The end user isn't paying more, but the shareholders and employees are bearing the brunt of the cost.

And some of them will just go out of business. I don't even know what capping rates at pre storm prices mean. The most important input to electricity prices is like, the price of natural gas. Texas doesn't get to pick that globally. If natural gas prices go up, then every natural gas plants shuts down and you get another 50% blackout? That seems suboptimal.

 

[vela]

My point was that there are scenarios where your claim that the end user always pays for it all is wrong.

 

[Office_Shredder]

My point was that there are scenarios where your claim that the end user always pays for it all is wrong.

I think your scenario where they don't pay for it is wrong. At best forcing companies to lose money now is just going to make them charge more later to make up for it, and any attempt to ban that is going to result in some worse service some other way.

 

[vela]

I think your scenario where they don't pay for it is wrong. At best forcing companies to lose money now is just going to make them charge more later to make up for it, and any attempt to ban that is going to result in some worse service some other way.

Companies can only charge what the market will bear. If they lose money in year X, they can't just willy nilly raise prices in year X+1 to make up for the loss as you seem to think.

 

[russ_watters]

My point was that there are scenarios where your claim that the end user always pays for it all is wrong.

IMO you're splitting hairs here. The maximum over time that you can squeeze from the providers is the profit margin*. If it's 10%, then that's still 90% that the consumers have to pay for.

*And while the profit margin can vary, it can't vary by all that much otherwise investors will start going elsewhere and the scales have to find another way to level-out.

 

[Office_Shredder]

Companies can only charge what the market will bear. If they lose money in year X, they can't just willy nilly raise prices in year X+1 to make up for the loss as you seem to think.

The market just paid 9,000 dollars per megawatt hour for a full week, this is an odd argument to make at this point.

 

[russ_watters]

This shows my bias from living in Canada. In my home province of Ontario, all electricity services are provided by a Crown corporation (i.e. a corporation wholly owned by the provincial or federal government -- in this case provincial). So electricity in Canada is a publically provided good, not a private-provided consumer product (but which is still paid for through electricity bills).

I'm not sure that's a real difference. Is electricity paid for via taxes or from the end user purchasing kWhs?

This isn't to say that any government, including the Canadian/US federal and state governments couldn't build their own plants or otherwise subsidize the grids via taxes. Do you know if Canada actually does that? I don't see anything in the wikipedia article on Canada's electricity about it. Just being a government-owned corporation doesn't fundamentally change the business environment as far as I know (and the US has them too; see, the Hoover Dam).

Again, since electricity is a crucial public good for all citizens of a given US state, then I would have thought that there be legislation at the state (or possibly federal) level which strictly regulates under what condition that these private producers can operate in that state.

There is.

So the state could (at least in theory) charge a levy or otherwise tax these firms as a pre-condition to operate, with the funds being potentially used to strengthen the grid (if the companies either cannot or will not do so).

You're still describing what you want backwards. You'd need to tax the public and give the money to the electric companies (earmarked for whatever purpose), not the other way around. Taxing the company's income/profit just means they have to raise their rates, and they don't charge people different rates depending on their income in the US. And my suspicion is they don't do that in Canada either.

Out of curiosity, is Texas unique for not having a state income tax, or are there other states that are in a similar situation? I was under the impression that all states had their own form of an income tax.

It's not the only one, but it's somewhat rare. Another is Alaska. The abundance of oil in both has something to do with that...

 

[vela]

IMO you're splitting hairs here. The maximum over time that you can squeeze from the providers is the profit margin*. If it's 10%, then that's still 90% that the consumers have to pay for.

I don't think so. There are other parties involved, and many will bear some of the costs, like employees not earning as much as they might have otherwise. I'm not saying customers will not bear any of the cost; I'm saying customers are not the only ones that will bear the cost.

And why stop at the customers? Where do they get their money? When the cost of living goes up and their employers find they have to raise wages to keep people around, why ignore the increased cost to these companies? Or maybe they get help from the state and federal governments. I guess we're all paying for it through our taxes.

So again, my point is that the notion that the end user always pays for it in the end is simplistic and useless.

 

[russ_watters]

I don't think so. There are other parties involved, and many will bear some of the costs, like employees not earning as much as they might have otherwise.

Labor is a market too. If you pay people less, the quality of work will go down and/or people will start quitting.

I'm not saying customers will not bear any of the cost; I'm saying customers are not the only ones that will bear the cost.

You've created a wide gulf between the various positions. "Any" isn't a position on the table; it's about the difference between "almost all" and "all" that I consider a hairsplit. Yes, it's not zero and yes there are a variety of ways to squeeze more efficiency out of government regulated companies. But often times the result is the opposite of what you're after; higher prices, poorer service and bankruptcies are features of California's grid, for example.

And why stop at the customers? Where do they get their money? When the cost of living goes up and their employers find they have to raise wages to keep people around, why ignore the increased cost to these companies? Or maybe they get help from the state and federal governments. I guess we're all paying for it through our taxes.

Huh? I get a monthly electric bill and pay for kWhs with cents and dollars. My employer knows nothing about how much I pay. If you're trying to link that to inflation you are adding something meaningless. Inflation is just a multiplier on the value of a dollar that doesn't change the actual value of goods and services and labor. (Except insofar as they change with respect to each other).

Putting a finer point on it; when someone's electric bill goes up, they don't think "yay, I'm getting a pay raise!"

So again, my point is that the notion that the end user always pays for it in the end is simplistic and useless.

Like the "it all goes to heat" point, it is so close to being 100% accurate that it shouldn't be worth the effort to argue against is and doing so creates a falsehood instead of clarifying an oversimplification.

 

[jim mcnamara]

@russ_watters :

IMO part of the problem with variable-pricing for electricity is that it requires the buyer to be paying attention to the spot price and have the ability to reduce consumption if the price rises. That's a level of sophistication and flexibility most consumers and even commercial users don't have. I'm in agreement with the sentiment I've heard here before that on the retail side the prices should be fixed. I wouldn't quite go so far to advocate for the "regulated monopoly" model pre-1990s, just that we should probably make the consumer choice a little more user friendly.

Just to answer your point about customers varying usage to control costs - it is done widely
Using pretend numbers:
1.charge for peak demand. Large customers do this routinely because they would trash the grid if they turned on a bank of several dozen 10000 kWH kilns. Example: companies that manufacture ceramic toilets. They schedule kiln warmups (off/on) to minimize kVar. Homeowners in warm climates with air conditioning have other ways to reduce charge

There are several ways to perform a KVAR Calculation if you need to calculate the reactive power of a given load. If you want to go with a practical approach, use a voltmeter along with an ammeter or amp meter to get it done. The product of the readings will give you the apparent power of the load in volt-amperes. The resulting figure will also help you work out the true power in watts of the given load. Given those numbers, finding the vectorial difference shouldn’t present any problems. When you determine what the reactive power is, you can find the right capacitors necessary to lower apparent power components in your systems. That’s how you can cut down on the power factor if you want to save on costs. For instance, if you install a 30 KVAR of capacitors, these will go on to reduce the reactive power provided by the utility company to 30 KVAR. The apparent power supplied by the utility, on the other hand, will drop to about 85.4 kVA.

2. Some utilities (ex: Navopache Electric in Showlow AZ) use interruptible rates. When loads go up the company sends out a turn off signal to certain types of high demand appliances. Or a device like a hot water heater has timer that turns off between 7am and 9am - peak usage times

3. Seasonal rates - most electric utiltities characterize rates as winter peak or summer peak loads. So customers get free energy audits to help them get what they need at lower costs. Could be fixing leaky windows. Or adding some insulation to pipes. The utiltity charges more during peak seasons which are displayed prominently on bills. Many companies use special inserts as well as extreme customization features. Ex: Navajo Tribal Utility Authority prints bills to all customers in two languages: Navajo and English. Public Service Co of NM uses English and Spanish. Energy audit people are all bilingual, sometimes multilingual because there are multiple non-Western languages commonly used in New Mexico. Ex: Santana Rosetta from Kewa (Santo Domingo Pueblo) - my kid's "grandma" - spoke 6 languages.

 

[gmax137]

It's not the only one, but it's somewhat rare.

G**gle shows no income tax in: Alaska, Tennessee, Wyoming, Florida, New Hampshire, So Dakota, Texas, Washington, Nevada.

I remember Connecticut implemented income tax sometime in the late 1980s/early 1990s.

 

[gmax137]

The market just paid 9,000 dollars per megawatt hour for a full week, this is an odd argument to make at this point.

Exactly. Those who think this is "unfair" should be advocating for a system more like the old one. In the old days, the (regulated monopoly) power company could make money by selling bonds. Bonds to build more power plants, transmission lines, and distribution networks. The more bonds they sold, the more money they made. And the more infrastructure they built.

 

[StatGuy2000]

I'm not sure that's a real difference. Is electricity paid for via taxes or from the end user purchasing kWhs?

This isn't to say that any government, including the Canadian/US federal and state governments couldn't build their own plants or otherwise subsidize the grids via taxes. Do you know if Canada actually does that? I don't see anything in the wikipedia article on Canada's electricity about it. Just being a government-owned corporation doesn't fundamentally change the business environment as far as I know (and the US has them too; see, the Hoover Dam).

In the case of my home province (Ontario), electricity is paid for via monthly fees for purchasing kWhs. The main difference is that the provincial Crown corporation (Ontario Power Generation) has a virtual monopoly for half of the electricity generation in the province, and works in conjunction with the various local electricity distribution firms (also publically owned by the various municipalities e.g. Toronto Hydro in my home city, Hydro One elsewhere in Ontario, etc.) The private sector doesn't really enter the picture at all.

I'm less familiar with how the electricity is generated and distributed in other provinces (electricity generation, distribution, and the surrounding regulations are handled at the provincial level, similar to the US).

It's not the only one, but it's somewhat rare. Another is Alaska. The abundance of oil in both has something to do with that...

Interesting. In Canada, the province of Alberta does not have a provincial sales tax (ostensibly due to the abundance of oil) but still maintains a provincial income tax.

 

[russ_watters]

@russ_watters :
Just to answer your point about customers varying usage to control costs - it is done widely
Using pretend numbers:
1.charge for peak demand. Large customers do this routinely because they would trash the grid if they turned on a bank of several dozen 10000 kWH kilns. Example: companies that manufacture ceramic toilets. They schedule kiln warmups (off/on) to minimize kVar.

Those are all fixed in the sense that they are pre-published particulars of rate schedules that change at most annually. My dad made his living ensuring people were picking the right utility rates to match their usage and using the rates correctly. His sweet spot was light commercial and manufacturing; big enough to be profitable for him but small enough that they wouldn't have their own in-house energy team. Indeed, one of his major clients was a furnace company that monitored that exact issue. He had them install a demand monitor in their control room -- pre-internet, it was a lighted LED display, next to the clock.

I'm talking about rates that change hourly/daily. E.G., if your electricity costs $0.15 / kWh today (Monday) and costs $15 / kWh tomorrow (Tuesday), most people aren't going to realize it until they get their bill because they don't have a computer program or team of engineers watching the spot prices and deciding if/how to respond. That's what happened to Texans.

 

[gmax137]

That's what happened to Texans.

Well, to some Texans, right? They didn't all sign up for variable-rate following wholesale price, as far as I know.

When I lived in a de-regulated state, you could pick your generation from any of dozens of plans. Distribution was still all done by the original power company. The odd thing was, you couldn't sign up on-line for the generation arm of the original power company. The rules said you had to call them to sign up for their generation plan.

 

[Vanadium 50]

Out of curiosity, is Texas unique for not having a state income tax, or are there other states that are in a similar situation?

There are nine states without a personal income tax. Seven have sales taxes (often substantial ones). The other two are Alaska, which is largely funded by oil revenue, and New Hampshire, which operates state run liquor stores catering to its larger neighbors, particularly Massachusetts.

 

[gmax137]

There are nine states without a personal income tax. Seven have sales taxes (often substantial ones). The other two are Alaska, which is largely funded by oil revenue, and New Hampshire, which operates state run liquor stores catering to its larger neighbors, particularly Massachusetts.

The NH state liquor store on I-95 just north of the Mass state line has it's own exit and off ramp. I used to go by there every week on my way to & from work in Brunswick, ME.

Here in Nevada we have pretty high sales tax (near 9%) but I think most of the revenue is from taxing the casinos.

EDIT:

 

[Vanadium 50]

because they don't have a computer program or team of engineers watching the spot prices and deciding if/how to respond.

I'm not sure I agree. I have time of use metering. Every day my utility publishes its best guess for the next day's prices. In extreme events, I get an email telling me when power will be expensive the next day. They provide an IFTTT app to send alerts and to (if I let them) control my thermostat.

That said, there was a very odd excursion. One October late morning my rate rose to 16x the average. The hour before and after were normal. No warning, no explanation.

 

[russ_watters]

I'm not sure I agree. I have time of use metering. Every day my utility publishes its best guess for the next day's prices. In extreme events, I get an email telling me when power will be expensive the next day.

And you read these emails? And can/would respond to an adverse event?

They provide an IFTTT app to send alerts and to (if I let them) control my thermostat.

In my area, that sort of thing isn't common. PECO (formerly Philadelphia Electric Company) has had a peak of 82,000 customers in its "Smart Saver" program which can do a crude form of demand response using thermostat cycling. It's being discontinued in May, and I haven't heard of a replacement.
https://www.inquirer.com/business/p...ver-energy-conservation-program-20201118.html

Assuming 2/3 of its 1.6 million total customers are residential, that's about 7%.

Looks like time-of-use rates are coming in my area this year though:
https://www.spglobal.com/marketinte.../blog/essential-energy-insights-february-2021

 

[Office_Shredder]

I think many people knew their rates would be high on these variable plans. Griddy very publicly told everyone they would get destroyed and should try to switch to a flat rate plan, and the stories all have people at least claiming that they were switching off breakers and turning down their heat to save power. Maybe they're just saying that to save face for their ignorance or arrogance that this would be taken care of for them,as someone earlier in the thread said the more outrageous bills required a lot of electricity to hit.