This is the reason we have consumer regulation. Markets are volatile. Markets are complicated. And while it's true that expert traders can find efficiencies in buying commodities at unregulated market prices, it is in no way acceptable to demand that all of us be experts in the market commodities we need to be a part of society.
I can all but guarantee you that no one who signed up for Griddy ever thought they'd get a bill like this. I can also guarantee you that there were Texas energy market experts out there who knew something like this was an eventuality. And that is why "Griddy" should never have existed.
Griddy claims[0]—a claim I don't have the knowledge to verify—that this price spike was a political intervention, not a natural consequence of the market, and thus something they couldn't have predicted.
The article shows the real time supply and demand price at the time being 300x lower. It wasn’t a price cap but more like a mandatory price increase. At least that’s how the linked post from Griddy describes it.
ERCOT operates a power-only market, unlike most grid operators. No producers get paid "for capacity" (for agreeing to be ready to provide power, even if they're not currently doing so). To provide a motivation for producers to have excess capacity, ERCOT allows the wholesale price of electricity to rise as high as $9000/MWh in shortage conditions.
During the past week when massive amounts of supply went offline ERCOT forced the downstream utilities to disconnect customers (shed load) to avoid bringing down the entire grid. This is what the "EEA 3" in Griddy's graphic means. After vast swathes of Texas were disconnected from the grid and prevented from buying power at any price, the market clearing price for those remaining on the grid was around $1200/MWh.
The Texas PUC ordered ERCOT to raise the price to the cap of $9000/MWh to accurately reflect that demand was vastly exceeding supply at that moment.
So was it an intervention? Yes. But the intervention was there to make the market function more like it was intended to. Shedding load from the grid was also (an earlier) intervention in the market. It's not really possible to operate a completely "free market" in electricity because of physical and moral constraints (are you really going to turn off electricity to the water treatment plant before some guy's mansion?) as we're seeing.
Right... the wholesale cost was artificially being held low during that time because ERCOT was load shedding by disconnecting consumers.
The algorithm just sees load < available power and sets the price.
This means that as the load continued to shed, wholesale price would have continued to plummet, which would have caused more generation to go offline (as there's no demand for it, and price per kWh is dropping), which is the exact opposite of what was required to stabilize the grid.
Generation needed to be brought back online, and wholesale customers still connected to the grid (think large industry) should have pulled their load off the grid to restore capacity for the retail consumer.
It doesn’t seem like anything unlawful, fraudulent, or even just shady happened here. Where is the threshold where you see the need for regulation superseding the freedom for people to transact with such risk exposure? Some people may want to pool into something amortizing risk as described but others may want to just reduce their usage. Shouldn’t they be permitted to do so? It’s like how some people may want to hold their savings as cash, some may want to invest in individual stocks, and some may seek mutual funds. The article’s final conclusion, that this episode highlights the necessity of collectivism over individualism, seems like a major logical leap.
Nothing unlawful, fraudulent, nor shady happened here.
But something very risky happened, and the people on the downside of that risk are not in good positions to weather the downside.
Whether that is deserving of regulation is a separate issue, but people set themselves up for a disaster on the basis that the downside would not hit them. Pow! Now they are in a world of hurt.
Thankfully we have the uncontroversial non-partisan non-lobbied monopolistic government-backed actors (aka regulators) to save us feeble humans from making our own purchasing decisions in a free market
You may be right- it's very hard to imagine that normal people really wanted to be exposed to that kind of downside.
But also it reminds me of the kind of articles you see from time to time where someone bought a cut-rate airfare, and then got bumped or had some other inconvenient change and was upset that they had no recourse. But of course the whole reason that fare existed was because the buyer was agreeing they could be bumped.
So if the options are fixed rate power that is cut when the utility doesnt want to pay the spot price, or wholesale power that stays on but exposes the buyer to the spot price and is usually cheaper than the fixed rate, I start to imagine that there is a market for that. And that like the airfares, people are happy to take the upside but cry not fair when stuck with the downside.
It's basically the problem of tail risk aka "picking up pennies in front of a steam roller". I'm not against it per se, but it does make sense that consumers be informed of it when making a decision, be it writing options or buying electricity at spot rates.
It depends on the product. It's viewed as perfectly fine to buy and sell futures contracts on global commodities without protection, because the people doing that know what they're doing. It's likewise OK to sell win chances on lottery or slot machine payouts, because the customer is presumed to understand the risks well.
But not everything is like that. In particular household utilities aren't elastic things: people need them in a way they don't need to gamble. So the government needs to be regulating this on our behalf, because it's not reasonable to assume everyone knows the weatherproofing state of the Texas power grid.
That doesn't mean that no consumer ability to exploit spot power should exist. I mean, there are similar products envisioned like "charge overnight" for EVs that seem safe.
But the idea that somehow consumers were going to be so sophisticated as to manage their risk to tolerate a $10k electric bill is just bananas.
Another option would have been to require to have a sensible cost cutoff point (smart grid). It would have been more expensive to implement, but a great compromise.
Or the lecture is that we should go harder on individuality. Ironically this same blog has a post titled "Review: Moixa Solar Battery". If you have a 100kWh battery at home to tide you over the 3 days it's cold (and electricity costs $9/kWh) but can otherwise directly access the wholesale pricing, what is not to like?
I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery, but given that most electricity grids in the world have e.g. different day and night rates, there is an obviously untapped market for arbitrage.
A 100kWh battery would run a 1kW bar heater (and nothing else) for 4 days. That's probably enough to heat one room and keep you alive, but it won't be giving you the full electric shower, cooking food, warm house and pipes not freezing experience. Even moreso if you want to keep some reserves in case it needs to last more days.
> "I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery"
A long one. 100kWh will cost you maybe $70,000 (e.g. 10x of these https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 ) (If it's not LiIon, but is lead-acid to be cheaper, you won't want to be using much more than 50% of it before it causes problems). At $1/kWh from the mains, about 8 years of mains electricity to buy it. At $0.25/kWh, 32 years.
What do you mean? In this scenario of 4 days heating per charge that makes 10k days which is 27 years, and that seems a reasonable sort of lifetime for a product - probably beyond any warranty period it has.
>there is an obviously untapped market for arbitrage.
But if there was an arbitrage opportunity, wouldn't a company be already on top of it[1]? I'd imagine that a company would have greater economies of scale to operate such a system compared to a home user. My guess is that there aren't many people who have solar panels/wind mills, 100kWh batteries, and aren't connected to the grid, because it's much more cost-effective to use the grid as your battery (that is, sell into it when you're generating power, and buying from it when you're not).
[1] insert joke about a pair of economists finding a $20 bill on the sidewalk
My cousins husband works for a company in Texas that provides massive generators to commercial energy users at cost with the catch they're allowed to run the generators to feed the grid when the cost of energy is higher than the cost to run the generators.
Using a big battery in this way under a time of use rate isn't arbitrage, its exactly what the utility company wants you to be doing. That's why they incentivize you to do it with a nice rate.
If you spend 70k on a battery and then think you're getting one over on the power company by giving them 100 kWh of storage for the price of the cost difference on their daytime and nighttime rate, the power company is laughing all the way to the bank.
Although I agree with you, you haven't really explained why it's not arbitrage. If you are not selling back to the grid all you are doing is load shifting. Arbitrage involves buying and selling to reduce spreads.
TL;DR they say the Public Utility Commission of Texas has control of prices and is forcing them to be extremely high even though there is no reason for them to be based on supply and demand.
Previously consumers were getting cut off because large industry was still getting low wholesale power and generators were not incentivized to spin up more capacity.
The PUCT makes a salient point: why was energy trading at less than the maximum if we were shedding load? If demand is so high that the generators can't keep up, then pricing would be expected to follow. PUCT directed ERCOT to ensure that their pricing is commensurate with the scarcity on the market.
Cue up any discussion about SEC rules etc. It's fundamentally a discussion about whether the "little people" should be allowed access to somewhat complicated instruments than can give them access to (mostly fairly limited) incremental financial gains that require some sophistication to understand and hedge properly. But which, if things go south, can result in huge losses.
>should require you to post a largish bond to participate.
Or just cut your power off after you've racked up a high enough bill? This seems like it's easy to do given that there are remote controlled switches for this exact reason (for load shedding, I believe).
Now you have a choice between paying extortionate amounts of money for electric and ruining your largest asset, your house, and potentially ending up in hospital with hypothermia.
But remember, there literally wasn't enough power to heat everyone's homes.
In a simplified universe where everything is as described in an entry-level economics textbook, this variable pricing system saved everyone. People with health conditions or particularly valuable homes were willing to pay exorbitant electricity rates, everyone else turned off their power, and they all lived happily ever after.
Real life is more complicated, but people misunderstand where the complexity is hidden. The textbooks aren't wrong. The basic mechanics are sound. The worst part by far is that we can't expect everyone to understand how markets work. It's not just a matter of applying markets everywhere, it's a matter of understanding when markets are useful, when they have to be supported by fallbacks and when it makes sense to have no market at all.
For example. There is a pretty basic assumption without which markets cannot function. That is the assumption that people actually know and compare prices instead of just buying things where they don't even know how much it costs. People don't spend their lives staring at wholesale electricity prices all day. What's needed are electronic devices that do this busywork for us. If each outlet had its own price sensitive breaker we could just set up some price caps on each outlet and disable nonessential devices or turn down the thermostat.
Load shedding is implemented at the distribution substation level, not individual customers (unless they are very large customers connected directly to the high-voltage network like a manufacturing plant).
Furthermore, the retail energy providers offering these wholesale pricing schemes are just over-the-top resellers of energy, they don't own or operate any part of the electricity network. They can't instantaneously turn off anything.
>Load shedding is implemented at the distribution substation level, not individual customers
Not really, what I'm talking about are devices that turn off high load devices when system load is too high, so the load can be reduced[1]. While it might be true that these devices aren't activated on a per-residence level, the general effect of raising prices, and people's electricity getting cut off in response is the same. The only difference is that you're shutting off power to people who are willing to pay for it the least, rather than the whole neighborhood.
I have both a technical and a practical answer for you.
The technical answer is that demand response resources are considered dispatchable or interruptible load. Load shedding is the dropping of "firm" or non-dispatchable load. Typically, load shedding due to energy inadequacy only occurs after all demand response resources have already been called in. It's not one or the other, it's always both in tandem.
The practical answer is that during extreme weather, there are never enough people willing to voluntarily freeze. The demand for heat when it's below freezing in a state where homes aren't insulated and people don't own winter clothing is relatively inelastic.
>The practical answer is that during extreme weather, there are never enough people willing to voluntarily freeze. The demand for heat when it's below freezing in a state where homes aren't insulated and people don't own winter clothing is relatively inelastic.
Not exactly. While it's true that people are willing to pay infinite dollars to not freeze (aka stay alive), there are a variety of ways to do it that don't involve using electricity. eg. starting a fire (risky I know), or cohabiting with relatives.
I'm not on a wholesale rate plan, but if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X.
As such, don't really agree with the conclusion of the article. We mandate having car insurance not because we care if you can't afford to fix your car when you wreck it, but rather because if you crash into someone else we don't want you to dodge paying for what you've done to them.
Electricity is entirely a you thing. Your neighbor/society doesn't get hurt if you use Griddy with uncapped rates, only you do (and as pointed out above, you can avoid this if you're smart). Yes people will get burned, but I don't want to live in a society that tries to prevent people from ever making personal mistakes – mostly because such attempts usually don't succeed, while also curtailing my freedom in the process. And just to reiterate, this doesn't apply if there are negative externalities that affect others.
> if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X.
Unfortunately, we can't really count on people being at all competent like that.
If I was in Texas this past week, you can bet that I would have monitored my lack of heat and shut off my water and drained the pipes in my house.
Instead, there is an astronomical amount of water damage from burst pipes now.
People who haven't considered or dealt with the worst case scenario will always be caught off guard. That's just the nature of it.
I am/was a griddy customer. What all of these news stories do not mention is Griddy called literally every single customer and told them to close their accounts because of the upcoming energy shortage.
Unless the price is available through another method like radio, from the meter, or over the powerline, be sure to be using a satellite link in case mobile data and local internet goes out before the power does. And have some type of contingency if their website goes down for maintenance or due to a disaster.
> A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X.
A was meant to be done by "smart" meters but they forgot to package it in a way which let us do demand reduction, or even be told. It was packaged to the suppliers benefit, not the consumer (here in OZ)
B you do know, this carries risks? Sure, not enormous ones, but frequent interruption of supply is not inherently safer than turning things off at the wall, nicely. CBs are good, but everything mechanical has a lifetime. The more you use it, the shorter it is, sometimes. Especially for mechanical things, when they're physically cold.
If a large number of people are allowed to trade electricity in the wholesale market and end up with bills they can’t pay, that’s not just a you problem, it’s now a structural one. At least for Griddy, and if they go bankrupt maybe for the electricity grid market itself. Kind of like how people’s unaffordable mortgages weren’t just a ‘them’ problem in the financial crash.
Some people are asking for the state to bail out people with these bills now. In other words, people liked the ‘freedom’ to benefit from cheaper wholesale prices, but when the market moves against them, the downside risk will be socialised.
Doesn’t really seem like a reasonable comparison. If someone doesn’t pay their bills you stop giving them electricity. This is not anywhere close to what happened with the 2008 crisis.
And yes, that’s the point. I don’t want the state to socialize losses, and I don’t want them to say I can’t buy electricity from a wholesaler. People should live with their decisions.
Pre-paid plans are relatively common around the world and becoming more so in the US. Much of that is due to utility companies requiring quite large deposits that they will forgo if you are pre-paid.
It doesn’t matter if the state bails out this kind of risky behaviour, if they didn’t then the downside would still be largely socialised through increased electricity prices for everyone else as sellers start to price in the risk of default on their trades.
Electricity market is regulated partly because providing a reliable electricity supply is seen as important for society, maybe more so than the importance of giving consumers the freedom to gamble on the electricity markets.
Most consumers already pay the increased electricity prices. The issue under discussion is the wholesale consumer, who had (up until now) been saving a bit of money by buying electricity directly at wholesale spot prices. Consumers who had payed a premium for a middle man company to take this risk in exchange for a fixed electricity price are not facing exorbitant bills.
I think that’s beside the point. If risky consumers are going to participate in the wholesale market, that risk will be priced in at the wholesale level instead of being separately hedged. The idea that consumers can have the freedom to participate in the wholesale market and get cheaper energy out of it seems unsustainable. They are inherently risky and have to pay for that risk at some level, in the long run (unless the state always bails them out)
The people with the debts should go bankrupt/be released from paying; the losers should be the companies who provided services without thinking about how they were going to be compensated.
I can see how this is going to be the taxpayer's problem - but that isn't because there is anything wrong with consumers taking on risk. The problem is corruption in the political process of wealthy politicians are friends with wealthy CEOs and big shareholders. Then magically bailouts happen with near bipartisan support.
The galling part of it is that there probably is a political consensus on the ground against bailing out companies that make bad decisions. I think at least the socialists and free marketeers would agree that if the owners make economically ruinous decisions they shouldn't stay on as owners.
I agree that wholesale electricity is not a product that should be easily available (or, at least, should not be marketable) to individual consumers. However, I do not see the systemic risk. Griddy could go bankrupt because of this. However, Griddy's debtors in this are the generators that were able to continue operation. These generators did not face a significant increase in cost to supply electricity (or, at least, any such increase was not the driving force behind the increase in electrical cost; which was driven by other generators going offline). While I am sure that these generators would prefer to have their windfall they are not reliant on it. In fact, they should know that this windfall comes with a significant counterparty risk, and will likely avoid depending on it until they see how that risk plays out.
Good point, but part of the ‘reason’ for the price to go so high is to incentivise the generation of electricity as much as possible in such a time of need. If consumers are allowed to participate in the wholesale market to such a degree that that significantly raise the counterparty risk once the price goes above some level, that incentive is weakened. The last thing you want in the current situation is for the remaining generators to shut off because they don’t think anyone will be able to pay.
Bankruptcy does not simply eliminate all debt. It is likely that the money available to the generators at the end of this would be somewhere between what they would have gotten at "normal" market rates, and what they are owed given the actual spot price.
The story here would be different if the driving force behind the increase in electricity cost was an increase in the cost of inputs (such as the cost of gas). This did happen a bit at the margins (spinning up expensive to operate generators), but for the most part, generators went offline not because of the expense of staying online; but rather because they were incapable of operating. The decisions about electricity supply during this emergency were not made during the emergency; but during the decade prior, when the equitment was not outfitted to prepare for such an emergency.
In theory, allowing high spot prices provides a free market incentive to make such preparations. However, in practice, the free market is simply not good at dealing with the long tail events like this.
Left to its own devices, it prefers the safe options of sitting out the potential long-tail event over the risky option of investing in preparing for a long tail event that may never come.
This is why the mechanism for preparing for this type of event, should be regulation.
A significant gap in culture between the United States and many other developed countries is the idea that there can ever be an "entirely you thing".
Even your own health and well-being is not entirely you. Whatever you do to yourself has ripple effects on society. You go without health insurance, but when you fall ill or die prematurely, who takes care of your dependants?
Or more to the point, you sign up for Griddy and turn off your main breaker because the price went too high, then your pipes freeze and damage neighbouring properties or even worse, you freeze to death or die from carbon monoxide poisoning.
No man is an island, but you need to draw the line somewhere. The consequences of all bad decisions can't be socialized.
Also worth pointing out that dying is still a "you" problem. Obviously I'd prefer it if people didn't die, but again, if you're actually dying the solution is to switch your power back on and only use it for essentials and take the hit. Debts can be paid off, and should be. Again, I was straight up without power for > 72hrs. I would've actually enjoyed the choice to pay an insane rate for some electricity rather than not having a choice at all.
I think you're conflating two different things. You prevent situations like this from happening by ruggedizing the Texas Interconnection. That doesn't have anything to do with allowing people to pay wholesale rates for electricity and holding them to such when the prices fluctuate.
Sorta. As a thought experiment, consider a place that allowed all of their drivers to not have insurance. Specifically, it was setup as a place that advertised "come live here if you don't want to spend money with car insurance." That is, everyone living here does so making the personal choice that this is ok.
In the framing you have given, this should be fine. The amount of damage you have personally caused can easily be seen as a wholesale price.
My assertion is that either the cost of cars and driving would have to go up to actually price in the cost of failure. Cars would have to be seriously reworked such that they were much safer. Or you would find that insurance is a great idea.
To be clear, this isn't that far fetched. I live somewhere that lets me bike more. Unless I'm ignorant of some laws, I do not have to have insurance.
Dying isn’t a “you problem” when those dying aren’t adventurers.
I’m not talking about bleeding heart stuff. This is the same as like in Latin America where the poor are literally allowed to die. Guess what? They get guns, knives, whatever and kill in much higher numbers.
> This is the same as like in Latin America where the poor are literally allowed to die. Guess what? They get guns, knives, whatever and kill in much higher numbers.
To the original point,there is a very strong culture gap. The US really is odd place for significant portion of the world. Your healthcare, gun love, political madness, etc and now this weird argument around electricity price responsibility. It's baffling really, almost looks uncivilized.
>Or more to the point, you sign up for Griddy and turn off your main breaker because the price went too high, then your pipes freeze and damage neighbouring properties or even worse, you freeze to death or die from carbon monoxide poisoning.
How would this happen? Everyone's breakers would be popping at the same time. This would cause a massive decrease in demand until the price crashes back to sustainable levels. People can then turn their breakers on and only use the electricity for essentials, like keeping your pipes warm and preventing you from freezing to death.
How can an individual understand and influence the risk preparedness of the whole grid? It's one thing to pay 3-4x for a day or be uncomfortably but safely warm. But a whole other thing to have costs increased by several orders of magnitude or alternatively freeze to death / heat with you gas stove/oven and suffer carbon monoxide poisoning / ....
People freezing to death because they can't afford to heat has externalized cost at a certain scale. Even if you just want to look at the economic effects.
Is it? Again, I was without power and water (not by choice) for > 72hrs and I didn't freeze to death. I would've appreciated having the choice to pay the insane (market) rate for electricity, but I didn't get a choice at all. If you're close to freezing to death and have access to a supply of electricity, turn your power on and take the hit.
My point wasn't that it's impossible to die, my point was that if you're someone who had the option to use electricity but didn't and therefore froze to death, that's definitely your fault.
You can't conflate "omg people are dying" with "omg the prices were too high". The two problems are literally mutually exclusive.
If the temp is 0, a family with a baby doesn’t have that right polar camping gear, then one of two things will happen
* someone will take them in
* they will end up in the ER when their child gets cold
A good percentage of people will not have local friends with the means to help them. Now it’s a society problem.
Still don’t want it to be a society problem? Pass a law banning those seeking warmth from asking for help? How many people do you think will lay down and quietly die? Very few. Most will murder before watching their child die.
I'm guessing that the time to propose your idea in Texas has probably come and gone for now. But still, there's always the future, and they refer to the states as "laboratories."
Your proposal could address the responsibility of the owners of the electric grid in causing the outages in the first place.
> you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X.
On that note, a "smart" breaker that could do that monitoring for you and start cutting non-essential (and eventually "essential") circuits as prices exceed user-configured thresholds (perhaps integrated with a household UPS) could probably sell like gangbusters in places like Texas.
Well, in the field of business we have limited liability, which limits the individual liability of the owners and also puts a damper on whatever risk a possible creditor might take with a debtor. But Griddy manages to drop unlimited liability onto individuals, and this isn't how it's supposed to work.
This is on some deep level what society is for and how humans survived in a hostile wilderness for so many generations: by pooling resources to reduce risk. If I’m alone in the forest, and I break my foot, I can no longer hunt, and I may die. But if I’m a member of a tribe, the others will bring me food until I can walk again. It’s the foundation of human behavior. We are social animals not because we’re just nice, but out of necessity. It’s about survival, in the end.
Pooling resources for power costs, or for health care, or any other purpose, serves the same purpose: survival via reduction of risk.
This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would.
The theory is as such: raising prices during a crisis does two things. First it encourages more production, since anyone producing (or more likely, moving) shortage goods into the affected area will be compensated. Secondly it discourages non essential consumption, as everyone cuts back to the bare minimum. This is the basic theory of prices driving resource allocation (one of the cornerstones of capitalism) being applied to a crisis and the resulting resource shortages.
The issue here in Texas is that this didn’t happen. In theory producers should’ve run extra capacity to take advantage of the crisis, which should end it. Instead they ran the bare minimum, didn’t winterize, and pocketed the profits. It was also impossible to move extra energy in, both due to diminished excess in nearby states, and a lack of robust cross-grid connections. Secondly a lot of this demand isn’t elastic. If you’re counting on an electric heat pump to warm your home, then you can’t cut consumption during a crisis; you’ll freeze to death. This means that the rising prices don’t cause people to curtail consumption, because nobody will willingly freeze themselves and their water pipes given the choice.
no incentive is really going to work in a 2 day period. i don’t think anyone would say some competitor would sprout up that fast. but idk if that’s generalizable to all crises of all durations for all types of good
According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. Nor did power plant operators take less expensive steps in order to ensure that their existing equipment was operating during such circumstances in order to capitalize on the price rises. Instead they didn’t spend the money to winterize or have extra production, and Texans suffered for it.
And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.
> According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen.
For an unsophisticated observer, this is a proof that free market doesn't actually work. So something better should be used, and those trumpeting raw competition are either ignorant or willingly lie.
I actually agree that you should not expect our old friend the "invisible hand" to get what we want here.
But to the specifics you're wrong. It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this.
It's very Texan to have a situation in which there's a market that will unavoidably cause tremendous problems (but makes the wealthy even wealthier) and then it is somehow not only permitted but seemingly popular to seek to expose ordinary people directly to that market. The right thing to happen is that this arrangement is banned, and the politicians who allowed or worse encouraged it are censured. But I have no confidence that's anywhere close to what will actually happen.
> It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this.
A market system, yes.
But not a "free market" system in the sense that most libertarian-leaning people mean, where the government just stands aside and lets businesses do as they will.
In order for a market system to approximate the ideal free market in a situation like this, there needs to be a boatload of different kinds of regulation on it. Externalities would need to be priced in, all possible costs would need to be clearly disclosed, and many varieties of corner-cutting would have to be prohibited.
Even then, it is, in fact, absolutely impossible for electricity to be a genuine free market, just as it is with health care: Both are absolutely essential and time-critical, at least at certain times, which makes shopping around impossible (for health care because you can't shop around while unconscious, even if you did have a fancy phone app to make it nearly instantaneous, and for electricity because when a massive cold snap comes and your choices are "pay for electricity or freeze to death", it's not possible to switch electricity providers on short notice).
> This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would.
There's no way to make that judgement until we see some actual metrics instead of anecdotes. It's possible this could have been worse without increased prices.
It was artificial in that the Public Utility Commission forced the price up to force more non-retail load to be shed by wholesale customers (think fabrication and industry).
Retail customers weren't expected to be directly affected by wholesale pricing of energy, but when a provider passes through the wholesale price directly that goes out the window.
Yeah but this was a hack and the side-effects should still be addressed. If the intent was to force the price to a point where everyone’s system trips and automatically stops buying but just relied on everyone having that set up then that’s on the commission to make it right when that assumption turned out to be false for some people. They should make everyone whole by charging the real market prices for that stretch of time.
Amber Electric in Australia has this same model of passing the wholesale prices on to customers.
But they have a cap.
"We pass through the 30 minute wholesale prices directly, and this is typically significantly cheaper than the Government’s Default Market Offer, but to give you peace of mind we guarantee you will never pay more than the Default Market Offer (or VMO in VIC) over a year or we’ll refund the difference."
https://help.amberelectric.com.au/hc/en-us/articles/36003745...
I think this is only possible because there is lots of regulation on electricity providers in Australia.
Risk is cost. A company that can manage their risks better face less costs and ones that can eliminate the risk altogether (for example by passing it to their customers) fares even better.
Normally, companies like Griddy buy financial products (which I help build) that let them insulate themselves from some portion of that risk. These products are not sold for free, obviously.
When you buy an insurance it is understood that the insurance company is going to make some money on it. You buy insurance because you want to insulate yourself from an event that could potentially cripple your finance, living standards or future prospects for a long time.
By passing the risk to their clients, Griddy did not have to pay for any kind of insurance or hedge against market volatility in any way.
Unfortunately, people who bought this were not savvy enough to understand they need to insure themselves in some way and that this is not really worth it.
It does not help that it is apparently not that easy to change where you buy energy when nobody wants new clients and would gladly get rid of the ones they already have.
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I am not from US and I also don't know energy markets, but my understanding is that these kinds of markets are going to be volatile because of basic fact that energy demand is quite inelastic.
Normally, when the demand is elastic and the price goes up, some people would decide to stop buying thus keeping some kind equilibrium between supply and demand at some sensible price.
Unfortunately, most people will not decide to stop heating their houses when demand is not able to meet supply and this means energy market can behave in an extremely volatile way.
What I wonder is where are businesses, industry, factories that I think should normally consume most of the energy and should be first to switch off when supply falls.
People wanted energy to be deregulated? I personally think basic necessities that people absolutely need to have should be regulated to some degree. You don't want to wake up and find a medicine you need to sustain your life just went 10000 percent up because of some random market event or that your hospital suddenly can't buy energy because it is too expensive.
Some systems (like home budgets or small businesses) are built on a very tight margins and are really sensitive to that kind of volatility. Maybe large companies can absorb large swings in prices but normal people should not be living in fear that their livelihood is going to be taken from them for some random market swing or AI decision.
I can all but guarantee you that no one who signed up for Griddy ever thought they'd get a bill like this. I can also guarantee you that there were Texas energy market experts out there who knew something like this was an eventuality. And that is why "Griddy" should never have existed.
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