I’m okay with this, with one caveat.
A plan to help finance what will likely become mandatory power plant upgrades to withstand more extreme weather in the wake of the February power crisis received preliminary approval in the Texas House on Monday.
The failure of power plants to produce power during very cold temperatures was a major cause of the February power outages in Texas that left more than 4.8 million customers without electricity for days and caused more than 100 deaths. Natural gas plants shutting down or reducing electricity production due to cold weather was the most significant source of outages, according to an analysis by the Electric Reliability Council of Texas, which manages the grid that covers much of the state.
House members voted 126-18 in favor of a $2 billion program that would be created by House Bill 2000 by state Rep. Dan Huberty, R-Houston.
“We are looking forward to make sure these things don’t happen again,” Huberty said. “We can’t shut the Texas economy down by losing power and losing lives. That can never happen again.”
Modeled after the state’s water infrastructure fund, House Bill 2000 and the corresponding House Joint Resolution 2 would allocate $2 billion of state funds to help finance what could be expensive — and likely mandatory — upgrades to power plants in Texas to withstand more extreme weather conditions by providing electricity generators with access to grants and low-cost loans for the projects. House Joint Resolution 2 was also advanced in a 126-18 vote.
Most power plants in Texas are not built to withstand very cold weather and experts have said that retrofitting plants will be more costly and difficult than building weatherized plants in the first place. Still, it is technically and economically possible, energy experts have told the Tribune, depending on the type of weatherization the state may eventually mandate.
Concerned that a mandate to upgrade would cause companies or municipalities to shut down power plants and further reduce the state’s available power supply, lawmakers sought a way to provide a financial boost to the effort.
A State Utilities Reliability Fund (SURF) and the State Utilities Reliability Revenue Fund — modeled after the state’s existing funds for water infrastructure projects — would be created by Huberty’s proposed constitutional amendment and corresponding bill. The plan would need to be approved by voters in November if passed by two-thirds of the Texas House and Senate because it alters the state’s constitution.
In 2013, the Legislature created the State Water Implementation Fund for Texas, known as SWIFT, by allocating $2 billion from Texas’ economic stabilization fund, better known as the “rainy day” fund. It offers subsidies and help with low-cost loans for municipal water infrastructure projects, said Rebecca Trevino, chief financial officer of the Texas Water Development Board, which is charged with managing the fund.
The “SURF” fund would function similarly, but instead of offering the low-cost loans and grants to municipalities, the fund would also offer those financing tools to for-profit power generation companies and others to upgrade plants to withstand more extreme weather conditions.
I’m okay with this approach, even if it is using public funds to subsidize for-profit companies, because the need outweighs the other concerns. We’re not going to scrap the system we have now for something that makes more sense, so the least we can do is address this glaring need so we (hopefully) never face a situation where hundreds of people die because of weather.
The caveat comes from the comparison to the water infrastructure fund that the Lege authorized following the 2011 drought. There may be a nice clean report on the SWIFT homepage that tells me just how much new water infrastructure has been financed and built (or is being built) as a result of that fund, but I’m not seeing it. I would like very much for there to be an easy-to-find progress report on whatever future SURF page we wind up with, so this is visible to everyone. Maybe if the progress we get isn’t what we hoped for, that will enable us to spot it and do something about it in a timely fashion.
“I’m okay with this approach, even if it is using public funds to subsidize for-profit companies, because the need outweighs the other concerns.”
I could be OK with it too, but there’s another acceptable alternative here.
Why not surcharge electric bills and natural gas bills, respectively, to pay for the weatherization upgrades, in the same way electric ratepayers were surcharged to pay for the devastation after Hurricane Ike, or Katrina? There was also a surcharge when the ‘smart’ electric meters rolled out. Eventually, the debts were paid off, and the surcharges disappeared.
Hey, Harris County Toll Road Authority: Remember when you promised the voters that’s what you would do, too? Toll the roads until the bonds were paid off, then they’d become freeways? Yeah.
I get that the power generators and pipeline companies will be getting ‘free’ improvements to their facilities, but those improvements won’t really help them generate significantly more income. In fact, based on what we saw, they’ll generate LESS income if there’s another Coldpocalypse, because there won’t be any sky high emergency pricing in effect. The only question is, will the property tax authorities raise the values of the improved assets, so that the generation and pipeline companies pay more tax on their facilities?
ON MAKING CONSUMERS PAY ONCE MORE, WHAT’S NOT TO LIKE ?
The consumer side of the Texas electricity “market” got ripped off massively (on credit), and now the consumers will have to pay off the shortfall over the next ten years or so. The cost of weatherizing will be socialized too.
What’s not to like about the captives having to pay the robber barons?
See Reuters: “Texas freeze delivers billions in profits to gas and power sellers.”(May 7, 2021)https://www.reuters.com/business/energy/results-tally-up-billions-profit-texas-freeze-gas-power-sellers-2021-05-06/
In conventional price-fixing schemes, the oligopoly players at least have to conspire with each other to fix prices at extortionate levels. In the winter storm, the GOP-controlled PUC did it for the power generation industry (and, by extension, the natural gas industry). Hiked the unit (MWH) price from $20/$25 to $9,000 and left it in place when supply and demand dictated a price even lower than the historical mean *after* the freeze was over. So, overall, the generating side (generators and associated financial market players) realized 40 or 50 billion more than would be earned for the same amount of electricity under normal conditions.
SHEDDING LOAD AS A PROFIT OPPORTUNITY
Note also that industrial consumers of electricity had the opportunity to shut down their facilities and sell the electric power they had under contract but didn’t use for $9,000 per MWH instead, thereby also realizing enormous revenues from the forgone consumption. Millions of Texans, by contrast, were switched off whether they were ready to freeze or not.
How many breathing Texas electricity customers who shivered during the storm were paid $9.00 per Kilowatt Hour they did *not* use because they they were load-shedded to fend for themselves? And how many, by contrast, had contracted for retail power in the expectation that it would be available when needed to stay lit and warm?
The generators’ failure to produce enough power was taken out on human needs consumers, who were shut off against their will and without notice, but the generating industry (and the associated traders) got the exact astronomical per-unit prices for the remaining production based on the scarcity for which the industry itself was responsible.
REWARDING FAILURE
The Texas generating industry’s failure during the winter storm was rewarded with obscene profits for the reduced production that the industry was able to put into the partially shut-down grid. Obviously the profiteers were (mostly) coy at the beginning about their haul, but now the numbers are coming out. While Texans were chilling, and some were dying from hypothermia and carbon monoxide poisoning, energy companies were making a killing.
The political leadership (Abbott’s PUC), by affirmative action in the form of an order instructing ERCOT to bill power at $9,000 per KWH (in denigration of market pricing), massively rewarded abject failure.
As a general proposition, what can you expect to happen in an incentive-based system when you reward failure, not to mention rewarding failure with billions of dollars that the market wouldn’t have delivered based on supply and (suppressed) demand? – Could it be more failure perhaps?
The ugly truth here is that scarcity is good for prices, and therefore for profits. Crisis is even better. The worse the crisis, the more money to be made.
Having demand for electric power exceed supply is profitable. The negative consequences are borne by consumers, not by the producing side of the industry.
So who cares?
Apparently not even the Texas Democratic Party. Slyly, LG Patrick had championed the cause against the profiteers, and thereby made it a no-no for strategically short-sighted Dems.
THE NON-CRISIS SCENARIO: SCARCITY SANS STORM
An arctic vortex can’t be arranged for, so the opportunities to take advantage of such natural disasters to maximize profits is limited. But that doesn’t mean that scarcity cannot be created without the help of the weather.
In mild climatic conditions, all the generating industry has to do is coordinate their “routine” maintenance shutdowns, causing a drop in available generation without even an increase on the demand side, and therefore an imbalance in the nature of a man-made scarcity.
Not only will this drive up the price (without PUC having to intervene), it will suitably scare non-corporate Texans (people) into supporting whatever the industry is lobbying for in the Legislature. Just make sure you get the gullible mass media to amplify the scare.
After all, people don’t want to see a repeat: or a sweat-and-melt summer version of a forced blackout. And what the industry is lobbying for surely isn’t an opportunity to return ill-gotten gains under a tightened regulatory regime. Not to mention to have to pay for weatherization that threatens to prevent future weather-induced scarcity events.
Alas, as a society, we are so impressed with revenue streams and profits, we don’t consider where the money comes from and who is on the hook for payment. Even if it is us.
Not to mention that securitizing the remaining “debt” arising from the massive PUC-sponsored price-fixing scheme is also good for business, albeit for a different line of industry.
Wolf,
You make a great argument, and who could quibble with the folks who massively profited from the PUC and ERCOT’s decision to artificially peg prices at the maximum, for days, being asked to use some of those excess profits to pay for the weatherization?
If you’ve got an actual proposal that will pass legal muster to do just that, I’d support it. Seriously, if you have the wherewithal, write up a draft and send it to the legislator(s) of your choice.
I’d support something like that over my own suggested plan, or the plan suggested in the article that Kuff and I both thought was acceptable..
[People smarter and better-perched than this free-wheeling Kibitzer have been pissing in the wind for decades. Hint: Smarts don’t count when the prescriptions flowing from the analysis of known problems aren’t good for biz, i.e., when they countervail vested interests].
Here is a question to ponder in the interim.
Why has that jolly “le PUC c’est moi” dude not been indicted ?
Don’t the circumstances and content of his recorded call with his Wall Street schmoozing buddies furnish amply probable cause? (Kudos to Texas Monthly for surfacing the audio and bringing it online).
And where is the sustained online outrage when it’s really needed, on things that really matter?
Note that this type of official anti-corruption response could at least send a message, and possibly influence the discussion of more far-reaching remedies.
REFERENCE:
Loren Steffy, Some on Wall Street Profited off Texas Blackouts. In a Private Call, a Top Regulator Pledged He Would Try to Protect Their Windfall. Public Utility Commission chairman Arthur D’Andrea apologized to investors last week for the “uncertainty” around its profits. TEXAS MONTHLY (March 16, 2021) https://www.texasmonthly.com/news-politics/wall-street-profited-off-texas-blackouts/
EXCERPT
Much of D’Andrea’s discussion focused on the issue of repricing some of the most expensive electricity trades during the crisis. Wholesale power prices rose 10,000 percent during the third week of February, hitting the state-imposed maximum of $9,000 per megawatt-hour and staying at those levels for days.
The PUC mandated that the $9,000 prices stay in effect for 32 hours after the market had returned to normal, a move that has angered many municipal utilities and retail electricity providers. Those providers are now struggling with huge bills that they say are unjustified and could push them into bankruptcy, while potentially eventually driving up bills for millions of residential and commercial consumers in Texas.
The independent market monitor for ERCOT, the grid operator overseen by the PUC, has called the prices artificially inflated and recommended that billions be returned to purchasers. Some lawmakers have also called for contracts sold during that extended period to be repriced, and lawmakers are debating a bill this week that would force D’Andrea to issue refunds.
FACTOR OF 1,000
Correction to first Kibitzer comment, supra: The PUC-fixed price of $9,000 applies to MWH (Megawatt Hour); the corresponding price level at retail being $9 per KWH (Kilowatt Hour). The latter metric is the one that appears on your electricity bill.
More on making money off the winter storm … by load-shedding
WSJ on ERCOT today:
The Electric Reliability Council of Texas activated a program that pays large industrial power users to reduce their consumption during emergencies.
But the grid operator, known as Ercot, didn’t know who was being paid to participate in this program and what type of facilities were getting shut off, it has since acknowledged.
The Journal’s analysis of grid records shows that participants included dozens of critical pieces of natural-gas infrastructure. Ercot ordered them to stay off for more than four days, as gas prices surged to extraordinary levels and some power plants stopped producing electricity because they couldn’t get enough fuel to function.
The estimated value of the program for the five days of the blackout was about $2 billion—and participants including oil-and-gas companies earned a portion of that for turning themselves off at Ercot’s behest. Two companies petitioned Ercot for permission for idled facilities to come back sooner, the grid operator said. By the time they were allowed to restart, the crisis was nearly over.
SOURCE:
Russell Gold and Katherine Blunt, As Texas Went Dark, the State Paid Natural-Gas Companies to Go Offline. A program meant to reduce industrial electricity use during emergencies contributed to power plants not getting fuel during February’s freeze. THE WALL STREET JOURNAL (May 7, 2021)
—
Unlike Texas newspapers, the top portion of WSJ articles is not paywalled. Good practice, considering that ordinary folks around the nation at best subscribe to one daily newspaper. Quoted portion here reproduced pursuant to fair use exception.
Bill, I have done some research about the tolls and what was promised. At least based on what I found, no such promise was made, at least not on paper.
Am I paranoid for having the thought just now that the election code legislation, which will materially not impede almost anyone’s ability to vote, is an intentional massive distraction to take D eyes off the ball (addressing the power debacle fairly) while the ill-gotten gains are secured and the costs are socialized? nawwwwww. (goes back to watching the orbiting rocket)
Pingback: So we bail out the electricity providers – Off the Kuff