“After a winter storm in Texas earlier this month left the state’s residents to contend with widespread power outages and skyrocketing electricity prices, William W. Hogan, the architect of the state’s energy market system and a professor at the Harvard Kennedy School, said … the state’s electricity market had ‘worked as designed’ given the conditions.”
“One Texas resident … now owes $16,752 for his energy bill, wiping out his savings. Hogan acknowledged in the Wednesday interview that such situations are ‘terrible.’ Still, he argued the end result could have been much worse.”
– Kennedy School Professor Who Designed Texas’s Energy Market Defends Skyrocketing Prices Following Winter Storm,” The Harvard Crimson (February 26, 2021).
“‘I feel like a caveman,’ said Alexander D. ‘Alex’ Kontoyiannis ’23, describing his experience studying for his organic chemistry midterm Tuesday night. ‘My room was pitch black, and I was just hunched over my desk with nothing but a flashlight, trying to look at my paper,’ he said.”
– “‘It’s Not Getting Any Better’: Undergrads in Texas Contend with Snow, Power Outages,” The Harvard Crimson (February 19, 2021)
How much worse? Remember the joke, “What did socialists use before candles? … Electricity!”
What an irony! What if the title of the article had been “Harvard Professor puts students in the dark”? Or “Harvard planner tells Texas to eat cake”? Of course this is harsh, but ….
For several decades now, William W. ‘Bill’ Hogan, director of the Harvard Electricity Policy Group (HEPG), has been at the forefront of planning the California and Texas electricity markets, among others. This economist can be described as a neoclassical planner, rejecting market organization in electricity (integrated “electricity majors”) in favor of the-more-competitors-the-better government-mandated rivalry.
“Twenty-five years since the passage of the Energy Policy Act, HEPG continues to serve as the key incubator of concepts that have shaped many aspects of the North American electricity market,” the website states. And on Hogan’s bio page, it says that HEPG “examines alternative strategies for a more competitive electricity market.”
Make no mistake: the work of Hogan and HEPG is central planning over a government franchised operating area, the Electricity Council of Texas (ERCOT), commanding 90 percent of the state.
The outside-expert/planner task is minimizing rates for consumers, while ensuring reliability. Ratepayers, environmentalists, politicians, and other busy bodies must be placated.
Intermittent generation like wind and solar? That’s just a planning variable. Must-take renewables under federal law? Decarbonization to “electrify everything”? Just other givens in the planning pot.
Good luck with all that!
Back to two recently published articles in Harvard University’s student newspaper, particularly “Kennedy School Professor Who Designed Texas’s Energy Market Defends Skyrocketing Prices Following Winter Storm.” The 900-word effort contains several misconceptions and speculations from Hogan and interviewed students, four of which are mentioned here.
After a winter storm in Texas earlier this month left the state’s residents to contend with widespread power outages and skyrocketing electricity prices, William W. Hogan, the architect of the state’s energy market system and a professor at the Harvard Kennedy School, said in an interview with The Crimson Wednesday that the state’s electricity market had “worked as designed” given the conditions.
Hogan, an energy policy professor, has researched the structure of energy markets for several decades and advocated for a specific type of scarcity-based market model in an attempt to reduce prices for consumers. In 2013, Texas chose to adopt Hogan’s model.
Per scarcity-based pricing models, when the power supply is scarce, as was the case during the recent storm, the price of energy increases.
Energy generation dropped during the record-setting storm due to loss of power plants, fallen transmission lines, and damage to the grid. As a result, the price of energy rose, and some Texans whose power remained on saw their energy bills increase precipitously.
One Texas resident, for example, told the New York Times that the cost of his electricity went up 70-fold. He now owes $16,752 for his energy bill, wiping out his savings. Hogan acknowledged in the Wednesday interview that such situations are “terrible.” Still, he argued the end result could have been much worse.
“The people who didn’t lose their power, they’re much better off than the people who lost it,” Hogan said. “Even if they had to pay bills for it, then that’s going to have to be figured out.”
He added that Texas residents who ended up with high power bills “chose not to have long-term contracts that protected them.”
In Texas, the energy market is unregulated, meaning consumers can choose to pick a long-term, fixed-rate energy plan or a variable rate plan, among other options. Fixed-rate energy plans lock the consumer into a certain price, even if market rates rise or fall. Variable rate plans offer prices that respond more quickly to the market, and thus are more vulnerable to rate hikes due to natural disasters or other adverse market conditions.
Hogan said situations like the one seen earlier this month are uncommon and that the system works well, with low prices during normal conditions.
“You have to have a balance of supply and demand essentially all the time, every minute,” Hogan said. “If we get out of whack because demand drops or supply falls, you can get in trouble very quickly.”
Hogan added that the recent storm was a “one-in-100-year event” — well outside the normal bounds the system was designed to operate in.
Though Hogan emphasized the magnitude of the winter storm in Texas could not have been anticipated, Texas previously encountered problems meeting demand on its energy grid. In 2011, a winter storm caused 1.3 million people in Texas to lose service, and 4.4 million people to be impacted by outages.
University of Michigan School for Environment and Sustainability professor Peter Adriaens said in an interview that although it is not yet certain that the recent storm was caused by climate change, extreme weather events will become more common as the world experiences its effects.
“Climate change is causing events that used to be rare to become more common,” Adriaens said. “Those are the impacts or effects of climate change that could be more unpredictable. Events are more extreme and in locations where you don’t expect them, such as in Texas.”
Adriaens disputed Hogan’s claim that those who maintained power but had to pay high prices were better off than those who lost power entirely. “I don’t think that is really a fair reaction,” Adriaens said. “The question is, ‘should you ever have to pay that much for your energy?’”
Several Kennedy School students from Texas said they were disappointed that the market was designed with the possibility of such outcomes witnessed over the past month.
Kennedy School student Christopher J. Stewart, whose family was in Texas during the storm, said residents’ negative experiences with the energy system during this crisis matched his expectations for a state where politicians have long pushed for cutting costs.
“It was interesting to see a comment from Professor Hogan that the system worked as designed because I actually think that that’s true — I think the system did work as designed,” he said. “It’s not surprising, because under the guise of fiscal responsibility, they’ve defunded a lot of our public services.”
Joana Ortiz, another student at HKS, also said she was disappointed to hear Hogan’s position, but said it pointed to a “larger systemic issue.”
“Maybe people are surprised by his bluntness, but I think if you do not grasp that you live in a capitalistic society that favors private market for profit, I mean, that is the basis of our country,” she said.
Ortiz added that she believes Texas should meet the recent disaster with bold action. “I think there certainly needs to be accountability, but I actually don’t even think accountability is enough,” she said. “I think there needs to be major reform and personally, I think that will really manifest itself in the next state election cycle.
Future posts at MasterResource will more thoroughly explain the Texas central-planning debacle in terms of nonmarket decision-making, as well as the role of civil society in alleviating the hardship when government bodies did not.
For previous posts at MasterResource on the Great Texas Blackout, see:
“U.S. Winter Outlook: Cooler North, Warmer South” (NOAA’s prediction bust) (Robert Bradley: March 11, 2021)
Numbers and the Great Texas Blackout (Bill Peacock: March 4, 2021 )
ERCOT: A Central Planning Government Agency (Robert Bradley: March 3, 2021)
ERCOT: A Government Agency (Robert Bradley: March 2, 2021)
Texas’ Renewable Fail: Remember Georgetown’s Green New Deal Too (Robert Bradley: February 24, 2021)
Oklahoma’s Rolling Blackouts: Remembering Audrey McClendon’s War on Coal (Charlie Meadows: February 23, 2021)
Wind Apologetics (Robert Bradley: February 22, 2021)
Wind Subsidies Help Freeze Texans (Bill Peacock: February 18, 2021)
Texas Windpower: Will Negative Pricing Blow Out the Lights? (PTC vs. reliable new capacity) (Josiah Neeley: February 17, 2021)