Electricity Expert/Planner ‘Shaken’ (Texas debacle shocks worldview)

Ed. Note: With the 3rd anniversary of the Great Texas Blackout of February 2021, it is worth remembering the second thoughts that architects of the centrally planned state grid (ISO/ERCOT) had at the time. But have the guilty feelings resulted in a fundamental rethink of government electricity? This post is reprinted from MasterResource (May 20, 2021)

“I have to admit, the ERCOT blackouts have shaken me. The amount of physical damage and human suffering they caused is astounding. Obviously, the ‘market’ failed to provide the service reliability that customers expected and deserved.”

– Robert L. Borlick, Independent energy consultant, here

It is tough when your belief system gets rattled by reality. Very few people can handle that well. The best prevention strategy is to keep an open mind, and understand other views about as well as your own. Be polite, and stay modest (‘the higher you fly, the harder you fall’).

One longtime electricity planner, Robert L. Borlick, is angry. His ideal regulatory/planning system, the Electric Reliability Council of Texas, overseen by the Public Utility Commission of Texas (PUCT/ERCOT), crashed. He is in denial, having claimed:

• The February Texas experience was akin to earlier experienced blackouts (“To be sure, the ERCOT blackout was bad but nowhere as widespread as the Northeast blackouts. Not even close.”)
• Wind and solar power have not compromised the grid (“wind and solar had virtually no role in causing the Texas blackout.”)
• Natural gas was the Blackout culprit, and criminally so (“The CEOs of those gas companies should be criminally charged.”)
• PUCT/ERCOT planning is not regulation but the free market (“In ERCOT the free market determines reliability.”)
• More regulation is needed, not less. (“Unintended consequences of government intervention?’ Are you f***in’ kidding me? What just happened is a direct consequence of insufficient government intervention!”)
• There is no free market alternative to central planning . (“The grid would go dark very quickly in the absence of a system operator (like ERCOT) to direct the traffic.”)
• As his critic, I am untrustworthy and serious participant. (“Rob, why are you shilling for the natural gas industry?”)

Like other central planners, Borlick wants more government (coercion) to address the problems of earlier planning failures:

Cost benefit analysis (whether pure or impure) will reach the optimal solution if it is done right and includes all of the social costs and benefits. For example, the customers that were interrupted deserve to be paid $9 for each kWh they would have consumed if they had remained connected…. The Texas legislature should mandate that all REP contracts contain clauses requiring such compensation.

His worldview at risk, Borlick stubbornly believes that lost renewables during the Texas freeze was “a fly on the ass of an elephant.” (Evidently, renewables can be excused from their disappearing act because we know and expect it.) But every thousand megawatts of capacity counts, particularly at the peak. But perhaps more importantly, the government-forced renewables binge has prematurely retired reliable generation from gas and coal, and new capacity, chiefly powered by natural gas, has been shelved .

And low margins from wind’s negative pricing (which Borlick admitted: “I agree; negative prices are dysfunctional. I have never supported the production tax credit’) naturally leads to postponed or foregone expenses, such as weatherization.

But that’s no excuse. Economist not, Borlick states:

Obviously, the “market” failed to provide the service reliability that customers expected and deserved. It’s cold comfort that the major generation owners, NRG and Vistra lost about $1 billion – each. Their failure to weatherize assets cost consumers many multiples of $2 billion. This is also true regarding the unweatherized natural gas assets.

The market flaw appears to be that market participants optimized their positions based on the costs and profits they expected to incur while ignoring the costs and benefits of the retail customers. Today this is obvious. The question is how to fix this market flaw?

Not enough mandates. And who is to blame for the debacle?

Presumably, Efficient market behavior will result if property rights require the party that harms another to fully compensate the harmed party. Going forward, should generators be required to compensate the customers that lost service? Lastly, does anyone have the obligation to serve? The REPs?

So, government intervention distorts incentives, and dis-incited market participants get punished? And what does the ‘obligation to serve’ mean when reliability is outsourced to government rather than being the role of entrepreneurs in a free market?

Welcome to the road to serfdom.

Borlick’s insults sometimes catch up to him. On one occasion (not involving me) he got melancholy:

I apologize for the condescending tone of my reply. Not knowing all of the facts doesn’t mean someone is unworthy of respect.

I have to admit, the ERCOT blackouts have shaken me. The amount of physical damage and human suffering they caused is astounding. Obviously, the “market” failed to provide the service reliability that customers expected and deserved.

A little more humility and deep thinking about the direct and indirect role of renewables might just allow any troubled, “shaken” power expert/planner to sleep better at night. [And I forgive any harsh treatment of my (different) views in the heat of battle. Egos are behind intellectual for all of us….]

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