Tuesday, June 18, 2013

Summer forecast - rolling blackouts?

And once again it's time for our annual look at why our reverence with the concepts of free markets is misguided.

Back when Texas deregulated its electricity market to allow consumers to choose their electricity provider, we were promised that the market for electricity in Texas would become more rational and efficient. Supposedly power producers would ramp up production as the price per kilowatt hour increased during periods of high demand and they would ease up on production when prices fell.

For adherents to the religion of free market economics this meant that the energy market would continue to trend toward equilibrium and that we wouldn't have to put up with shortages of power during the summer because producers would want to maximize their profits by upping supply as the price of electricity rose.

Only it hasn't worked out that way. As the mercury climbs closer to triple digits, whispers of rolling blackouts are being heard. While ERCOT (the agency that manages the grid) claims everything is in great shape, the Energy Information Administration isn't so sure.

Over the past year the increase in demand for electricity in Texas has grown faster than the state's capacity to supply it. According to the Houston Chronicle, demand increased from 2012 to 2013 at a rate of 2.3% while supply only increased at a rate of 1.4%. As a result, ERCOT's reserve margin estimate came in at only 13% instead of a projected 14%.

The result could very well be another summer of rolling blackouts in the Lone Star State, the only state in the southwest whose reserve margin estimate fell short of its goal.

So, free marketeers, whatever happened to the promise of efficiency we were sold when the legislature decided to allow the energy companies and speculators to determine how much we paid for electricity? And what will be the price of these rolling blackouts to the poor and the elderly who can least afford to lose their air conditioning?

No comments: