“… the economist is looking for the why-behind-the-why. And that is where negative pricing for wind and low margins in general from the regulatory setup ruined the economics of the [natural gas] industry, resulting in premature retirements, a lack of new capacity, and cost avoidance. Are you saying that there was a ‘market failure’ with natural gas in [the Texas blackout of February 2021]?” (Bradley to Kiesling, below)
She engages and then disappears. She is the “classical liberal” who refuses to question the climate alarm and favors the government-forced energy transformation to wind, solar, and batteries–and demand control from the political center. And she is all-in with the centrally planned wholesale power markets, better known as Independent System Operators and Regional Transmission Organizations (ISOs and RTOs).
She trumpeted the Texas ISO as the national model until it imploded in February 2021–and now blames natural gas, not wind and solar or central government planning. With the wounded Texas grid, she is gung-ho about devising demand-side rationing models that will use smart meters to control your usage via a government planning entity. (It will start voluntarily, of course.)
She claims familiarity with Austrian School (market process) economics but does not present their views in her primer articles, much less consider viewpoints against “natural monopoly” and “market failure.” (They conflict with her opening assumptions, which are necessary to jump on a regulatory track.) She has bastardized the worldview of F. A. Hayek by claiming he would have supported mandatory open access (a basic violation of private property rights) and endorsed a centrally planned wholesale electricity market in order to have a “competitive” retail market.
She is quiet on the opportunity cost of the $65 billion wind/solar (government-enabled) investment in Texas. She only wants to consider the “seen” of the February 2021 Great Blackout, not the unseen, the why-behind-the-way that had many governmental mothers and fathers.
She does not recognize the process of regulation, whereby one intervention leads to another and yet another–or her role in tip-toeing down this road to serfdom (and trying to bring classical liberals with her). She seems to be more of a planning technocrat, favoring “smart grid architecture” (her words), than a political economist in the real world.
Here is my latest exchange with Lynne Kiesling, where she ducks low when the questions get uncomfortably near the bottom lines of her thinking. And note what launched our exchange: her misstatement that Texas politicians were now “politicizing their electricity markets.” That began decades ago with Enron and Ken Lay leading on the private side, and George W. Bush, Rick Perry, and others on the political side (see here). It all just took awhile to crucially wound a once strong power grid.
Kiesling: The Texas Senate is politicizing their electricity markets, which will only harm Texas electricity customers through higher costs and distorted investments. https://knowledgeproblem.substack.com/p/the-state-senate-is-messing-with
Bradley: Texas’s grid is already politicized, right? The Federal Power Act of 1935, Public Utility Holding Company Act of 1935, Public Utility Regulatory Policies Act of 1978, Energy Policy Act of 1992, Texas Public Utility Regulatory Act of 1975, Texas Public Utility Regulatory Act of 1995, Texas Electric Restructuring Act of 1999…. The Federal Energy Regulatory Commission, Public Utility Commission of Texas, Electric Reliability Council of Texas, North American Electric Reliability Corporation, National Association of Regulatory Utility Commissioners….
Bradley: On your analysis of the ‘why’ of the Texas debacle [her linked paper], blaming natural gas and excusing wind and solar is disingenuous to me. Yes, the why of the event certainly involved the failure of thermal generation. But the ‘why behind the why’–the business and economic reasons–was a decade of wind and solar forced on the grid by government incentives that ruined the margins, the economics, of the reliables.
Incentives matter, and Atlas Shrugged. Never happened before in a century-plus of electricity ….
Kiesling: Did you read the data analyses, the academic papers, the FERC-NERC investigation report? If you read all of the analyses and you still don’t conclude that natural gas production and processing problems were the main cause, you are engaging in highly motivated reasoning.
Bradley: I have read a lot of them. Their conclusion is that yes, natural gas failed. That is the ‘why’–the physical why. But the economist is looking for the why-behind-the-why. And that is where negative pricing for wind and low margins in general from the regulatory setup ruined the economics of the industry, resulting in premature retirements, a lack of new capacity, and cost avoidance. 
Are you saying that there was a “market failure” with natural gas in this episode?
Bradley (to Tom Stacy): I do not see ‘market failure’ in electricity markets like Lynne does. Neither do I see natural gas as a “market failure” in the Texas debacle because … there was no free market.
Kiesling: Don’t put words in my mouth, Rob, particularly econ jargon words.
Bradley: Lynne: Let me ask you again. Why did natural gas fail in Texas in February 2021? Is it a ‘market failure’?
Bradley: Then why did natural gas fail? Anything to do with renewables?
Kiesling: I’m traveling for work today and through the week, so not very available to chat.
Bradley: Renewables had nothing to do with the failure of natural gas??
CRICKETS; This is a conversation that she is not comfortable having, and thus the vague, dismissive responses and excuse to disengage.
 Note: She revised her linked post after my comment to mention negative pricing.
Here are my posts on why wind and solar ‘failed’ natural gas (and coal) to create the crisis (in conjunction with central planner ERCOT):
Wind, Solar, and the Great Texas Blackout: Guilty as Charged (February 15, 2022)
Renewables “Market-Failed” Natural Gas in Texas (March 26, 2021)
And on the question of Lynne Kiesling as a free-market pretender:
Classical Liberalism and Electricity: Ten Questions for Lynne Kiesling (August 17, 2022)
Classical Liberalism and Electricity: An (Unfinished) Exchange with Lynne Kiesling (August 16, 2022)
Kiesling seems to have backtracked from her earlier confession about wind/solar mispricing and grid instability from the intermittents:
Pokalsky, Borlick, Kiesling: Capacity Markets Now Essential in Texas (central planning rethink) August 5, 2021. Robert Borlick of her camp stated, quite bluntly:
I have stated earlier that the ERCOT market’s reliance on scarcity pricing did not foresee an environment with high penetration of zero-marginal cost resources. Back in 2005 I generically simulated an energy-only market to demonstrate how scarcity pricing would work. I never anticipated the mass introduction of renewables at that time.
And two posts on classical liberal electricity policy to differentiate from the government central planning endorsed by Kiesling (and Michael Giberson, Josiah Neeley, et al. at R-Street):
The Great Texas Blackout of 2021: Classical Liberalism and Electricity (May 3, 2021)
The Great Texas Blackout of 2021: Is Planning Necessary? (May 6, 2021)
Regarding the Texas natural gas freeze-offs in February 2021 and gas vs. wind/solar, Joseph Toomey commented on LinkedIN
The freezing point of methane (natural gas) is -295.6°F. I don’t think it got that cold in 2021 in Texas.
I did retrieve the wind inflow data at 15-minute intervals from the ERCOT transparency site, and I’ll wager you guys did not. Prove me wrong.
Here’s the inconvenient truth: Wind dropped off from 21,000 MW in the days before the event to below 750 MW on two occasions. Solar dropped to about Zero. It’s undeniable.
When the grid became starved of Wind and Solar, gas was the only resource on offer. Unfortunately, ERCOT failed to shift most of the system power to maintaining natural gas pump pressure. So predictably, gas failed also. Starving consumers for a short duration to maintain gas pump pressure would have avoided a longer-term power starvation event.
ERCOT will know better next time to:
(1) Never, ever rely on Wind and Solar, and
(2) Deprive consumers of power for a short term to assure adequate power to the gas supply system so gas plant generation can overcome the ruinous unreliability of renewable resources that can always be counted on to fail exactly when they’re most needed.
Rob, you won’t be surprised to hear I disagree with much of the above, in some places quite strongly disagree.
Let’s start with an area of agreement. Yes, Texas’s grid was already politicized. The industry has been neck deep in political engagement for nearly the whole of its existence. We might note a significant uptick in political engagement since the February 2021 failures, but still the politics itself is not new.
Next an area where I don’t strongly agree or disagree, the “why behind the why” of natural gas failures in February 2021.
My best assessment is that the storm was so cold for so long over so much of the state that it would have overwhelmed just about any commercially-prudent levels of winterization investment by the industry. My views are laid out in the piece I did for the Reason Foundation https://reason.org/policy-brief/the-2021-texas-power-crisis/ . But the Reason piece is most the “why” and not the “why behind the why.”
You claim subsidized wind and solar undermined investment in natural gas generation and supply facilities such that the gas generation sector was left unable to fully step up to the plate during the storm. Maybe that is true, but so far as I am aware you have not developed any analysis to support this view. You speculate, but have not engaged in the hard work to justify the claim. Sure, it is possible you are right, but many things are possible. Why should any one else be persuaded by your speculation?
You claim “Atlas Shrugged” and such a thing had not happened in history of the industry. Not sure exactly what you mean. It wasn’t that gas facility owners walked away from their businesses. The gas facilities still operating were making millions and the ones not operating were desperately trying to get back in service.
In any case the electric power industry has seen a variety of large and small scale similar failures, including in Texas in December 1989 when ERCOT employed rolling outages during a winter storm (a smaller amount for a shorter period, but then the storm wasn’t as deep and long-lasting as in Feb 2021). Several utilities in the Southeastern U.S. had rolling outages in December 2022. (Note: the Southeastern U.S. has very little wind or solar, but lots of natural gas, some hydro, coal, and nukes.)
Politics played a big part of the seriousness of the Texas/Feb 2021 failures, though, in that the ERCOT grid is mostly disconnected from neighboring areas. In December 2022 TVA and Duke Energy and other utilities with brief outages were able to import a lot of power from PJM and the Midcontinent ISO power markets. Those imports lessened the severity and duration of outages.
Texas politics has long interfered with private businesses seeking to link the ERCOT market to neighboring systems to enable trading. That interference very clearly makes the Texas power industry more susceptible to failures during winter storms that blanket the state with subfreezing temperatures.
So, yes, there is a lot of politics. Has been for a century plus. Unavoidable in the present day. Here the discussion shifts to classical liberalism and related issues so I’ll place most of it in another comment.
Thanks Mike for the engagement. I have many points of rebuttal that must wait, but welcome to the ‘why-behind-the-why’ debate at this very late date.
The burden of proof is surely on those who believe that $65 billion spent on Texas wind/solar–ruining margins for natural gas along the way–did not crowd out and bring out the worst in the gas industry. For a decade, free market types were warning that negative pricing for wind (etc.) would “blow out the lights’. It did. ERCOT and wind/solar supporters assured us going into the winter of 2020/21 that everything was fine. It was not.
The Record Cold hits and 1) wind and solar disappear and 2) the ‘reliables’ badly underperform. Gee–who would have guessed. So why should we assume, at face value, that we had a “market failure” with natural gas–the ‘fish rot at the head’ theory. That natural gas is ‘unreliable’….
It is an anomaly because best practices could and would have prevented the lion’s share of the crisis. (It was not a technology problem.) And the more you dig, the more you discover that the Debacle ‘had many government mothers and fathers.” I stop here.
Rebuttal #2 on Industry Politics.
You said: “Yes, Texas’s grid was already politicized. The industry has been neck deep in political engagement for nearly the whole of its existence. We might note a significant uptick in political engagement since the February 2021 failures, but still the politics itself is not new.”
I think you have overlooked something big here. Government regulation in electricity prior to the mandatory open-access era was biased toward ratebase maximization and reliability. Utilities had an ‘obligation to serve’ and could ruin themselves by failing for business reasons, such as not following the best practice of weatherization, etc. to overcome weather extremes.
I think it is hard to argue that the political switch away from reliability (over-reliability?) was not prominent in the Texas story.
In the open access era, with central planning, the ‘obligation to serve’ has shifted to regulators who have a severe ‘knowledge problem’ trying to ensure reliability across vast areas beyond utility control centers. So this political shift from reliability to central planning/renewables penetration was a witches brew of intervention.
I have tried not to respond to you since Uri because I find your approach to both substance and rhetoric fundamentally flawed. Now you have impugned both my intellectual integrity and my character, and have done so in a petty way that has lurched from your more typical passive aggressiveness to outright aggressiveness, so I feel compelled to respond.
First, on the substance. Your understanding of the relevant economics is incomplete, and what economics you do bring to your analysis is filtered through an ideological lens that leads you to engage in such highly motivated reasoning that it damages your economic logic beyond repair. You either choose not to learn or choose to ignore the relevance of institutional, organizational, and transaction cost economics to industrial organization questions in electricity (Coase, Williamson, Ostrom, etc.). You have similar blind spots with the economics of innovation and technological change, such as Christensen’s work and Henderson’s work on S curves and technology maturity models. Putting those two fields together would enable you to engage with how digitization reduces transaction costs and how new, more energy efficient generation technologies like the combined cycle gas turbine changed the industry cost structure and made competitive wholesale markets feasible. But they still needed a transportation network, and there were still substantial economies of scale in the wires, so to this day the wires are ROR regulated. Part of that ongoing regulation includes participation in the transportation network, implemented through the open access tariff that you decry so vehemently. That institutional choice reflects the physical reality that AC power networks are common pool resources with ill defined property rights, another piece of economics that you refuse to acknowledge. Where the RTOs should have done better IMO is in governance, which is quite flawed but flawed differently in each RTO, and here Ostrom’s work on common pool governance institutions is a valuable analytical lens (and Mike Giberson and I have done some preliminary work on this).
The second way your economics is wanting is in your cartoonish caricature of Austrian economics and Hayek in particular. You use only a small portion of his Road to Serfdom argument against central planning, and never engage with his deeper treatment of market epistemology in his (1937) and (1945) seminal works on knowledge. You also project your didactic binary perspective onto his ideas, ignoring all of the nuance of his articulation of emergent order but within an institutional framework that admits roles for the welfare state and other non-market institutions (some voluntary, some coercive), as he does in the Constitution of Liberty (1960) and Law, Legislation and Liberty Vol. 1. Hayek died before electric system liberalization in the UK and US started, so we can’t know, but I think you’re wrong to say that he would have rejected the move to liberalize wholesale markets. In our Hayek and the Texas Blackout article (https://www.sciencedirect.com/science/article/pii/S1040619021000609), Stephen Littlechild and I make some pretty deep critiques of RTO practices and market designs, all grounded in our reading of Hayek’s larger body of work, a reading that I think is more thoughtful and informed than yours.
1 of 3 comments
I am aware of your economic writings in Austrian economics. I don’t disagree with their substance. This is what is so disconcerting. Your fatal flaw is forgetting these writings (and classical liberalism in general) when it comes to electricity analysis and policy. The economists and concepts you mention–a lot of different literatures–can be used against the notion of central planning of electricity. You somehow think that these literatures and disciplines can be used in a government context. One question you have refused to answer: apply the knowledge problem to ISOs/RTOs. Can you do that for us all at substack? And not only Hayek–bring in Don Lavoie’s analysis on noncomprehensive planning, and the Austrian view of competition.
Lots of mumbo-jumbo above–but can you apply it to a free market where entrepreneurs take advantage of new situations in electricity? And please do not say this is all in the service of government-subsidized/enabled wind/solar, dilute/intermittent technologies that have nothing to do with the economic traditions above. Check your premises–don’t make flawed premises and try to intellectualize your way out of it.
Another substantive area where your lack of knowledge diminishes your analyses is in power systems engineering. Successful markets must be embedded in the physical reality of AC power systems, which require substantial coordination among participants through voltage support, reactive power, frequency support, and other grid services. Market products and market designs have to reflect this physical reality. Again, the grid is a common pool resource in which it is literally—literally—impossible to define and enforce property rights. Nothing that you critique or suggest as an alternative reflects any understanding of the implications the physics of the system for how to operate liberalized markets. Open access membership in a larger network exploits the economies of scale in operating such a complex system, and in the abstract that’s the impetus behind the operations side of the RTO.
I’m also mystified by your fanciful counterfactual of an industry with multiple competing vertically integrated electric and gas companies, each owning their own pipes and wires networks and enabling interconnection through contract. As a good Coasean I’m open to contracting, but in order for your proposal to make any sense there has to be pretty serious economies of scope across both sets of production assets and both sets of transportation networks. I find that idea analytically dubious, and you have never offered any data to suggest how and why it might be the logical, organic organizational structure to emerge out of a liberalized but not open access framework. It’s much more likely to devolve into monopolies again, and if I am anti anything I’m anti-monopoly.
In terms of your rhetoric, the way you choose to engage online is distasteful. Your tone is snide and passive aggressive, your various comments that you sprinkle like breadcrumbs on LinkedIn are often incoherent because you are so deeply embedded in your own ideological lens that you cannot (or will not) manage to figure out how to communicate your ideas effectively to people who don’t already agree with you. While you call yourself a classical liberal, your rhetorical approach and your intellectual framework are so rigid and you are so convinced that your way is the One True Way that you are more of a Rothbardian. That is not a compliment. Given that, why would you expect me to choose to join in discussion with you? I have no expectation that you would enter into that discussion in good faith, so better not to even provoke it.
2 of 3 comments
#2-1 We had this argument after the February 2021 debacle where I again and again said control areas and the unique properties of electricity do not require a centrally planned wholesale market. You first said that ERCOT was not a governmental organization in our exchange–and you backed off from that. ERCOT is a central planner that does not know how to price reliability, for starters. And they totally messed up with their analysis of supply and demand going into the Texas debacle. (The Knowledge Problem, right?)
Why central planning? You assume what must be debated. You say: “Again, the grid is a common pool resource in which it is literally—literally—impossible to define and enforce property rights.” What??? Explain why the market cannot handle electricity please. You might have to share (I have asked you to many times) your theory of market failure and natural monopoly. “Liberalized markets”? What is that–‘planning for freedom’?
Power systems engineering–that is a question for markets, free market entrepreneurs, not central planners. If this is not true, then what is classical liberalism applied to electricity? Your criticism of me here is a nonsequitur.
#2-2 Regarding integration, we have oil majors, and the power industry pre-regulation (and post-regulation where Insull was ahead of cost-based rates) were vertically and horizontally integrated. This was a market development that was violated by New Deal legislation that had a false diagnosis–and bad cure. (Should have eliminated existing regulation, not added it.)
Transaction costs is an economic force that must be dealt with in a market. Coordination between the different parts of electric provision and of natural gas provision suggests having it under one roof. Not always, but as the market decides. Do you know what that is? Could have gas/electric companies where everything is integrated in-house on each side. THAT would have prevented the mal-coordination that occurred when upstream gas was not weatherized–or gas compressors were cut off from electricity at the height of the Texas crisis.
Speaking of Coase and transaction costs, do you recognize that consumers having to deal and choose with different providers (and switch for this-or-that reason) under mandatory open access is a transaction cost? On Facebook once, you excitedly reported about racing around your house because of a price change to do something with your electricity usage. I asked you how much money your saved. No response–again a ducked hard question. Coase might have wondered if you were engaged in peculiar action. Most of us just want our electricity on and from a free market (no wind or solar or central planning) and be done with it. Don’t want a ‘smart meter’ that is a cost (subsidized by intervention, another story) and an invasion since it can be controlled from the outside.
Lynne, my evidence is based on the history of the industry and noting the huge mal-coordination problems coming out of Texas. And I simply submit to you the question: why not let the market decide the form of industrial organization between nonintegrated independents and integrated majors? A true market discovery process that has been hijacked by a witches brew of government intervention (including antitrust law). That’s economy of scope. On scale, central station electricity has high scale economies. Not only in generation but also in consumption (the load factor). Wind and solar and other on-grid distributed generation lack scale economies.
Finally, the way you have chosen to impugn my intellectual character is shameful, and the way you have chosen to lash out at me in this post is grotesque. I have no intention to enter into a hip-thrusting machismo contest with you on which one of us is the “better Austrian”, because such purity tests are pernicious and anti-intellectual (again your desire for such a purity test shows you to be more Rothbardian). But setting the record straight about my scholarship, you and your readers may benefit from reading my chapter, Knowledge Problem, in the Oxford Handbook of Austrian Economics (https://global.oup.com/academic/product/the-oxford-handbook-of-austrian-economics-9780199811762) (2014), the Littlechild and Kiesling article I mentioned above, or any of my other works published in Austrian journals. Can you say the same for your scholarly record? I’ve also taught History of Economic Thought for 20 years, at College of William and Mary, Northwestern University, and Purdue University. My class always included coverage of Menger and Hayek.
Your characterization of me as being unfamiliar with Austrian economics is deeply false and deeply petty. What do you expect to achieve with a characterization that is so different from all of my publicly available information?
You clearly disagree with my synthetic theory of regulation and technological change. I synthesize institutional and transaction cost economics, Schumpeterian innovation economics, economic history, public choice, and yes, Austrian economics. If you want me to point big neon arrows and scream AUSTRIAN ECONOMICS, you’ll be disappointed. But I think this theory of regulation and technological change does a better job of helping us understand the institutional and organizational, and technological, reality of what’s feasible in liberalizing the electricity industry and its regulation.
You also object to my Substack. It obviously has not occurred to you that, as a professor, I am using educational pedagogy and building a coherent narrative. That narrative does not start with Austrian economics but it’s going to incorporate it soon. I also did not go back and edit a post that you referred to; I mentioned negative pricing because it’s a core issue, so you probably did not read it carefully the first time.
And speaking of opportunity costs, the time I’ve spent writing this involved my giving up time reading Matt Zwolinski’s and John Tomasi’s new book The Individualists, an intellectual history of libertarianism that you would do well to read so you can develop a deeper understanding of the ideas you purport to advocate.
We’re done here. Congratulations on burning this bridge.
Thank you for engaging further. Good to get this out there. In my decades in classical liberal thought, I have seen a lot of strange things (like Jerry Taylor’s ‘conversion’ to energy statism). But I have never seen a divergence like yours between talking market-process economics and walking market process economics in the real world. And all because of a skill set aligned with technocratic planning.
You really not have addressed my criticisms about your accepting, at face value, climate alarmism, forced energy transformation, and a technocratic solution to the current grid problems brought on by the wind/solar takeover. Yes, you can disengage–and once again, dodge the hard questions. But getting my criticisms out there will let others see what is going on and ask you all the basic, ducked questions–starting with ‘what is classic liberalism applied to electricity’ and ending with ‘are your smart meters coming to the home to ration users, the next step down the electricity road to serfdom?’
Lynne: You state: ” It’s much more likely to devolve into monopolies again, and if I am anti anything I’m anti-monopoly.”
Now that is interesting. First, ERCOT and ISOs/RTOs are government monopolies that are hard to equate to a free market monopoly. Would a free power market in Texas result in a 90 percent market share for a company, for starters?
I have long argued (as you know) for removing franchise protection/public-utility regulation for natural gas and electricity–and have written primer articles on the origins and history of the regulatory covenant. And outlined a classical liberal approach to electricity (at EconLib).
In your substack primer articles (and in our entire discussions), you have failed to bring in the arguments against ‘natural monopoly’. Harold Demsetz? Walter Primeaux? And can you apply Public Choice arguments to electricity politicization going in–not only in retrospect or as an appendage?
I expect you will now do so. Market-process economics, Public Choice … this fronts the debate, not tails the debate.