Tomlinson has blackout answers.
Last month's blackout has generated many questions about the Texas electricity market, and for good reason: The state grid is a complicated beast and puts competition above reliability.
Readers are looking for answers, so here are a few things to know as our political leaders consider new policies.
1. Why did the price of electricity rise from $30 a megawatt-hour to $9,000, and how is that not price gouging?
The Electric Reliability Council of Texas's wholesale market price gouges by design. In 1999, the Texas Legislature created a reverse auction system where generators compete to produce the lowest-priced electricity. ERCOT oversees the day-ahead auction, offering higher and higher prices until generators meet anticipated demand.
Many generators, including nuclear power and renewable energy, begin the bidding at zero. They will produce electricity no matter the price, so those operators make sure their power is taken first.
Generators that can start and stop relatively quickly wait for ERCOT to raise the price before offering services. Once the price is right and ERCOT has all the power it needs, the auction is over. Every generator gets paid the highest price. Last year, the average price was $22 a megawatt-hour.
At the height of summer and the depth of winter, ERCOT
struggles to meet demand. The Texas Public Utility Commission raised the maximum price to $9,000 a megawatt-hour following the 2011 blackout to encourage generators to build more power plants.
The PUC said the high price would encourage generators to prepare for winter and summer peaks and make regulation unnecessary. But when the polar vortex dipped into Texas last month, generators were still unprepared and shut down.
During the blackout, commissioners overrode the algorithm that determines pricing from the bidding and set the price at $9,000 to encourage more generation. The problem, of course, was not money. Natural gas lines, which the Texas Railroad Commission oversees, failed due to the cold, cutting off a critical fuel supply.
2. Why did Texans overpay for electricity by $16 billion ?
The PUC’S decision to shut down the algorithm kept prices at $9,000 for several days. As a result, consumers paid $16 billion more than what they would have using the algorithm, according to Potomac Economics, the independent market monitor charged with making sure no one cheats.
Public Utility Commission member Arthur D’andrea, the newly promoted chairman, said he thinks rolling back the price hike would be too complicated and that Texans should accept the overcharge.
“They (market participants) did all sorts of things that wouldn’t be done if the prices were different. The results of going down this path are unknowable,” he said.
Lt. Gov. Dan Patrick is unhappy with that answer and wants the PUC to reconsider, which should be easy since D’andrea
is the only PUC member who has not resigned.
3. If a power plant operator generates the electricity, and the state-regulated transmission companies deliver it, what does a retail electric provider add?
Known in the industry as REPS, retail providers offer customized electricity plans. If you want the lowest price, a REP can offer that. If clean energy is important to you, a REP can sign a contract with a wind or solar facility for precisely the amount of electricity you use. Most famously, if you want to pay the wholesale electricity price, companies like Griddy can make that possible.
REPS also trade futures contracts and create financial hedges to make a profit. They engage in complex financial settlements structured around ERCOT’S pricing algorithm, which is why D’andrea does not want to roll back
4. Why doesn’t Texas build more nuclear power plants, which have zero emissions and are reliable?
First, one of the state’s four reactors tripped offline during the storm because a safety device detected ice in the cooling water intake pipe, so not that reliable.
Second, traditional nuclear power is the most expensive form of generation, and reactors take a decade or more to build. I would welcome advanced nuclear plants, but they are probably 15 years away.
5. How do we fix ERCOT?
The quickest fix is for state lawmakers to add reliability regulations and pay generators to stand ready for emergencies. The best fix is combining ERCOT, the PUC and the Texas Railroad Commission into one entity charged with putting reliability first.
Keep an eye on lawmakers in Austin because, so far, the solutions on offer are disappointing.