This is tricky, but I'd like to make an observation about incentives for #TexasBlackout w/o accusations: We usually worry about generators exercising market power during times of peak demand. An owner of multiple plants has one "call in sick", to drive up the price for the rest.

Right now, generation is off by about a third from where it should be. There's *plenty* of room to expand output without driving prices down. Prices are thousands/MWh instead of tens.

I'd guess that generators are moving heaven and earth to get up and running: a 1GW plant out of service is missing out on about $7MM in revenues *per hour.* They're used to getting, say, $30,000! That's a LOT of reasons to be operating.

Distribution utilities are another story. If they have a fixed-rate plan with a customer, they're in a situation now where their revenues are $0.12/kWh but their costs are $7/kWh. That's why they were paying customers to switch to a competitor last weekend!

Here's where it gets dicey: the storm knocked down a bunch of distribution lines. The distribution utilities are in charge of fixing these, but to the extent they're also serving customers, an operational line means an enormous financial loss under current conditions.

I am not accusing distribution utilities of "calling in sick", but the incentives here are stark. If you look at those facing generators and say, "Yeah, they're probably making miracles happen to earn those revenues" then you should also be worried about the distribution side.

If I were a regulator I'd want to make sure all mutual assistance stops were pulled (bringing in line operators from across the country), and that they're working just as hard on the distribution side as the generation side.

Finally, there's a scenario where this takes a California crisis turn: if generators worry utilities will go bankrupt and not pay their bills, they'll be hesitant to burn fuel they won't get paid for.

I don't think we're there yet, but I'd want to keep an eye on it.

Note that renewables *do not* have this problem. Since their marginal costs are negative (w subsidies), they'll keep generating whether distribution utilities go bankrupt or not.

An addendum on distribution utilities: Texas has gone quite a lot farther than other states in breaking up their old vertically-integrated utilities. That means that the old Houston footprint is covered by CenterPoint (distribution system) and Reliant (retail sales).

It's a little more complicated that NRG owns Reliant and Generation, I suppose. The Dallas area has TXU owning everything, but split apart by 2007 with Oncor taking over the distribution system (I think they're separate?)

There's still 30% covered by Municipal and Cooperatives who may own local wires--but their objective function might be a bit different.

So there's potentially an issue of bankrupt retailers down the pike, but unless there are more complicated ownership structures I'm unable to disentangle, I think the most perverse kind of distribution system incentives are unlikely in Texas.

And in other states, you won't see $7,000 / MWh because they'd rather make a third of their revenues quietly in a "capacity market" that no one understands than in a couple of days above the fold. So it may not be as big a problem that retailers still own the wires.