5 ms·

Thanks for this explanation. There should be incentive for providing excess capacity but there are issues with the approach being taken. If I'm not mistaken, c

Thanks for this explanation. There should be incentive for providing excess capacity but there are issues with the approach being taken. If I'm not mistaken, customers have little idea that a price surge is in effect and what the rate is until they get billed. It's not like going to a gas station, seeing a price, and being able to opt in to the transaction, seek alternatives, or plan to self ration your consumption, as you're prepaying for the energy. The way the Texas model works it seems to assume that customers have a financial buffer that they're able to tap into to pay the higher rates. Everyone should plan for such a buffer but for those that don't have one it places hardship on them. It's also a risk for the provider that they won't get paid their windfall. You can't send huge surprise bills and expect people to pay them. A sensible approach is to charge a bit extra under normal conditions to build a communal buffer that is used to pay for emergency power production. As long as there's good governance, this derisks the system. Another alternative might be energy bill insurance, if such a thing exists. It's easier to plan for a fixed monthly premium than a surprise payment in an emergency.

pandaman 5y ago
Consumers do not buy the power on the market, they buy it from their utility at the rate they've negotiated beforehand. E.g. I've paid ~$0.05/KWh in February 2021 as same as I pay at any other time. It's the utility's problem to acquire power on the wholesale market and make arrangements for the price spikes. It's charging more than the wholesale on average, just as you suggested. The consumers who had been hit by this were the ones who opted in to receive power at the market rate from a handful of shady businesses. They explicitly had to change their service to this model because the TikTok ads told them that the current market rate is $0.02/KWh so they are "overpaying" if they are buying at the utility's price.
- sangnoir 5y ago
  > Consumers do not buy the power on the market, they buy it from their utility at the rate they've negotiated beforehand. The utility rate was not always fixed/negotiated: there's at least one utility company (Griddy) had an arrangement to pass-through market rate + small premium. Before the storm, this mostly meant getting rates modestly lower than the competition. The same customers were exposed to the power market spikes and received bills over $10,000. IIRC, Griddy has since filed for bankruptcy as the Texas legislature was generally supportive of individual customers not paying their bills. Paradoxically, Texas's political leadership allowed the utility companies to recover their losses by billing customers over years, which seems mostly performative/hiding expense from customers, but still decoupled from market forces.
  - pandaman 5y ago
    Yeah, that is one of the shady companies I've mentioned. If, for the sake of argument, we call that a "utility" then in that case every single customer had a choice to go with a capped rate of a regular utility anyways.
rossdavidh 5y ago
The great majority of end customers (like me) did not pay the spot price, it was the company between you and the producer that did. Some of them were making noises that they would have to declare bankruptcy as a result of the surge pricing, although I don't know if any of them actually did. There was at least one company that offered a "you get cheaper power normally" service, and the customers apparently didn't fully realize how bad it could get when it's not "normal". I agree with your "sensible approach". On a side note, this issue is much like the reason conventionally taxis normally charged more than Uber did, but Uber had surge pricing. If you want enough capacity for the peak times, you need to overcharge at all other times.

pandaman 5y ago

Consumers do not buy the power on the market, they buy it from their utility at the rate they've negotiated beforehand. E.g. I've paid ~$0.05/KWh in February 2021 as same as I pay at any other time. It's the utility's problem to acquire power on the wholesale market and make arrangements for the price spikes. It's charging more than the wholesale on average, just as you suggested. The consumers who had been hit by this were the ones who opted in to receive power at the market rate from a handful of shady businesses. They explicitly had to change their service to this model because the TikTok ads told them that the current market rate is $0.02/KWh so they are "overpaying" if they are buying at the utility's price.

sangnoir 5y ago
> Consumers do not buy the power on the market, they buy it from their utility at the rate they've negotiated beforehand. The utility rate was not always fixed/negotiated: there's at least one utility company (Griddy) had an arrangement to pass-through market rate + small premium. Before the storm, this mostly meant getting rates modestly lower than the competition. The same customers were exposed to the power market spikes and received bills over $10,000. IIRC, Griddy has since filed for bankruptcy as the Texas legislature was generally supportive of individual customers not paying their bills. Paradoxically, Texas's political leadership allowed the utility companies to recover their losses by billing customers over years, which seems mostly performative/hiding expense from customers, but still decoupled from market forces.
- pandaman 5y ago
  Yeah, that is one of the shady companies I've mentioned. If, for the sake of argument, we call that a "utility" then in that case every single customer had a choice to go with a capped rate of a regular utility anyways.

rossdavidh 5y ago

The great majority of end customers (like me) did not pay the spot price, it was the company between you and the producer that did. Some of them were making noises that they would have to declare bankruptcy as a result of the surge pricing, although I don't know if any of them actually did. There was at least one company that offered a "you get cheaper power normally" service, and the customers apparently didn't fully realize how bad it could get when it's not "normal". I agree with your "sensible approach". On a side note, this issue is much like the reason conventionally taxis normally charged more than Uber did, but Uber had surge pricing. If you want enough capacity for the peak times, you need to overcharge at all other times.