This article was written the week after the failure of the Texas electric grid. Millions of customers had no power for days in freezing temperatures, and many that had power during the outage are now receiving power bills for thousands of dollars.
Even as the Texas electric grid started failing and retail customers were being blacked out, fingers were pointed. The fossil fuel generators pointed at the renewable providers; renewable advocates pointed to natural gas plants and natural gas pipelines; the press pointed at ERCOT; coal haters pointed at coal generation; and politicians pointed at everyone but themselves.
Texas suffered an extended, extreme cold spell. The press described it as an unprecedented cold wave; however, weather records indicate it has been as cold for as long or longer in Texas before. Wind turbines were frozen and were unable to run. Natural gas electric generation plants froze and could not produce electricity. Natural gas pipelines froze and could not deliver natural gas to some power plants. Some natural gas supply was diverted from electric generation to home heating. Some coal plants tripped off line and could not generate power. There was very little sun, so solar generation produced very little electricity. Finally, a nuclear plant tripped off line during the cold spell. All forms of electric generation suffered outages and had trouble generating at levels anywhere close to full capacity.
However, it is our view that the Texas blackouts were not nearly as much generator failures as they were the failure of Texas’ de-regulated electric markets.
Texas’ electric grid is an electric island in and of itself, and 90% of its electric grid is not connected to the rest of the country’s electric grid. Texas’ grid and utilities are not subject to federal regulation but instead are regulated and managed by ERCOT (the Electric Reliability Council of Texas). In the mid-1990’s Texas moved to deregulated electric service under which retail customers can choose providers and plans under which they buy electricity.
The functions of the electric markets are divided. Approximately 70 retail electric providers sell power to retail consumers; independent generators produce and sell wholesale power through hourly auctions managed by ERCOT to retail providers; and the incumbent utilities maintain the transmission and distribution lines to deliver power and arrange the supply of power to the retail consumers.
In normal times, and almost all times are normal, retail consumers will purchase electricity from the cheapest provider and wholesale power generators with the cheapest wholesale cost will sell into the ERCOT markets. Some retail providers offer variable cost retail plans that offer electric consumers the opportunity to chase even lower costs that may be available through the markets.
Reliability-minded wholesale generation providers that install de-icing equipment on windmills, winterization measures on natural gas and coal plants, heat tracing equipment on generation piping and at natural gas regulation stations will be more expensive than those providers that do not. Wholesale generators also keep their generation reserves at the lowest allowable level to reduce costs. It follows that the wholesale generators with weatherization or de-icing facilities have a higher cost and will not win the lowest auction into ERCOT in most hours. Since the market is driven by the lowest cost of wholesale power, only the lowest cost wholesale providers survive.
The Southeast, including Alabama, still primarily has regulated electric markets under which utilities are regulated by Public Service Commissions or by their retail customers themselves. Electric service is provided by incumbent electric providers who have monopoly service areas.
Utilities in regulated markets are allowed to recover the cost of weatherization and backup reserve power from their retail consumers through their rate bases. PowerSouth and Alabama Power Company both retain 25% excess winter generation reserves in an attempt to avoid the problems experienced in Texas.
While it may still be debatable if de-regulated markets provide cheaper retail electric costs, it is undeniable that regulated markets provide more reliable electric service.
Which brings us to Griddy Energy, which at least until this week was a retail electric provider in Texas primarily marketing variable, real-time retail cost electric service plans. Griddy is also noted for its strong presence on social media platforms hawking its plans and communicating with electric consumers.
Griddy’s message during the peak of the blackouts was: “Texas. Things out there really suck. ERCOT has allowed wholesale prices to go very high. You should switch to another provider.”
Some Griddy customers were blacked out. Those that retained power and were on variable cost plans have received bills for as much as $7,000 for February. Of course, complaints have been lodged and lawsuits filed. Griddy has been suspended from providing electric service until the mess is sorted out. People feel cheated, but they made the decision to chase the lowest cost power at the cost of reliability and the cost of very high wholesale power in peak periods.
Griddy places the blame on ERCOT for allowing the cost of wholesale electricity to increase. However, the real blame lies in the construction of a de-regulated energy market where reliability is trumped by the desire for cheap electricity.
At times, I hear people complain about having no choice in electric providers and about cost. I am not hearing those complaints this week.
I hope you have a good month.