Nick's Journal
2021-02-26 19:50:00 (UTC)

So what happened in Texas?

I'm trying to be more constructive and write more. one interesting topic to me is what happened in Texas. of course there the power grid completely failed. some blamed green energy, others blamed natural gas, others blamed the privatisation of what is usually a regulated monopoly. so I'm just going to set the background because it gives me something to type, if this bores you swipe left (again the dating apps talking).

so Texas is different than all other states in that their power grid is not connected to any other state (now that I think about it isn't that the same for Alaska and Hawaii too?). the reason for that? so that Texas can skirt federal regulations (as the federal government uses the interstate commerce clause to impose federal regulations, if there is no interstate linkage you can get out of federal oversight). furthermore, Texas decided to deregulate the industry in the 90s and essentially allow retailers to shop around for providers each of whom can provide competitive rates (whereas in other states there is a regulated monopoly, i.e. power company that provides power according to state regulated pricing).

now let's just get it out of the way. I am an unabashed fan of capitalism. I have matured a bit from the dyed-in-the-wool Ayn rand acolyte I once was. looking through my old (and I mean old) entries, I was a rabid capitalist. that has been tempered somewhat. I mean communism, in principle is a brilliant concept. I lived in a socialist country and it was great. so I'll just say I support capitalism but I am not making it a part of my identity, as such, I can admit when it grossly fucks up. also, I am an environmentalist, and believe that climate change is real. so there's also that.

first and foremost, I really hate that the first point of attack was that the wind turbines failed. to me that's like getting a brand new tv and then complaining it doesn't work because you didn't put batteries in the remote. they have wind turbines in Canada in below freezing weather and they work just fine. this leads me to the obvious proximate cause of the whole cluster-fuck: lack of winterisation and also lack of reserves. the wind turbines and gas pipe lines could have worked fine had the utility providers properly prepared. of course they didn't. why? because there was a flaw in the myopic capitalistic utopia that the deregulators had envisaged.

I know, having worked in a lot of corporations in my life, that one of the primary ways to stay competitive is to cut costs. every CEO I have ever worked with was a bulldog for cutting costs. so the corollary to that is that you, under no circumstances, take on additional costs unless absolutely necessary. enter winterisation and other preparations to ensure that the power system can sustain a severe weather storm like what happened. the companies, trying to out-compete each other, lacked the incentive to invest in disaster weather preparation. why would a company invest in that? it would put them at a disadvantage. they would have to get the capital for those investments from somewhere. the trick to outcompeting is to cover your capital cost and reap the remaining profits. if you increase the capital costs by investing in infrastructure when your competitors do not, you likely won't be around for too long. sure, you may be the saviour when such a storm comes, but you more than likely won't be around when it does come.

that leads me to another flaw in the capitalistic utopia that was envisioned: griddy. griddy is a wholesaler of power. meaning that retail customers could purchase power at very low rates (think Costco for power). this is all really great when you have a steady need for power which you will not swing wildly. however, when you sign up for griddy, you do not get those sweet, sweet locked-in rates that you get from a regulated monopoly (where the government sets price caps). rather, you take the risk of variable rates (as you are, by definition purchasing it wholesale, thereby bypassing the middleman (retailer) who normally takes that risk).

so all of a sudden, with the weather shutting down power sources from renewables to natural gas, supply plummeted at the same time that demand skyrocketed. and what does that do to wholesale rates? yes sir, it causes them to skyrocket! so now these people who made the risky bet on buying their power wholesale reaped the downside of their gamble, no cap on volatile rates.

so now, of course, as is always the case in such instances. everyone is crying about how unfair it is. the customers of griddy are saying how this is a travesty. the state government, including their governor abbot is bitching and complaining about it and oh the humanity and oh the injustice. and just like any smart capitalist (look at banks and Wall Street after the Great Recession of 2009) they are holding their hands out for that government bail-out. privatise the profits but socialise the risk! so now those people who enjoyed bottom-rate wholesale rates want you, the federal taxpayer, to bail them out when their risky bet backfires. Texas, which did not want any regulation, especially not federal, is more than happy to have Biden declare a state of emergency.

I love capitalism I really do, but this is dysfunctional capitalism. like I said, privatise the profit but socialise the risk. I think it is an amazing example of how full deregulation is not the best bet when it comes to a service that is so vital to us. we cannot live without power anymore. this isn't like Netflix, which, if it skyrockets we move on to the next supplier or we just live without it if the cost is prohibitive. we need it to function.

lastly, what I find really interesting and somewhat enigmatic is that Texas had a built-in incentive that was supposed to get power suppliers to invest in infrastructure (which they failed to do). this was that those suppliers who had invested in winterising their infrastructure and ensuring preparedness could then reap the profit of the increased rates as demand soared. however, boards of directors and CEOs are incredibly myopic about the future, they think in financial quarters and not about the once-a-decade snow storm. so yes, it was good in theory, but bad in practice. sort of like communism.