Texas Electricity Customers Can’t Buy Reliability or Sell Flexibility
Texas electricity producers are free to sell, but customers are less free to buy. Customers need the freedom to refuse massive temporary price increases, the freedom to choose to pay producers to winterize, and the freedom to reduce demand and sell the power reductions back to producers at the wholesale rate, to keep everyone’s power on.
March 12, 2021
Figure PUCT . Texas Electricity Producers and Retailers Self-Regulate
but Block Customers from Fully Regulating Them.
When North Texas temperatures recently dropped to their coldest in 72 years , customers’ electricity demand hit a new record winter high .
At the same time, producers’ design capacity utilization left little reserve capacity this winter. Three coal-fired plants had been taken out of service . Solar and wind supply had been added to the grid with no backup storage . Supply was inadequately winterized , with methanol antifreeze not injected into some natural-gas piping, and with some critical equipment and instruments not heated.
Also, producers’ operational capacity utilization left even-less reserve capacity this winter. Heading into winter, the Electric Reliability Council of Texas (ERCOT) consortium had greenlighted planned maintenance shutdowns. As the freeze loomed, ERCOT apparently didn’t call for these shutdowns to be postponed. When things went south, the ERCOT consortium at times even cut power on the natural gas pipelines to generators .
Electricity supply capacity normally would have totaled 28% above the peak demand. This was overwhelmed when capacity went offline that totaled 43% of the peak demand.
To keep from overloading and damaging the equipment that was still on line, the ERCOT consortium initiated rotating outages that forced customers to at times have no electricity, so that on average people used 15% less electricity .
The Public Utility Commission of Texas (PUCT) directed ERCOT consortium members to let the wholesale electricity price rise to 900¢/kWh . Before this action, the price had risen from 11.67¢/kWh  to 120¢/kWh, effectively multiplying the normal price by a factor of 10.3. With this action, the price rose from 120¢/kWh to 900¢/kWh, effectively multiplying the already-swollen price by a further factor of 7.5. In all, the price rose from 11.67¢/kWh to 900¢/kWh, effectively multiplying the normal price by a total factor of 77!
Regulators Supervising Producers
The ERCOT consortium is under the supervision of the PUCT government commission and the Texas legislature. ERCOT operates inside Texas, so it’s not under the supervision of the Federal Energy Regulatory Commission (FERC).
This combination—producer self-regulation, producer supervisory regulation by a relatively-free state government, and no supervisory regulation by the national government—guarantees that there will be a lot of publicity about the coming regulatory response by government people.
PUCT, in particular, will point to the price increases and deliberate outages as reasons for PUCT to take further actions. Maddeningly, these problems resulted in the first place from PUCT’s own actions: accepting a consortium arrangement that interferes with customers’ freedom to control producers, not requiring the preventive practices that are standard in colder regions, welcoming aberrantly-extreme emergency prices as always , and requiring ERCOT members to sell and buy at prices still higher by a further factor of 7.5.
Don’t accept more of the same. Adding more wrongs won’t make things right.
PUCT responses and any Texas legislature responses will almost certainly focus on increased top-down regulation, by government people, of the producer side. These responses will be third-best.
ERCOT’s responses, since this consortium’s membership is all on the producer side, similarly would almost-certainly focus on self-regulation on the producer side. These responses would be second-best.
The best responses by far would be to complete real deregulation, by fully restoring the freedom of customers. When customers aren’t overpowered by government regulators or by a producer consortium, customers are always in supervisory control over producers .
Customers Supervising Producers
One best option might be for electricity retailers to enable customers to contract to purchase electricity from generators who winterize across their supply chains.
This would follow the model of the highly-successful and well-regarded insurer FM Global. FM Global limits insurance costs by requiring that producers implement best practices that prevent losses in the first place .
The costs of winterizing would slightly raise prices for customers who choose to buy this preventive protection. In exchange, these customers would be protected from rolling blackouts by electricity retailers.
Electricity retailers would provide this protection by installing local switching so that rolling blackouts would only be forced on customers who haven’t paid for winterizing.
Another best option might be for electricity retailers to enable any customers who choose this approach to reduce demand smoothly using networked thermostats.
For the cost of getting a little functionality added into smart thermostats—which customers buy anyway—customers would gain the option to get reimbursed during emergencies for acting prosocially to not only help themselves but also help their neighbors not be left in the cold by blackouts.
After all, living with 15% less power for a few days during a bad winter storm is no big deal, as long as the lights stay on.
The reduced consumption would also help the electricity producers, transmitters and distributors, and retailers, by protecting all the equipment that’s still online. This would save the costs and disruptions from replacing overloaded components, save the costs of installing more capacity, and maybe save even the costs of winterizing, if enough customers who are given this much-less-disruptive option end up preferring to just ride out storms and pocket the savings. In exchange for this help, the electricity producers, transmitters and distributors, and retailers would pay customers for providing them this protection efficiently.
In other words in the first option, let customers buy reliability. For a lot of customers, a little prevention would be well worth buying. No additional top-down producer self-regulation would be needed from the ERCOT consortium. No top-down government regulatory supervision would be needed from PUCT, the Texas legislature, or FERC.
In the second option, let customers sell flexibility. Reducing consumption by just 15% would look mighty attractive to customers. In normal times their rates would stay low. During emergencies, they would prevent rolling blackouts for themselves and for their neighbors.
And as a general principle, whether implementing these options or others, first seek options that restore to customers the freedom to buy the products that most-closely satisfy the customers’ own individual needs and wants, and the freedom to work more closely with producers to get optimum value for their money.
In general, Texas has deregulated admirably well  on the producer side.
But the high emergency prices, from the ERCOT self-regulation on the producer side and from the PUCT government supervisory regulation on the producer side, are clearly aberrant.
No genuine end-user customer would have chosen to buy electricity at these prices. Not one.
If customers simply were restored the freedom to refuse the unhelpful extreme emergency prices that result from artificially-inflexible demand, customers would choose to simply live with marginally-more-extensive rolling blackouts for marginally longer.
So let customers retake supervisory control.
Customers will each buy the bundle of price, capacity, and reliability that best aligns with their individual needs and wants.
Customers’ simple, decentralized choices will strongly incentivize desirable actions on the producer side. Problems will be prevented very simply. Any potential problems that aren’t prevented upfront will get mitigated very simply.
Just let us customers go free. Free people direct scarce resources to their most-valuable uses every time.
James Anthony is the author of The Constitution Needs a Good Party and rConstitution Papers and has written articles in The Federalist, American Thinker, Foundation for Economic Education, and rConstitution.us. Mr. Anthony is a chemical engineer with a master’s in mechanical engineering.