Wednesday, February 2, 2011

Bizarre: Texas Has Just Imposed Rolling Blackouts

The Texas power grid operator, Electric Reliability Council of Texas, has just imposed rolling blackouts because of the cold weather in the state. Reportedly, nearly 1 million homes are temporarily without electricity.

When you take into account that Houston, Texas is considered, by many, the energy capital of the world, the obvious conclusion is that the Reliability Council is not that reliable.

As economists such as Ludwig von Mises, F.A. Hayek and Murray Rothbard, among others, have pointed out central planning does not deliver. Keep in mind that it is not all energy users that will be forced into the Orwellian-named central planning Reliability Council that has announced the rolling blackouts.

Mark Routt, oil engineer and consultant at KBC in Houston told Reuters:
Houston faces rolling blackouts, which should be disruptive to residential users. This is not likely to have any major effect on the oil industry

Why won't the Texas oil industry and other major industry players be impacted by the blackouts? Because they are not forced to be part of the Reliability Council planning:

Reuters explains:
Refineries and other critical infrastructure have separate power supply agreements with utilities and are less susceptible to interruptions than residential or commercial customers.


  1. A little color:

    Texas is on its own power grip separate from the U.S., so we can't borrow from other states in the event of strange weather. Currently, we're having a very unusual cold snap. During the summer, though, we have massive electricity usage due to air conditioning. The only cause I can conceive is that the power companies are doing their annual maintenance during a typical lull and have gotten caught off guard by the weather.

  2. I thought Texans weren't bratty little Government-Lovers....

  3. I often wonder what the average person's life would be like (in a different, positive way) if the generation and distribution of electricity were really, fully UNregulated.

    Anyway, it's been a hell of a day here in Dallas! As has been the case since early this morning, I'm probably typing on borrowed time here as it's likely only a matter of time before I lose my power ag------........

  4. Let's see if I got the story straight.

    In 2009 for Texas, the summer power generating capacity is 103 GW.

    The Texas grid can carry 65 GW. We know this because according the story it did this last summer.

    The Texas power consumption for Wednesday is 55 GW. Today's consumption should be similar.

    The Electric Reliability Council of Texas (ERCOT) said the grid had to reduce 4GW to save Texas from the "crisis." The actual amount reduced was 2 GW.

    According to the Reuters story:
    "Weather-related unit outages caused hourly wholesale power prices in Texas to soar 60-fold to $3,000 per megawatt-hour, up from about $50 where they usually trade."

    "Wholesale power for Thursday delivery traded in the $325 range, up from about $70 for Wednesday, as cold weather was expected to persist until Friday."

    Damn!! All I really, really, really want for Christmas to be a decision maker in ERCOT!!!

  5. I live in West Texas where power was deregulated years ago. From the Fort Worth Star-Telegram"

    "Lt. Gov. David Dewhurst said in Austin that burst water pipes at two coal-fired power plants -- at Oak Grove and Sand Hill -- forced them to shut down, triggering the rolling power cuts across the state, The Associated Press reported.

    He said this is something that "should not happen."

    Natural gas power plants that should have provided backup had difficulty starting due to low pressure in the supply lines, also caused by the cold weather.

    In a statement, Gov. Rick Perry said the weather has created "unprecedented demand on the state's energy grid."

  6. For Oncor's outage map:

    Rotating outages discontinued, but may return:

  7. Convoluted Texas' power infrastructure? Here's the clue:

    The ERCOT region includes Houston, Dallas, Fort Worth, San Antonio, Austin, Corpus Christi, Abilene and the Rio Grande Valley. It does not include the El Paso area, the Texas Panhandle, Northeast Texas (Longview, Marshall and Texarkana), and Southeast Texas (Beaumont, Port Arthur, and the Woodlands)

    Read more:

    "Electricity traders said hourly prices in ERCOT were $2,000 per megawatt hour, up from $50 where it usually trades."

    Where's Goldman or BP's energy traders in this mix?

  8. Mr. Wenzel,

    I had the wonderful opportunity to experience this event firsthand from the energy trading floor of one of the suppliers in Texas today. The ERCOT system today had a physical incapability of meeting the demand for power during certain hours of day. This was not the result of market design or regulatory manipulation of the market for this particular event. Gas pipelines literally froze on us and some plants could not be called to supply power in the market. Hourly prices in some zones and nodes soared to levels usually seen during a hurricane or nat gas delivery event.

    I appreciate the Mises/Hayek/Rothbard commentary on things the government does are usually fruitless and resultant events are generally the opposite of what the government is trying to prevent. The ERCOT system operator would probably exist even if the Texas PUC hadn't created it. There would still be a need to have a market coordinator in the power markets because of the physical nature of delivering power and the uncertainty of demand on the grid. Though "reliability" may seem Orwellian, reliability would still be a rule of the game even in an anarchical situation. It would be like saying there would still exist maritime courts to enforce transport contracts.

    I would never defend the entire body of ERCOT rules (I believe the Energy Facts Labels for contracting with retailers stipulates the font size), but I would caution using this event to demonstrate the libertarian position. Electric Power is a fascinating market enough to investigate market coordination, production, and pricing. And the effects of government interference and sheer inadequacy of petty regulators on PUC boards assuming that they could sub-plant the market decision makers.

  9. If you destroy the government, electricity price would be about $0.03 per Kwhr. The price above that is due to political terrorism.

  10. I appreciate the comments and personal experience of the anon working as an energy trader but there is so much more to this story than just ERCOT and how energy markets could or would function with less/no intervention.

    Just a few of the "unseen" costs, channeling a bit of Bastiat here:
    1.) How many and how many different types of power generation plants would be available in the absence of restrictive legislation?
    2.) How much more capital would be available to spend on maintenance capex if utility companies were allowed to charge true, market rates for their power rather than whatever limited rate is arbitrarily determined as a price ceiling by central power planners?
    3.) How much more capital would building owners and individual homeowners have available to them to provide for emergency power generation facilities if they weren't taxed and regulated as they are now?
    4.) How much more fluid and diverse would the response be to adverse whether contingencies in general if the full creativity of the marketplace were to be harnessed, rather than the stifling environment of the regulators' rulebook?
    5.) How likely is it that so many power markets that are so far away from one another (for example, it's a 3.5hr drive from Dallas to Houston) would all be controlled by and dependent on the same power exchange?
    6.) On a related note, how much more different and varied would be the entire power network in just Texas as it developed over time if it had developed to serve the organic needs of the market and not the arbitrary demands of the regulatory bodies?

    Accidents can happen, even in a free market. People can get caught with their pants down.

    But this whole event today smacked of a central planning induced "shortage", with everyone really surprised by weather patterns that, while abnormal, are not completely ahistorical or otherwise unseen in Texas this time of year.

    Electricity generation and transmission is capital-intensive, complicated, and imperfect, and likely would be under any political framework, even no political framework. But to just brush this off conclusively as "not a result of market design or regulatory manipulation" is to ignore the total, inclusive interconnectedness of all phenomena and actors within the marketplace itself as if each can be studied in an isolated, independent manner.

    This is false. Crack open your copy of Human Action and take a refresher course if you don't get this.

  11. And the lesson is: state bureaucracies are inefficient and incompetent, even in Texas.

  12. As Taylor Conant stated....

    If the energy market was free there would be cheap elecricitiy everywhere. An event like this would not have happened or if it did it would have been just a tiny blip. Decentralized nuclear power...Small and many nuclear power plants would be the norm by now at a cost so low that the poor could afford heated pools in New Hampshire winter.

  13. @ last Anonymous

    Yep, you’ve got Taylor’s number. He needs to spend less time reading Bastiat and more time reading Berra. As in Yogi:

    “In theory there is no difference between theory and practice. In practice there is.”

    Oh, and Taylor’s number?

    A big fat zero.