We may want to separate Texas from the other “choice” states for a few reasons.
1. A significant number of customers in the state remain served by monopolies: all utilities outside of the ERCOT wholesale market remained traditional monopolies, and municipal utilities and co-ops within ERCOT were allowed to remain monopolies as well. (These utilities could choose to allow competition. So far just one co-op in ERCOT has enabled competition. The municipal utilities in Lubbock, Texas, joined ERCOT in 2021 and intends to allow competition beginning in late 2023.) So in a chart with blue = choice and red = monopoly, Texas is purple.
2. Texas implemented retail choice differently than most other states. Some retail electric policy advocates say Texas implement reforms better than most other choice states. Some reasons for the claim: Wholesale and retail markets are better integrated in Texas; the residual regulated “wires” businesses are entirely separate from any businesses owning electric generation or selling retail power in Texas; and retailers bill their customers in Texas, not the legacy regulated wires utility.
3. In addition, unlike almost every other state that seriously considered reforms, Texas power prices were near the national average when it began implementing the reforms.
And if we look at inflation-adjusted average prices in Texas relative to other retail choice states and to monopoly states, the prices look a bit different too.
In these posts I am not making claims about causal relationships, I am only observing differences in average prices. But these simple averages are a good place to start asking questions. Questions like: Why are prices in most retail choice states higher? Why did prices in Texas go up faster than most from 2001 to 2008, then fall faster than others from 2009 to 2022? How could Wall Street Journal reports look at EIA data and think that Texas consumers would have been better off sticking entirely with monopoly utilities?
Been a bit of a crazy week in Texas electric power markets. I’m writing this on Friday, July 15, 2022–the week is not over yet–but maybe things have settled down for the next few days. On Wednesday the wholesale price in ERCOT hit its $5,000 cap on the energy price for a while in the afternoon. At the same time prices in bordering power systems ranged between $75 and $125 per MWh.
On Thursday afternoon the price in ERCOT was about $50 MWh while neighboring prices were all over $100. In fact, most of the time power prices are a little cheaper in Texas. There are currently a few small High Voltage Direct Current (HVDC) connections between ERCOT and its neighbors, but these HVDC interties are not readily available for commercial use and are too small to capture all of the potential gains from trading across the regions.
Connecting ERCOT with neighbors has been proposed before, a few times, and gets shut down in Austin by two groups (A) folks worried about loss of Texas jurisdiction over a Texas interstate market, and (B) industry consumers who believe they benefit from trapping low cost wind and solar power output in state. High-cost power generators actually do benefit from blocking interties.
(A) is a real concern, there are benefits from regulation in Austin rather than Washington DC. Among other things, ERCOT serves as an alternative “experiment” in RTO design that can serve as contrast to the other US RTOs which are all regulated by FERC in Washington DC. Oversight by a single agency cannot help but dampen some reasonable exploration of possibilities simply because the experts there will hold views about the best ways things should be done. In any case, the two most promising intertie projects both secured rulings from FERC saying the projects would not upset existing jurisdiction over ERCOT. Still, political opposition delayed and in at least one case halted development.
(B) is just wrong headed. Interties will yield lower average prices and less volatile prices in ERCOT. It doesn’t take a detailed analysis to demonstrate the point: just look at the picture and then imaging how things would change if, say, 5 GW of power could be brought in through four or five interties spread around the state. Not too hard to imagine prices in ERCOT would have nearer $1,000 than $5,000 MWh on Wednesday (and, yes, prices in neighboring areas would have been higher, but because surrounding areas are connected through the rest of the country prices in those areas might have climbed from $120 to something like $150. On Thursday power flows could have gone the other way, maybe pushing ERCOT prices from $50 to $100 while bring down neighboring prices from $120 to $110 or so.
The price changes are all guestimates. With a commercial power market model it would be easy enough to do quality estimates. (For a large fee, I can have one done! Contact me!) In fact the regulatory documents filed surround the Tres Amigas power state and the Southern Cross transmission project likely both contain this kind of analysis. While they would be out of date, they would provide some sense of the scale of benefits.
In addition, Texas has a lot of land suitable for wind and solar power generation. The ability to produce and ship that power out of state would further boost the state’s position as an energy development powerhouse. At the present we are getting into more frequent wind-on-wind competition leading to curtailment of clean energy. We are a likely soon to see some solar-on-solar competition, too.
Finally, during extreme conditions, both in Summer peaks and Winter peaks, interconnections can be lifesaving. No one needs to be reminded that people died in Texas during Winter Storm Uri because of the days long outages suffered by some consumers. Even with a handful of added interties it is likely ERCOT would have suffered outages during the February 2021 winter storm. However, the amount of load shedding would have been smaller and easier to rotate across consumers, with lifesaving results.
The ERCOT market is become more volatile and prices are higher than they would otherwise be because influential market participants and parochial interests in Austin have frustrated efforts to link up. The Southern Spirit transmission project–I think it is an adaptation of the Southern Cross project–continues to work its way through commercial and regulatory hoops. ERCOT needs it and a handful more reaching north and west.
Many Texans faced forecasts of the early February 2022 winter storm with a degree of anxiety. Last year’s energy system failures had horrendous consequences including lost lives and damaged property. The energy system failures in the biggest energy producing state resulted in billions in damages.
As it turned out the forecasts were true enough. There was a two-day period with temperatures stuck below freezing, but nothing like last year. In February 2021 the Dallas-Fort Worth area stayed below freezing for about 130 consecutive hours, but the February 2-5 winter storm remained below freezing just 44 hours.
All in all, the early February freeze made for a practice run for Texas energy suppliers, but not a severe test of the ERCOT-managed power grid. Natural gas supply remains a concern, both because its state regulator appeared relatively unconcerned about last year’s failures and because productions has dipped with freezing temperatures this winter.
The chart below shows temperatures at Dallas Love Field, starting with the hour before temperatures dropped below freezing and ending when temperatures rose above freezing. The early February 2022 event is shown in blue and the solid black is a January 2018 cold snap it resembles. The January 2018 did not produce any serious problems for ERCOT, so there would be few reasons to expect this similar freeze to be a challenge either.
Three other winter weather events are shown for comparison, including last year’s freeze and the February 2011 winter storm. Data described below.
February 2022 is not over yet and we may yet get another winter blast in Texas. No one should declare “mission accomplished.” But the cold did let ERCOT practice it’s “all hands on deck” winter response. They’ll also get a chance to review how things went and be better ready next time.
Chart data: Data above for 2011-2021 collected from the NOAA’s National Centers for Environmental Information. The NCEI data runs about 3 to 5 days behind the present, so I hand scraped hourly data from the Weather Underground history page which is up to date. All data from Dallas Love Field. Obviously it is a big state so one location does not tell the full story.