The Texas energy crisis

[The Barbarian]

Economist Richard Wolff, in a couple of recent videos about the Texas freeze, blames the profit motive for TX energy companies avoiding extra costs of weatherizing power generators -- but the short term savings were (plausibly) far far less than the ultimate recent costs (although said costs may well be pushed onto Texans themselves).

You can hardly blame a corporation for doing what it was set up to do; make profits. This is why utilities should be regulated. Corporations are not people, and they have no morals or principles other than the objectives of each corporation. That's just how it is. Complaining about human nature really doesn't do any good. You have to have laws and regulations particularly for oligopolies like utilities, because competition doesn't exist to the point that they will be pressured by the "invisible hand" to take precautions against such failures as we saw in Texas.

Expensive preparations

for a seemingly unlikely rare freak event were not pursued, due to the profit motive's favoring of obvious short term gains (which go to private owners) over extra costs of any kind.

As I said, human nature. And given the increasing warming of the seas, such instabilities as we saw in the polar vortices in recent years are likely to become stronger and more common. It's no longer a theoretical possibility. It's likely to occur more frequently now.

I don't know that any one other than plumbers and home repair guys made any profit on the disaster, but I do know that utilities jacked up prices for electricity, sometimes a much as $5,000 per kW/hr or more. There are people looking at $10,000 electrical bills for that period.

 

[Erik Nelson]

Adam Smith's "invisible hand" of "salvation of society by selfishness" presumes small scale private exchanges between equally small-time parties, both of whom have essentially complete knowledge about the small-scale product ("you go into the butcher, the baker, or the brewer, and viscerally instinctively know instantaneously from thousands of years of biological evolution whether the food product is good or not"), and both of whom can go elsewhere to other competitive options.

Not exactly the same scenario, as millions of Texans collectively pooling their combined societal resources to purchase "advanced new-fangled" state-wide power from a monopoly power provider to which there's no real alternative.

Never-the-less, still not convinced Texans "need more regulation". Surely they already have laws on the books requiring some modicum of consumer protection (?). If Ford or GM sold cars in TX, which broke down and affected Texans' lives & livelihoods, the "answer" would not be "more regulation" but "more litigation". Texans do not "need more Government" involvement. They already have all of the laws they need to protect their own consumers-of-product-selves. If you "mess with TX" you will be found legally liable for your cost-and-corner-cutting choices (?) -- there's "nothing new under the sun", this cannot possibly be the first time Texans have encountered consumer protection issues.

If so, they don't need new laws, more laws, different laws. Just re-apply existing laws, do whatever they did the last time somebody tried to sell them cheap products which broke down on them.

 

[iluvatar5150]

Never-the-less, still not convinced Texans "need more regulation". Surely they already have laws on the books requiring some modicum of consumer protection (?). If Ford or GM sold cars in TX, which broke down and affected Texans' lives & livelihoods, the "answer" would not be "more regulation" but "more litigation". Texans do not "need more Government" involvement. They already have all of the laws they need to protect their own consumers-of-product-selves. If you "mess with TX" you will be found legally liable for your cost-and-corner-cutting choices (?) -- there's "nothing new under the sun", this cannot possibly be the first time Texans have encountered consumer protection issues.

If so, they don't need new laws, more laws, different laws. Just re-apply existing laws, do whatever they did the last time somebody tried to sell them cheap products which broke down on them.

Why on earth would "more litigation" be a good solution? Litigation is only even an option after something bad has happened. It's only economically viable in the event of large scale errors (i.e. those that cause problems for lots of people or serious, life-altering problems for a few people). Much of the compensation gets siphoned off by lawyers. And it can be effectively stifled with an army of corporate lawyers.

"More litigation" is a good way to cede control to the wealthy and powerful. This approach is how you wind up with problems like Texas.

 

[The Barbarian]

Adam Smith's "invisible hand" of "salvation of society by selfishness" presumes small scale private exchanges between equally small-time parties, both of whom have essentially complete knowledge about the small-scale product ("you go into the butcher, the baker, or the brewer, and viscerally instinctively know instantaneously from thousands of years of biological evolution whether the food product is good or not"), and both of whom can go elsewhere to other competitive options.

Yep. Plus the condition that no single participant is big enough to make a noticible difference in the market. You seem to allude to this by citing "small" as a condition. As you suggest, that cannot be the case for utility companies.

Never-the-less, still not convinced Texans "need more regulation".

We just completed an experiment to test that. In Texas, areas under unregulated utilities had a major disaster. Areas like El Paso, served by regulated utilities, had no such failures.

They already have all of the laws they need to protect their own consumers-of-product-selves.

I notice that no one seems to be able to find those laws. But maybe lawyers can find something to launch huge lawsuits. This seems to me to be less useful to Texas than just requiring utilities to do the right things to protect consumers.

But I'm not a lawyer.

 

[The Barbarian]

“Power Companies Get Exactly What They Want”: How Texas Repeatedly Failed to Protect Its Power Grid Against Extreme Weather

Texas regulators and lawmakers knew about the grid’s vulnerabilities for years, but time and again they furthered the interests of large electricity providers.
“Power Companies Get Exactly What They Want”: How Texas Repeatedly Failed to Protect Its Power Grid Against Extreme Weather — ProPublica

Again, it's a mistake to blame the utility companies for doing what corporations always do. The people governing Texas are to blame for not doing the right things for the people of Texas.

 

[Joyous Song]

www.propublica.org/article/power-companies-get-exactly-what-they-want-how-texas-repeatedly-failed-to-protect-its-power-grid-against-extreme-weather?utm_source=pocket-newtab

 

[Michael]

She rounded up over $3 million to help affected Texans. More than Texas Republicans were willing to do.

I think it's now closer to five million, but either way it's more than Cancun Cruz did for Texas.

 

[hedrick]

Adam Smith's "invisible hand" of "salvation of society by selfishness" presumes small scale private exchanges between equally small-time parties, both of whom have essentially complete knowledge about the small-scale product ("you go into the butcher, the baker, or the brewer, and viscerally instinctively know instantaneously from thousands of years of biological evolution whether the food product is good or not"), and both of whom can go elsewhere to other competitive options.

That's part of the problem. But the other part is that without regulation, companies can and will shift costs to others. Even a perfectly competitive energy market wouldn't prevent companies from producing pollution. It's a cost that isn't involved in the bargain between it and its customers. One purpose of regulations is to make sure the producers have to take into account all the costs, even that kind of indirect ones.

This situation, however, does seem to fit your description. The costs actually were borne by the customers. But they really didn't have any choice. Suppose there were two electricity providers, one of which was a few percent less expensive, but every 10 years would cut off your power for a week during the middle of the winter. You'd at least have a choice. I'm not sure how people would choose in that situation, but they didn't have that choice, because it's not really practical to build parallel systems with different policies. That's called a natural monopoly, and is one of the classical justifications for regulations.

In a more abstract sense, this is also an example of cost-shifting. Modern companies have legal staffs to help them shift as much risk as possible to customers and third parties. They didn't lose any money due to this. They are, however, exposed to the risk of legal action. It will be interesting to see how that plays out. If they were smart, their contracts were written to protect against that.

 

[The Barbarian]

I think it's now closer to five million, but either way it's more than Cancun Cruz did for Texas.

Ideologically, his party sees public office as a perk and a chance to make money, not to serve voters.

 

[Erik Nelson]

If they were smart, their contracts were written to protect against that.

Smarter than Texans (as reflected by the ultimate net actions of "their" representatives) ?

In theory, if immunity can be written into contracts, then liability could be too? The previously posted ProPublica article gives the impression Energy companies dictated terms to TX lawmakers and brushed aside all of their opposition with impunity. If so, the lack of regulation is not a cause of TX consumers being mistreated -- rather a pre-existing effect of the prior already established super-dominance of Energy companies over Texans. Lack of regulation didn't let them "just barely get away with" shoddy performance -- rather merely another symptom of them not having been beholden to TX consumers for years

Issue is not regulation / non-regulation, but the underlying political power (no pun) reality which regulation / non-regulation merely transparently reflects. Companies not truly beholden to their customers don't treat them very well (and don't brook regulations either). Maybe TX courts are less rigged against Texans

 

[The Barbarian]

Issue is not regulation / non-regulation,

We just did an experiment in Texas, to test that idea. Where we had unregulated power companies, it was a monumental disaster. Where we had regulated power companies, the same storm caused no outages whatever.

That's the data from the experiment. Seems pretty clear, doesn't it?

 

[hedrick]

Smarter than Texans (as reflected by the ultimate net actions of "their" representatives) ?

In theory, if immunity can be written into contracts, then liability could be too? The previously posted ProPublica article gives the impression Energy companies dictated terms to TX lawmakers and brushed aside all of their opposition with impunity. If so, the lack of regulation is not a cause of TX consumers being mistreated -- rather a pre-existing effect of the prior already established super-dominance of Energy companies over Texans. Lack of regulation didn't let them "just barely get away with" shoddy performance -- rather merely another symptom of them not having been beholden to TX consumers for years

Issue is not regulation / non-regulation, but the underlying political power (no pun) reality which regulation / non-regulation merely transparently reflects. Companies not truly beholden to their customers don't treat them very well (and don't brook regulations either). Maybe TX courts are less rigged against Texans

There's something to be said for this. It's not uncommon for the government agencies that are supposed to regulate them to be made up of people from the industry. It's called "regulatory capture" Regulatory capture - Wikipedia.

In some industries it's impossible to avoid the monopoly. So about all you can do is avoid the regulatory capture. It's a constant battle against corruption.

But even a big monopoly may be happy to deliver reliability if they can pass on the costs. The old Bell System is an example. In NJ we have a single large monopoly for power, and a couple of smaller ones. After a hurricane caused long outages they wanted to do a major project to prevent future failures. The regulators wouldn't let them do everything because of the cost. However over time they've done a lot of work on grid reliability. Of course our power costs are also quite high.

 

[Erik Nelson]

We just did an experiment in Texas, to test that idea. Where we had unregulated power companies, it was a monumental disaster. Where we had regulated power companies, the same storm caused no outages whatever.

That's the data from the experiment. Seems pretty clear, doesn't it?

cart before the horse?

lack of regulation merely reflects the dominance of the Energy companies, who have deflected all attempts at regulation, per your article

(De-)Regulation is not a cause, only an after thought effect. Once companies already have the power to dominate the market and exploit it for their private profit, they do so, and deregulation is a symptom of the same

Per your article, the same Texans who cannot regulate "their" Energy companies cannot rely on stable year-around all-weather power. It's a "sellers market", and Texas power may well not work "on windy days or snowy days or cold days or winter days or overcast days or..." (so to speak).

 

[The Barbarian]

cart before the horse?

lack of regulation merely reflects the dominance of the Energy companies, who have deflected all attempts at regulation, per your article

Yep. Where regulation is effective, we don't see the kind of disasters that happen with unregulated facilities.

(De-)Regulation is not a cause, only an after thought effect.

I'm just pointing out that you don't see those kind of disasters that happen to unregulated utilities, when utilities are regulated.

Lack of regulation can be a matter of corruption or of ideological concerns. Why there is a lack, is less important than the lack, itself.

 

[Erik Nelson]

There's something to be said for this. It's not uncommon for the government agencies that are supposed to regulate them to be made up of people from the industry. It's called "regulatory capture" Regulatory capture - Wikipedia.

In some industries it's impossible to avoid the monopoly. So about all you can do is avoid the regulatory capture. It's a constant battle against corruption.

But even a big monopoly may be happy to deliver reliability if they can pass on the costs. The old Bell System is an example. In NJ we have a single large monopoly for power, and a couple of smaller ones. After a hurricane caused long outages they wanted to do a major project to prevent future failures. The regulators wouldn't let them do everything because of the cost. However over time they've done a lot of work on grid reliability. Of course our power costs are also quite high.

Understand TX Sen. Ted Cruz often quotes Thomas Jefferson, "In questions of power, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution"

 

[Erik Nelson]

Lack of regulation can be a matter of corruption or of ideological concerns. Why there is a lack, is less important than the lack, itself.

Whether the dominance derives from economics or culture (or both), the laws may reflect the underlying reality (and not the other way around) -- the laws may only reflect & echo the status quo, a litmus test, an indicator of the way things are, not anything causative on their own. By the time Texans could demand regulations, "they wouldn't need to"

One way or another, seem surprising that Texans can't come to some sufficiently simple, straightforward, legal business contract with their power providers:

• you, the power provider, hereby agree to supply the people of TX with so-and-so many GWhr or power...
• so-and-so many days per year
• so-and-so many hours per day
• at such-and-such a rate
• failure to meet these contractual terms results in such-and-such penalties
• [signed]
• State Officials on behalf of the people of TX
• Business Execs on behalf of power co.

Naively, inexpertly, this doesn't seem particularly difficult to do.

 

[The Barbarian]

Whether the dominance derives from economics or culture (or both), the laws may reflect the underlying reality (and not the other way around) -- the laws may only reflect & echo the status quo, a litmus test, an indicator of the way things are, not anything causative on their own. By the time Texans could demand regulations, "they wouldn't need to"

You're making it overly complicated. The experiment worked just fine.

Unregulated power companies - Disastrous failure due to lack of preparation for bad weather.
Regulated power companies - No failures. Prepared for bad weather.

Just that simple.

 

[Erik Nelson]

You're making it overly complicated. The experiment worked just fine.

Unregulated power companies - Disastrous failure due to lack of preparation for bad weather.
Regulated power companies - No failures. Prepared for bad weather.

Just that simple.

try for those regulations

 

[The Barbarian]

try for those regulations

Apparently, even the republicans in Texas have figured out the problem. Kinda...

Texas Governor Calls For Investigation Into Group That Manages State Power Grid
Texas Governor Calls For Investigation Into Group That Manages State Power Grid

Also known as the "Oh no, you did it just the way I told you to do it" game.

 

[Erik Nelson]

Apparently, even the republicans in Texas have figured out the problem. Kinda...

Texas Governor Calls For Investigation Into Group That Manages State Power Grid
Texas Governor Calls For Investigation Into Group That Manages State Power Grid

Also known as the "Oh no, you did it just the way I told you to do it" game.

That's ERCOT, not the (costly-corner-cutting) Power Companies themselves?

Offer that one "ideological" issue is the "business culture" promoted by Adam Smith whose "invisible hand" argument "proves" that pure selfishness is the salvation of society. Those indoctrinated with such a belief may well think that "my competitive greedy ambition for purely private gain *IS* my Social Contract with society at large -- my A-ME-rica First attitude *IS* how I make Texas & America greater, more competitive, more profitable..."