Giberson: “I’ve seen a lot of mention of high electric power prices lately. Some blame wind and solar energy, others are blaming retail customer choice (i.e. “restructuring” or less accurately “deregulation”). Mostly it appears the analysts do not take inflation into account. Real retail prices of electricity in the US are on average about where they were a decade ago, and below the recent peak in 2008.”
Bradley: But what about US and state taxpayers footing part of the bill for the duplication of Texas generation? Factor that in and the price spikes when renewables fail and a wounded gas-and-coal industry is left.
And don’t forget–electricity policy reform is not only regulatory restructuring/re-regulation as eliminating the franchise and rate regulation for utilities. A real free market….
Bradley: This study needs to be redone with some of the comments I made above, starting with hassle costs from the whole switchover (which were not reflected in price) and the total costs of wind/solar/batteries not reflected in rates (born by US taxpayers).
I remember a Facebook post of some years ago where Lynne Kiesling excitedly reported that she got up and ran to some smart meter device because of a price change. For a nerd, maybe that is worth it, but for the rest of us, we don’t want the hassle.
Transaction costs matter.
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Bradley: The latest on California is indicative of the failure of Electricity Statism….
Giberson: Yes Rob, but to be clear there is nothing in the IER story that implicates the CAISO competitive wholesale market in the rate increases. Instead, they are product of California’s own special variety of energy and environmental policy which adds many non-market costs to customer bills.
Bradley: CAISO competitive wholesale market” is a government centrally planned wholesale market, right? What does “competitive” mean in a sea of government?
Where is R Street’s denunciation of “California’s own special variety of energy and environmental policy.” Same for wind and solar in Texas and elsewhere.
Can R Street challenge electricity statism and not anger its Left funding? If not, why the “Free Markets” tag in R Street’s mission?
Giberson: search the R St site on California. One of my colleagues recently criticized the income-based fixed charge policy. We also have criticized the new industrial policy approach that is increasingly common in electricity, especially in California. There’s more online.
But what does “centrally planned wholesale market” mean? If the industry is centrally planned then it isn’t a market. California’s heavily interventionist regulatory policies may aspire to central planning, but the CAISO market itself is just coordinating energy supply and demand on the grid within the context of the state’s energy policies. To some extent it reveals the contradictions and costs of those policies. It is not the cause.
Don’t shoot the messenger.
Bradley: “Centrally planned” means a ‘market’ that is governmentally directed. ISOs/RTOs are governmental entities with massive playbooks.
ISOs/RTOs go beyond coordination. They may have been originally organized as coordinating, but they are now in the take, off-take, and pricing business.
I remember right after Storm Uri, Lynne Kiesling tried to argue that Texas’s ISO was not governmental. That began our long disagreements. And I was correct from the start.
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On the same thread, but in response to customer response to rates.
Bradley: This gets to transaction costs, which the mandatory open access regime magnified for ‘retail choice.’ A true free market could have avoided much of this.
Giberson: if transactions costs of retail choice were overwhelming then Texas retail prices would reflect it, right? We’d expect prices the start rising with implementation of retail choice as consumers switched away from legacy providers.
Prices do rise from 2002 to 2008 in Texas, but that is easily demonstrated to be a product of rising natural gas prices (from under $2 to over $10 per mmbtu). Then, in 2008 with the end of the “price to beat” system, everyone in the Texas competitive retail market was switched to a competitive supplier.
Where is that post-2008 transaction cost bump? Not in the data.
I am not denying the higher transactions costs of competitive retail, but simply drawing attention to the fact it does not appear to be very big and/or there are offsetting economies resulting from competition (just like advocates of retail competition predicted).
Bradley: Transaction costs refer to what consumers had to go through to have to chose a provider where before they were just subject to the utility price. It is lost time and hassle.
Not saying the monopoly price was good. Just that the government-forced changeover ‘cost’ consumers in pays that were direct but non-monetary. Can’t ignore that in a cost/benefit comparison, can you?
Bradley: High transaction costs of going to retail. Is there an estimate of all the lost time and resources associated with contrived “retail competition”? Some of this was utility cost passthroughs, etc.
So if the consumer savings is estimate at $X billion for Texas consumers in the MOA period. What is the hidden cost of the hundreds of thousands of hours spent by every household in getting that lower rate.
Bradley: Another data point. The official KWh price during Storm Uri needs to be increased by an order of magnitude to account for the system failure under PUCT/ERCOT planning.
In this respect, the price that people are paying for electricity today is for a far worse product than they paid for pre-wind/solar/central planning. It is a governmental price, actually, with the market demoted.
Bradley: On the R Street criticisms of California, have you called and end of wind and solar and battery forcing? Broached the subject of the CEC and CPUC philosophy?
There is so much foundational rot behind the programs of the day that deserve to be put into policy play by a group like R Street.
Giberson: Agreed. I wish there were more groups like R Street with support and expertise to tackle all of the issues. California, in particular, ought to have a pro market energy policy group with the expertise to engage at the most fundamental level.