Texans in the Cold: A Few Completely Random Thoughts

Houston is the โ€œenergy capital of the world.โ€ It is home to 4,600 energy-related firms, according to the Greater Houston Partnership. We have the expertise in our own backyard to ensure energy reliability for the state. However, Texasโ€™s leaders have chosen to prioritize profit over people. When there are no regulations requiring power plants to winterize, and the generous tax abatements they receive donโ€™t have those requirements, it creates an incentive not to do so for once-in-a-decade storms. The added cost of preparing a plant for extreme weather would cause the price of electricity provided to be higher, thus making the responsible plant operator unable to compete in a market where these costs are often skipped. — Heather Golden, “Failing Government, Freezing Texans”, The Bulwark

When a deep freeze shut down half the power generation capacity in Texas this week, the wholesale price of electricity exploded 10,000 per cent, with the financial consequences now being felt all the way from individual households to huge European energy companies. Astronomical bills face customers who opted for floating-rate contracts tied to wholesale prices in the stateโ€™s freewheeling electric market.

The wholesale power price was at the maximum allowable $9,000 a megawatt hour for five days from last Sunday. For a household, that translates to a $9 a kilowatt-hour electricity rate, compared with a typical cost of 12 cents.

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In Burleson, a suburb of Fort Worth, Valerie Williams has been charged more than $6,000 by her electricity retailer Griddy to power her 1,400 sq ft home over the past few days. As the storm approached, Griddy told its customers to switch to more typical fixed-rate plans from other providers, but not everyone did, since there was little indication of just how extreme prices would become.

Griddy was charging her credit card multiple times a day, Williams said. She struggled to find a new provider during the crisis before finally identifying one that would switch her service on Friday. โ€œIโ€™m guessing it will be close to $7,000 by the time we get moved,โ€ she said of her bill. . . .

On Friday, the city council in Denton, Texas, met to approve emergency borrowing to cover $300m the city-owned utility would pay Ercot this week โ€” more than quadruple its purchases in full-year 2020. — “Freeze Sends Prices Soaring: Grid Operator Ercot Requires Billions in Payments”, Financial Times

The idea behind Texas energy policy was that a deregulated market didn’t require any oversight to protect the system from crisis, because profit-maximizing utilities would build in robust excess capacity to take advantage of possible price spikes. But they didn’t, even though the price spike has been incredible.ย — Paul Krugman

Yes, there are numerous places where Smith deplores the impact of government, and specifically the effects of intrusive regulation on trade . . . . But overall the view of Smith as anti-government seriously mistakes him. . . .He was quite clear that markets — and indeed society as a whole — are generally sustained by trust and confidence, and that for these and other things they rely on external institutions, notably of law and government, for their viability. By contrast, if merchants are left entirely to their own devices, the result is corrosive. He robustly asserts that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. No one who has read Smith closely can rationally believe he is an out-and-out free-marketeer. — Jesse Norman, Adam Smith: Father of Economics

The divide in our politics isn’t between proponents of big vs. small government. It’s between those trying to use government to help people and those who just want to troll the other side. When we elect responsible people, we end pandemics. When we don’t, people freeze to death. — Rep. Tom Malinowski (D-NJ)