Image: Lake Marble Falls, Texas
Soundtrack: Dalur - Island Songs V
Continued from Water & Power: Public Utilities
Regulation
While their neighbors to the north were now trapped in a federal political-legal fight of the New Deal, after trying to subvert state political-power, Texas had control over their state regulatory bodies and no interest in being in scope for the class war.
Freedom from federal regulation was a cherished goal -- more so because Texas had no state regulation before the 1970s. So eager were the Texas utilities to maintain traditional Texas independence that they memorialized the policy of isolation into a written agreement, binding themselves to intrastate operation. [...] One Texas Utilities [Holding Company] subsidiary installed on its neighbor's premises various devices (such as a system of power flow relays) to protect against the unauthorized transmission of power over state lines. - The Second Battle of the Alamo: The Midnight Connection
At the start of World War II, as manufacturing moved into war footing, there were concerns about the system's reliability, so 10 utilities in Texas agreed to form the Texas Interconnected System (TIS) to support these efforts along the Gulf Coast.
This system backed by oil and natural gas would remain largely untouched until The Great Northeast Blackout during the winter of ‘1965, which saw 30 million people without power due to a cascading surge starting in Ontario, Canada. This caused a national mandate to make the power grid more resilient with new NERC requirements, culminating in TIS's growth into the Electric Reliability Council of Texas (ERCOT).
In '1974, a motion was filed with the SEC attacking the notion of Texas independence by drawing attention towards an alleged interstate holding company.
The motion highlighted how Central and South West (CSW) four companies operated as two separate interconnected groups, making an interstate holding company.
Oklahoma Public Service (PSO) and Southwestern (SWEPCO) were connected to the Southwest Power Pool, part of the Eastern Interconnection; While West Texas and Central Power-operated separately with the ERCOT Pool. They appeared connected due to the running of emergency lines to bordering substations.
CSW asserted that they were, in fact, integrated while at the same time commissioning a study to determine whether it was advisable actually to operate as an interconnected entity; CSW extended an invite to the other members of ERCOT, who summarily declined.
The report concluded that CSW could benefit from considerable operating savings, thereby increasing their profits, but was naturally unable to persuade the much less regulated utilities to join in this endeavor; And while their systems bordered, they couldn't just connect them without involving the other network members.
With tensions brewing along the Red River, CSW, on May 3rd, '1976, filed a motion in an attempt to force the issue in court to no avail; So the very next day, at around midnight, an unknown operator flipped an emergency connection at a West Texas substation thereby connecting ERCOT to the Southwest Power Pool sending power across state lines.
This was allowed to continue until around noon the next as the Texas operators began learning this clandestine operation. In reaction, the word was quickly passed down the line, sending the respective operators scrambling to disconnect. By three o'clock, all of the major Texas utilities were disconnected and running in isolation from ERCOT.
Emergency motions were filed in response with The Federal Power Commission to intercede on the publics' behalf and force these operators to reconnect as they played with the Texas power grid's stability.
Ultimately this stunt entire would fail in the courts, preserving Texas's independence, but it did show how far these companies were willing to go over the battle of profits. In this environment, Enron would be created through the merger between Houston Natural Gas and InterNorth in '1985.
Though the public would not discover this until '1993, In '1987, they started to cook their books while setting out the next year with the explicit goal of targeting unregulated markets.
Deregulation
The '90s in Texas is now remembered as the era of deregulation, which was precipitated by Ken Lay and Jeffrey Skilling [formerly McKinsey], of Enron fame, successfully lobbying, then, Governor Bush to break up the monopolies with the stated goal of reducing costs and allowing new players to enter the market.
Competition in the electric industry will benefit Texans by reducing rates and offering consumers more choices," said Gov. George Bush upon signing deregulation into law.
Bush's deregulation of the markets can be more precisely understood as first allowing wholesalers to join the market by setting a price floor designed to limit predatory pricing in '1995, set to expire in '2007.
This was then followed in '1999 by unbundling the vertical monopolies into individual role-based companies for generation, transmission, and retail distribution, effectively creating an open marketplace of independent agents.
Notably, however, Bush did not introduce a capacity market commonly found among the other national networks.
ERCOT is an energy-only or scarcity market, which means that power estimates are established and fed into the system just in time-based on pricing signals. In the event of a spike in demand, the price goes up, and it's expected that operators will be able to come online to provide.
Capacity markets function largely like insurance, you pay a little extra with each watt, but this goes to ensure that in the future that there is enough extra compacity, or slack, built into the system to cover any unexpected surges in demand while still getting to lock in a nominal rate.
There is industry debate about the utility of capacity markets, as it costs extra and is, therefore, less efficient. Still, one of the effects of buying insurance is that it also reduces volatility. The sort of volatility that Wall Street gamblers like Enron love; Particularly if you just so happen to know there will be a shortage.
Enron, as early as 1998, was creating artificial energy shortages and running up prices in Canada in advance of California's larger experiment with deregulation. The tapes provide new details of market manipulation during the California energy crisis that produced blackouts and billions of dollars of surcharges to homes and businesses on the West Coast in 2000 and 2001.
Bush, now president, in '2005, then signed into law the Energy Policy Act repealing the Public Utility Holding Company Act, which once again enabled interstate holding companies while transferring the power of regulation away from the SEC financially trained eyes.
Over the period of deregulation, from '1999 to '2007, residential electricity rates rose 64%. In '2009, Texans were paying an average of 32% more than their neighbors in Lousiana and Oklahomas' more regulated markets.
Current data ‘2020 suggest this gap is now closer to 10%, making the markets more comparable, but is more aligned on its own does not indicate that these mostly private markets are necessarily acting more efficiently.
The Cities Aggregation Power Project, which pools the energy needs of its member cities in order to negotiate better prices, does not recommend going back to the pre-deregulation system. But the group says it wants the Legislature to curb market abuses by limiting how much power any one utility can generate.
So, on the one hand, while Bush broke up the physical-vertical monopolies of the network, allowing the creation of choice, horizontal monopolies are starting to form in their stead. All while Bush also reenabled the abstract monopolies of finance, ensuring that these choices could fade into an illusion of branding, with profits being extracted by financial administrators.
At this point, Regulation vs. Deregulation can be seen as the false dichotomy that is used as a matter of political aesthetics. What and how things are regulated can both be used to entrench monopoly power or be used to break it up.
With this long view of history, we can see that the populists of both sides wanted to break up the monopolies with regulation. Still, after being trained to either fight for regulation or being rewarded for accepting [de]regulation, each narrative can pit the tribes against each other so that the actual financial deregulation at the top is permitted.
While Bush repealed the Public Utilities Holding Company Act in “05, Clinton repealed the Glass-Steagall Act in “99. Both paving the way forward for the financers who were becoming too big to fall on this side of the New Deal.
Crypto Capacity Markets
With a lack of a compacity market and exponential growing energy requirements for crypto mining, a new company, Layer1, started in May to deploy what they're calling "Bitcoin Batteries" into Texas's grid with plans to expand internationally. The battery in this usage is incredibly misleading, as it implies the storage of energy.
Energy Markets see naturally occurring variations in supply vs. demand. As elements fluctuate, if there is more supply than active demand, this power either needs to be taken offline or redirected towards storage solutions like electrochemical batteries or compressed-air energy storage.
Rather than offlining these resources or storing them for future usage, these "Bitcoin Batteries" are offering to buy electricity at wholesale prices for the mining of bitcoin, then when prices spike to the point in which it's no longer ideal within that market, they can shut down miners with fine-grained control effectively releasing the demand back into the market.
By controlling demand on per chipset level, effectively can normalize the market pricing of electricity to whatever pricing boundaries they wish.
This, in theory, allows more of the market to switch to using renewables, but using cities' worth of power for largely unproductive math problems because the electricity prices are affordable is more likely to continue subsidizing the majority of gas-provided power.
Ultimately by baking in a certain level of demand, this will cause market prices to reflect the similar overhead characteristics of running a capacity market, but rather than letting those resources idle, they will instead be used to generate international securities that Texian ratepayers subsidize.
For comparison, on the international scene, China is currently upgrading its seasonal crypto mining ban in Inner Mongolia to permanent to be able to shut down coal plants and meet carbon emissions reduction goals. Separately crackdowns continue in Abkhazia as miners cause rolling blackouts through the Georgian countryside.
To be continued... Next Week in Water & Power, Cost & Reliability.