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Please help me understand this. Why is deregulation causing suppliers to be unable to charge enough to cover their costs? I should think that would be the oppos

Please help me understand this. Why is deregulation causing suppliers to be unable to charge enough to cover their costs? I should think that would be the opposite. “ Ed Hirs, an energy fellow in the Department of Economics at the University of Houston, blamed the failures on the state’s deregulated power system, which doesn’t provide power generators with the returns needed to invest in maintaining and improving power plants... ‘For more than a decade, generators have not been able to charge what it costs them to produce electricity.’” How could that be correct?

Matumio 6y ago
Not an expert, but if it was a purely deregulated market, wouldn't you expect the cheapest supplier to win? The power grid is a shared medium, and you get a "tragedy of the commons" situation. Everyone profits from a resilient grid, but no single supplier has an incentive pay the cost to stabilize it for everyone else.
seanalltogether 6y ago
I don't know the specifics, but decreased regulation and increased competition can have the affect of a race to the bottom. Without regulation that imposes certain standards, you can't afford to protect your business against rare events because none of your competitors are doing it either.
fuzzfactor 6y ago
When HL&P owned the power plants, distribution infrastructure, and customer accounts there was concentrated incentive for better reliability and that's what we had. Now many deregulated retail providers hold the customer accounts, and depend on Centerpoint (now sole owner of power & gas lines only) to deliver from their third-party wholesale provider, who contracts with one or more generators for ultimate supply. Plus of course ERCOT is involved and has been intentionally configured to take blame for things like this so there's another entity to participate in the finger-pointing.

Matumio 6y ago

Not an expert, but if it was a purely deregulated market, wouldn't you expect the cheapest supplier to win? The power grid is a shared medium, and you get a "tragedy of the commons" situation. Everyone profits from a resilient grid, but no single supplier has an incentive pay the cost to stabilize it for everyone else.

seanalltogether 6y ago

I don't know the specifics, but decreased regulation and increased competition can have the affect of a race to the bottom. Without regulation that imposes certain standards, you can't afford to protect your business against rare events because none of your competitors are doing it either.

fuzzfactor 6y ago

When HL&P owned the power plants, distribution infrastructure, and customer accounts there was concentrated incentive for better reliability and that's what we had. Now many deregulated retail providers hold the customer accounts, and depend on Centerpoint (now sole owner of power & gas lines only) to deliver from their third-party wholesale provider, who contracts with one or more generators for ultimate supply. Plus of course ERCOT is involved and has been intentionally configured to take blame for things like this so there's another entity to participate in the finger-pointing.