Further, ERCOT is not the grid either. ERCOT is the grid operator. The Texas Interconnection is the grid.
ERCOT is not responsible for power generation or for natural gas availability. The PUC is broadly responsible regulating power generation (not withstanding the responsibility of the companies actually operating power generation plants). The Texas Railroad Commission is broadly responsible for natural gas pipelines (again, not withstanding the responsibility of the natural gas extraction companies).
ERCOT is the entity that told many power distributors to shed load (including the one that feeds my house). So many people have gotten mad at ERCOT. I'm sure it's fine to be mad at ERCOT, but it's kind of like getting mad at the manager of a grocery store who tells you they're out of food. They may not have done all they could to keep the place stocked, but they can't magically make trucks with food appear.
> They may not have done all they could to keep the place stocked, but they can't magically make trucks with food appear.
ERCOT sets prices. The dispute is that they set them dramatically higher than necessary to "incentivize" maximum supply. Because the supply was structurally constrained on a very short-term basis and distribution and consumption was already completely unhinged from market forces, it was predictable that such extreme pricing would have done diddly squat to change the supply or demand curves. What it did was unnecessarily shift money from the pockets of consumers to the pockets of those holding supply contracts.
And it's also beyond dispute that the people enjoying this windfall are simply going to walk away w/ their money. Nobody is under the delusion that they're going to invest that windfall into upgrading the infrastructure; least of all Arthur D’Andrea, who literally said on the call that paying (directly or indirectly through surcharges) for infrastructure improvements was an entirely separate, future concern, mostly on the part of the legislature. That's because it's not the suppliers enjoying the windfall, but those holding the contracts.
Most of the time ERCOT's price control powers are merely nominal; they seem to act as a market clearing house, resolving bids and asks into a single, set official price. But in this case the market wasn't functioning atall, so ERCOT's nominal powers devolved into the discretion to set an effectively arbitrary price, and they stupidly choose to set the maximum possible and for a longer time than was prudent if they had any concern for consumers' (i.e. Texans') welfare.
This is what you get when people adopt "free market" principles as a religion, rather than understanding them as a set of dynamic, natural forces. In this case, our devout believers set some absurdly high price (the maximum allowable under the law) ostensibly according to their understanding of the kindergarten model of supply & demand, where every increment of price increase should marginally lessen demand and marginally increase supply. But, again, it was obvious that principle was irrelevant incontext and they should have exercised their judgment as administrators holding public trust rather than as priests performing scriptural commands.
D’Andrea's interest in reassuring investors--who are otherwise important for a well functioning, highly liquid market--would be understandable butforthecontext of it all, including the fact the price was at ERCOT's discretion both at the time and (presumably to a more limited extent) afterward. Part of the whole point of a regulator building that trust is to be able to leverage it during emergencies; to reassure investors that they (along with everybody else) will come out the better so long as they cooperate during the emergency rather than run for the doors. But if you show that you'll simply give away the store at the drop of a hat, you haven't earned any trust or respect, you've invited greater volatility in the future.
csours|5 years ago
ERCOT is not responsible for power generation or for natural gas availability. The PUC is broadly responsible regulating power generation (not withstanding the responsibility of the companies actually operating power generation plants). The Texas Railroad Commission is broadly responsible for natural gas pipelines (again, not withstanding the responsibility of the natural gas extraction companies).
ERCOT is the entity that told many power distributors to shed load (including the one that feeds my house). So many people have gotten mad at ERCOT. I'm sure it's fine to be mad at ERCOT, but it's kind of like getting mad at the manager of a grocery store who tells you they're out of food. They may not have done all they could to keep the place stocked, but they can't magically make trucks with food appear.
wahern|5 years ago
ERCOT sets prices. The dispute is that they set them dramatically higher than necessary to "incentivize" maximum supply. Because the supply was structurally constrained on a very short-term basis and distribution and consumption was already completely unhinged from market forces, it was predictable that such extreme pricing would have done diddly squat to change the supply or demand curves. What it did was unnecessarily shift money from the pockets of consumers to the pockets of those holding supply contracts.
And it's also beyond dispute that the people enjoying this windfall are simply going to walk away w/ their money. Nobody is under the delusion that they're going to invest that windfall into upgrading the infrastructure; least of all Arthur D’Andrea, who literally said on the call that paying (directly or indirectly through surcharges) for infrastructure improvements was an entirely separate, future concern, mostly on the part of the legislature. That's because it's not the suppliers enjoying the windfall, but those holding the contracts.
Most of the time ERCOT's price control powers are merely nominal; they seem to act as a market clearing house, resolving bids and asks into a single, set official price. But in this case the market wasn't functioning at all, so ERCOT's nominal powers devolved into the discretion to set an effectively arbitrary price, and they stupidly choose to set the maximum possible and for a longer time than was prudent if they had any concern for consumers' (i.e. Texans') welfare.
This is what you get when people adopt "free market" principles as a religion, rather than understanding them as a set of dynamic, natural forces. In this case, our devout believers set some absurdly high price (the maximum allowable under the law) ostensibly according to their understanding of the kindergarten model of supply & demand, where every increment of price increase should marginally lessen demand and marginally increase supply. But, again, it was obvious that principle was irrelevant in context and they should have exercised their judgment as administrators holding public trust rather than as priests performing scriptural commands.
D’Andrea's interest in reassuring investors--who are otherwise important for a well functioning, highly liquid market--would be understandable but for the context of it all, including the fact the price was at ERCOT's discretion both at the time and (presumably to a more limited extent) afterward. Part of the whole point of a regulator building that trust is to be able to leverage it during emergencies; to reassure investors that they (along with everybody else) will come out the better so long as they cooperate during the emergency rather than run for the doors. But if you show that you'll simply give away the store at the drop of a hat, you haven't earned any trust or respect, you've invited greater volatility in the future.
brundolf|5 years ago