First post | Texas Wholesale Electricity Market

Everything is big in Texas.

We don't mess around in Texas. 

And we clearly don't mess around with regulations. 

When the free market can get not so free.

Last week (around mid-February 2021), we were expecting few days of low temperature. I've lived in Texas most of my life, and I only remember having extremely low temperatures for a day or two back in the late '90s. Otherwise, we usually would have one or two bad weather days (mix of rain and snow).

Things clearly changed this time around. Not only we had cold weather, but we were consistently in the freeze zone. Homes in Texas are built for summer, not for extremely cold weather. Central air is the only way for us to keep our homes warm. Well, that really became a big problem.

Central air can realistically keep a home warm or cool around 20 to 40 degrees. That's only when the outside temperature is higher than 35F (that's from my personal experience). Of course, if a home has a state-of-the-art heat/cooling unit, then I'm sure it can keep up better. But the fact that the house itself can't retain heat well makes everything worse when it gets too cold.

So when the temperature went down to below 20F, my apartment could barely sustain 65F. The heater was blasting. We kept lowering the thermostat, but if we dropped it too much, then we risk freezing the pipes (at least that's what the apartment people told us).

So we had a double-edged sword situation happening right away as the temperatures dropped. But why can't we use too much electricity when we need it? Well, it's because we are heavily deregulated. Apparently, based on supply and demand, electricity producers can charge up very high. A research paper discussing hedging retail electricity prices explained how the Texas electricity market is volatile and would only worsen. In 2011, the government created a price ceiling on how much electricity producers can charge for their day ahead prices. That was $3000 per MWh. I believe the usual prices sit around $30 to $60.

That didn't end there. The government went further by raising the ceiling to $9000 by 2015. So there you have it. There were no price protections at all. Retail companies had to buy at these rates when the wholesale prices spiked. I figured they positioned themselves by hedging, but smaller retail companies could go out of business. Meanwhile, Texans who chose to directly buy from the wholesale market took a big hit. Furthermore, Texans who went with variable price plans will likely see a big bill very soon.

So, Texas went big on electricity. We diverged from others and created our own grids. Deregulated so much that the suppliers could charge whatever when demand overtook the supply. Did Texas over-deregulated? We hear about overregulating. We never hear about over-deregulating.

We clearly deregulated in favor of the corporations. That fueled the growth in Texas, taking big corporate headquarters away from California. Well, this really took a dig in that plan. Can we do anything without power? Tax break with the halt in operations. Governor Abbott recently touted his role in bringing new business to Texas. Are these big businesses reconsidering now?