Sorry, its hard to avoid lingo. But yes. In the internal price setting process, companies will consider all the costs of goods sold and set a price to give themselves a little margin. There are a lot of pieces to cost of goods sold, but one of the squirrelier ones would be to give your company a little extra cushion for the risk that the wholesale market costs more than you expected. Many costs can be hedged in the forward market, but not all of them. But because it's not 'real', it's usually the first consideration to be disregarded when you're trying to outprice the competition. That's good for consumers because they don't have to pay for all the risk protection they get.
I don't know if anyone posted this previously but it's Dept. of Energy's response to ERCOT's request. I scrolled through but didn't see it posted. If someone has already posted, then ignore.
I would assume the ability is there as I believe utility can remotely shutoff power for nonpayment. Maybe there is regulation in place that doesn’t allow shutoff to individual addresses but it sure seems like this is a much better way to manage rolling blackout with much higher precision of load shedding and without the risk of turning on too fast.
I'd been wondering too. From what I've read, they were shutting off at the circuit level, so multiple city blocks at a time. They do have smart meters and can control on the individual meter basis. So, I'm guessing they just didn't have the software to effectively roll a blackout at the meter level. That seems like a good area to focus on for improvement at the distribution utility level. Having agility to roll blackout from house to house in a disaster (while observing critical infrastructure and do-not-disconnect orders) would have made the whole thing much less painful.
@JuanValdez I'm curious if you'd previously seen the response letter I posted. If it has been discussed a few pages up, my bad. It appears the Dept. of Energy set a pretty high standard and an EXTREMELY high purchase price of outside units. A financial decision was made. And a big F-U, Texas was issued from D.C. I guess they aren't that keen on Texas having their own grid. It's a pretty callous way to deal with it, IMO. But I lived through it, so I'm jaded. Maybe taunting California and NY for rolling black outs isn't the best idea (ahem Ted Cruz).
I don't know why you read it that way. Texas requested a variance from environmental regulations and the DOE granted it. If there is someone in the industry who was unhappy with the terms, that's a side plot I haven't been following. It makes sense to define the parameters of how long the variance lasts, which is why that $1,500 price floor is defined. $1,500 is definitely a scarcity event in Texas, but we ran at $9,000 for an extended period of time. I don't think it was a problem.
It was on Facebook that it was somehow the Feds screwing over Texas. I have a friend that is a lawyer who read it and said it's legaleez for saying yes you get your request. However there are regulations which have been legislated and must legally be followed. Not sure if some people wanted them to not follow the law or what the deal is.
I read it as there were specific conditions that had to be met before they could purchase from outside. Isn't it tying someone's hands? Politics aside, it's not how he government should come to the aid of a state, IMO. The response should've been a simple 'yes'. And then the $1500 is on ERCOT and their decision not to purchase immediately or timely is totally on them, which is probably still the case. But time was of the essence.
There are regulations in place and legislated. They aren't allowed to toss those to the side. They have to follow the law. Those were explained in the letter. Do you think that the law should only be followed sometimes?
From the hearing, local distributors did not go into details other than the emergency nature of the shredding means they couldn't do rolling blackout but only controlled blackout. In other words, they are deflecting blame and not saying exactly why - the truth is very likely they aren't prepared for the emergency shredding in a better way and I can't exactly blame them either - who would be if it costs more and the chances of needing to use it is extremely small? Oncor stated load can't be dropped at the individual address. I think there is probably some PUC rule that isn't clear enough to allow utility to disconnect at individual meter for "rolling blackout" while there is also no rule on how to perform "rolling blackout". The ability to manage real-time connect/dis-connect on a large scale is surely not in place by anyone in TX given the cost and no profit benefit to local power distributors. If we want this, it would have to be a new requirement from TX PUC. Oncor defends decisions on who gets power, who doesn't in North Texas (fox4news.com) "The direction here is that we drop load. And load can’t be dropped down to the individual address." No, that only happens when you don't pay your bill. Hospitals Aren't Guaranteed Power During Forced Blackouts. Here's Why - D Magazine North Texas hospitals’ prioritization during forced blackouts is not law but rather a choice made by Oncor, the local power utility
It's not about buying from outside. There are only a couple entry points for getting power in from outside of Texas and we were using that as much as possible. This allowance was for peaker plants inside Texas. A peaker plant is designed to run only those days of very high demand, usually in the summer, to capture those high-price intervals. They have high variable costs so they're the last things to be dispatched. And they burn dirty so they are limited by environmental rules, but the business model can work just fine if they know they're only working a few weeks a year. Aside from that, the letter is effectively a simple Yes. They leave it to Texas to decide when to declare EEA3 and when to end it. And the PUCT overrided the wholesale market price and set it artificially at $9,000/mwh (a matter of much litigation now), effectively ordering those plants to stay on until the crisis was over. I don't think we have cause to complain on that score. One area for improvement I'm seeing emerge is that while ERCOT had some planning for winter after 2011, they didn't have much in real disaster planning. We'll need that going forward. Disaster planning should include coordinating with local distribution utilities on things like assuring power to critical infrastructure for human health and for maintaining power, gas, water, and roadway infrastructure, while being able to take more flexibility from the rest of the load. That will mean needing to be agile controlling the grid by meter. Someone in utilities might gnashing their teeth right now, but my impression is that it should be possible. It can be profitable for distribution utilities. The way they make money is they charge a rate that will recover all their capital expense plus a return on capital (that's usually targeted in the 8%-14% range, often with opportunities for upside), plus allowable operating expenses. So if they can use this event to justify to the PUCT how they need to spend $500 million (or whatever) on a new system to be able to agilely roll blackouts at the meter level, they can recoup all that money from ratepayers and make $50 million for their shareholders in the process. It is the PUCT's job to decide if an investment is too expensive to be worth doing. The article is not wrong, but people don't really understand how utilities operate. You really don't need everything codified in law. And I mean that across the country; it's not different in Texas. Legislatures make some rules, but mostly they direct utility commissions to write rules. Utility commissions write many rules, but they also direct utility companies to write more rules. That's one of the frustrating things about working in power - every utility territory does things a little differently so you need to customize your own processes to accommodate each of them. But, when the article says that Oncor is given guidance to prioritize hospitals, that's probably the same level of mandate utilities across the country are given. All state governments entrust a high level of responsibility in their regulated utilities. That said, as I alluded to earlier, I think the system for tracking critical infrastructure needs a big boost. Hospitals are probably the low-hanging fruit that the utilities already managed to grab. I'm now hearing that gas companies are saying they had gas in storage they couldn't pump out to gas-fired plants because their power was shut off. That's a vicious cycle if I ever heard one. Wouldn't it have been nice if the utilities knew to not blackout gas storage tanks so they could supply gas to make more electricity? And now I'm getting really off-subject, but we heard a lot after 2014 from conservative politicians about how we needed to make our energy sector more "resilient" in case of polar vortexes like the one we had that year. To their little pea brains, that meant more plants with on-site storage, which was code for more coal plants (even though their coal piles froze during the polar vortex) because Trump wanted to save the coal industry, and less renewables because AOC. Now, resiliency should mean hardening the gas supply chain, winterizing their infrastructure and using gas instead of electricity to run pumps. I expect I won't hear from conservatives about making any of those investments.
So, I just got a call from my provider that sucked. We have commercial buildings on fixed contracts...or so I thought... Apparently, one part is variable on 2 of our 3 contracts with this provider - Ancillary Imbalance costs. That means for those 2 buildings, we are looking at 3x our regular bill. Insert face palm. The funny thing is, back in 2005-2007 time frame, I got burned by an electric retailer (natural gas/power prices spiked and they bailed on my contract claiming a material adverse change) and vowed to stick with just the big boys (which in this case is Constellation). I'm still digging into this but will be curious if more people see something like this in their bills (probably more on the commercial side). One of our contracts did have this as fixed (as it was more recent), so I don't think this will impact all fixed contracts. My rep did say their 100% variable customers saw 60x bills (though they had a lot they were able to notify to shut down their power to avoid this). The rep did say the state is looking at these ancillary costs, though someone will get stuck paying (probably you and me).
Sorry to hear that. I know it's a continual thorn in the industry's side because there are a lot of ancillary costs that can't be hedged for. And they went crazy during the crisis. While energy was capped at $9k, there were hours when ancillaries were over $20k. Probably an area for improvement in the market, because that's not a risk that should be foisted on the customer, but businesses should be able to trade around the risk so that people who want it can buy it.
The Texas Monthly is out with a story (that includes leaked audio of the conversation) that the PUC was privately reassuring electricity producers and energy traders that Texas would buy energy from them at inflated prices for 32 hours after energy production returned to normal levels. Basically, the state's regulator was more interested in forcing wholesale buyers and consumers to pay outrageous prices in order to give generators a windfall. A key note from the article In Private, a Top Regulator Pledged He Would Try to Protect Profits Made During the Blackouts – Texas Monthly
That seems like either outright corruption, or PUC hands are so tied that they need to provide incentive to producers else risk the system totally going down. I know @JuanValdez likes the TX system, but this is one area that I don't understand. What and where are the incentives and do they align to regular Texans or to a few of companies or to businesses or what. My quick answer to that is it align to businesses or to a few major players due to one, PUC is assigned by the governor of TX who are very friendly with energy industry and two, there isn't any or very few representatives for regular consumers.
That probably sounds different to other people than it does to me, so I'll try to put on my consumer hat. It's true, like many agencies in Texas, the PUCT has a very pro-business posture. Where a liberal might see an agency's job as to protect consumers from businesses, these agencies see their jobs as protecting and promoting robust markets, and robust markets will protect consumers. In this case, the PUCT has long been concerned that merchant generation doesn't produce enough return on capital to incentivize more investment in Texas power plants. They were likely pretty worried during the blackout that some would go bankrupt or at least they'd learn the lesson to stay away from Texas in the future. They wanted to make sure generators saw enough profit to invest on providing more capacity during peak days in the future. To the layman, that can sound rapacious, I suppose. But yeah, they are definitely cozy with the industry. To be clear on my opinion, I think the PUCT effed up by overriding the price with an artificial one. They built a system that would deliver high prices automatically and they should have trusted it. But, once you screw it up, you can't just put the toothpaste back in the tube. I have a couple of objections to the article that I think are pretty critical. They grossly simplify and confound who stands to make money where. The evil generators they talk about 'protecting windfalls' have actually lost billions of dollars. The one that seemed safe, NRG, recently reversed course and said they lost $750 million. Many of them stand to gain by repricing -- some support it to improve their own financial condition, some oppose it even though it would help them. These companies go into the realtime market mostly hedged and don't do a lot of speculation on real-time prices. It does not surprise me that financial traders like BofA would be the ones to make a lot of money. (Returning to the coziness theme -- who would PUCT favor? The merchant generators? The REPs? The financial traders? The distribution utilities? The public power utilities? Because they all find themselves on both sides of this argument.) The poor utilities the article pities lost money because they screwed up. People complain about merchant generation's poor weatherization, but public power's generation fleets did worse than the merchant gens'. Brazos Electric Coop lost all that money because they had a big plant selling its power bilaterally and then it failed right at the start of cold weather, and they couldn't get it running again for a long time. They had to buy in real-time to keep up their end of the contract to provide power. In market terms, they got paid to carry real-time risk and then didn't minimize the risk they carried. I have no pity for them. They didn't prepare. Meanwhile, fellow public power Austin Energy (whose plants performed well) earned $50 million and would lose money in repricing. I don't see repricing as protecting the little guy from the big guy; it's more moving money from one big guy to some other big guy. The consumers at the bottom of the heap? On the electric side, it's customers of the regulated public power companies Brazos Electric Coop (a dozen central Texas municipal utilities), CPS Energy (San Antonio), and Denton Municipal. Maybe a couple of other tiny ones I haven't kept track of. Customers in competitive areas and in Austin Energy are fine. All gas customers are screwed. They mention in passing that repricing gas isn't feasible. But for consumers (both gas and regulated electric), that is where the real losses will be felt. It drives me crazy they won't write about gas.
