Lessons from the Texas big freeze
Carl Pope, 24 March 2021
The Texas power market caps wholesale prices at an astonishingly high $9,000 per/mwh. When the crisis hit, the computers managing the market price crashed. Regulators then arbitrarily set prices at the peak rate, and left them there for four days, knowing that generators could not provide more power because their facilities were frozen. During the freeze, household daily utility bills of $2,500 and more were incurred by homeowners who had signed up for variable plans, even when for most of the four days they had no power. The City of Denton incurred $300 million in power bills in a week, $2,000 for each of its 15,000 residents.
The power companies maximised their profit from those units that were up and running. By the third week in February, it appeared all the energy companies serving the Texas market had made as much money in 2021 as they had in the previous three years.
“We were able to get super premium prices, that’s going to pay off handsomely like hitting the jackpot,” said Chief Financial Officer Roland Burns of Comstock Resources, a leading Texan energy producer. He later apologised when his remarks hit the headlines.
Texas’ deregulated system, like that previously adopted by California, relied on a power market able to handle the state’s extreme variations in weather and electricity demand. Generators would prepare for and meet, at reasonable prices, demand spikes. Instead, generators found they could make huge windfall profits if the market failed, and supply fell while demand soared.
In California, achieving this goal required market manipulation by companies like Enron. In Texas, generators discovered they could let the weather do the market manipulation for them, and reaped enormous profits while providing only half the power the state needed.
