In the days immediately after the Texas Blackouts, numerous national media outlets published articles and TV segments which insisted that wind energy was not to blame for the electricity crisis. In this episode, Bill Peacock, policy director of The Energy Alliance, tells Robert about the history of wind energy in Texas, how the billions of dollars in “corporate cronyism” for renewables distorted the state’s electricity market, and how the state should reform that market to assure reliability and resilience.
In the days immediately after the Texas Blackouts, numerous national media outlets published articles and TV segments which insisted that wind energy was not to blame for the electricity crisis. In this episode, Bill Peacock, policy director of The Energy Alliance, tells Robert about the history of wind energy in Texas, how the billions of dollars in “corporate cronyism” for renewables distorted the state’s electricity market, and how the state should reform that market to assure reliability and resilience.
Robert Bryce 0:05
Hi, and welcome to the power hungry podcast blackout week continues on the power hungry podcast, this podcast where we talk about energy, power, innovation and politics and the Texas blackouts you might have heard involve a lot of energy, a lot of power and a lot of politics. And for those reasons, I'm pleased to introduce my guest and friend, Bill peacock, who is the policy director at the energy Alliance. Bill, welcome to the power hungry podcast.
Bill Peacock 0:33
Thanks for having me on, Robert, I really appreciate it.
Robert Bryce 0:36
Glad you could make time, Bill, if you have been following energy policy in Texas for a long time, but I warned you that I'm going to have you introduce yourself. So if you don't mind, imagine you just arrived at a swanky, a very fancy dinner party with lots of important people. And you have 35 or 40 seconds to introduce yourself, please, by all means, tell us who you are. Thanks. Well, I've
Bill Peacock 1:01
been working in around Texas government since 1989. In Texas, legislature, state agencies and for most of the last 1617 years I've been was at the Texas public policy foundation and from 2005 until I left back in 2019, or 2020. I was working on energy policy. They're focusing a lot on renewables, but just the competitive market of the grid, because as you know, Texas has the most competitive electricity market in the world. So just been doing that for a long time along with other issues. And then I'm with the energy Alliance. Now you can find us at the energy Alliance, calm, and we've been focusing on on energy, both here in Texas and nationwide and how to have a secure, affordable and reliable electric grid.
Robert Bryce 1:51
Great. And just to be clear, the energy Alliance is a project of the Texas Business Council, but Texas business coalition, Correct. Correct. Okay. So, um, so let's jump right in. Thanks for for that introduction. So you've been in around energy policy now for 30 years. And you've had a particular focus on renewables. Let me just ask the question. I put too many of the guests on blackout week. Why did Texas have blackouts?
Unknown Speaker 2:20
Bill Peacock 2:22
I've been asked that question a lot. And I was, I was up in Parker county just last Friday, and I gave him a presentation and after I'd given about a 15 minute presentation, they somebody from audience asked me, so can you tell me why the Texas blackouts occurred? So I thought I'd covered that in the in the presentation, but that made me realize I need to focus up and I'd really say two big things. overzealous fearful regulators who can't keep their hands off the market. And crony corporate corporatism. Those are the two big issues out there. And, you know, we could go into what each one of those has contributed to the blackouts.
Robert Bryce 3:03
Well, let's, let's start with the second one. You said crony corporatism I corporate crony capitalism is the term that I hear more often. Right, right. Let's but and we can talk about the regulators and we know that bill Magnus was just fired by caught. But let's explore that. What's crony capitalism? Why is crony capitalism to blame? Here, what what, what, what role did that play and how did that manifest itself?
Bill Peacock 3:29
Right? Well, you know, sometimes I use the term corporate crony corporatism. Because I don't want people to get confused to think that capitalism is a bad thing. And we see more and more of that in our society today. And but but if you modify it with corporate capitalism, and just make sure it's not capitalism that's causing the problem. That's okay. Another way to look at this is corporate welfare. So the reason for that is that for years now, the regulators and the generators and the transmission folks have come to this place where everything's more comfortable and agreeable to them, if they work together, and there's a lot of different ways that has happened. Some of that's in the regulation of the market, and then some of it is just through subsidies, and, or, and or benefits. And, of course, the, the number one benefit or subsidy that's going on in the Texas market today is for renewable energy, and billions of dollars and billions of dollars have been poured into the Texas market to benefit generators you provide Well, in 2007 or so. When produced about 3% of electric grid. The power on the electric grid in Texas are caught. Today, that's up to about 25%. But they're getting paid these billions of dollars for really what's been a minority portion of the generation capacity on the market.
Robert Bryce 5:00
Well in so what are the what are the biggest examples then of that? corporate welfare, crony corporatism? What? What are the what if you're gonna tell me what the one or two or three things that are the biggest examples of that are the worst abuses of that system? What are they?
Bill Peacock 5:16
Yeah, so they really come in three levels, the federal level, the state level and the local level. And there's a lot of money involved in each one. Of course, the biggest one out there is the federal tax credit. So there's the production tax credit for when, and the investment tax credit for solar powers. And that's been pumping billions of dollars into Texas for years now. It's about since about 2006 is about $9 billion. That has been coming into the Texas market through the through those subsidies The next
Robert Bryce 5:50
year, just just to be so just to be clear, you're saying it's 9 billion in Texas alone, just for the PTC in the ITC.
Bill Peacock 5:58
Right. And then there was some money that came in right after the Great Recession through direct payments, because their tarp, tarp, the TARP program, the tarp TARP program, right. So
Robert Bryce 6:12
and that's included in that 9 billion euro. Right, right. Okay, gotcha.
Bill Peacock 6:16
And then, and then in Texas, there's all kinds of subsidies here in Texas at the state level, but the biggest one is just the transmissions, socializing, transmission costs, and the building of the credit lines, the credit lines, compute competitive renewable energies on although there's not much competitive about it. were built by Amanda, the Texas Legislature back in 2005, the PC adopted it, I think, around 2007, or eight. And then they were the building started and they started coming on the line about 2011. But the whole purpose of the credit lines was to do nothing more than enable wind power to be built hundreds of miles away from the source, which as you know, is a terribly inefficient thing to do when it comes to electric grids, and transmit wind power all the way across West Texas into the populated eastern part of the state. And so that's
Robert Bryce 7:14
where Austin, Dallas, San Antonio, Houston are that so that was. And so you're saying that the building of that transmission line and just to be clear, every ratepayer in the state pays for that. Right. And it's about what, $5 a month, $4 a month, something like that.
Bill Peacock 7:29
I don't know the amount per month necessarily, but it's about it's been $7 billion so far, since they came online, about $7 billion total. And I think in 2020, the numbers about $800 million that that people are paying for and of course, that's either sometimes 800 Electric
Robert Bryce 7:48
$800 million a year that ratepayers are paying down to the fees that but the 7 billion just to be clear, that was only the initial construction costs, you have maintenance and operation as well. Right. Since then,
Bill Peacock 8:00
well, the $7 billion. You're right, that was the overnight cost for just building it. But this but it's also about $7.2 billion today that consumers have actually been charged on their electricity bill. So so that's added up, but it's gonna go a long time, we estimate by 2029, consumers will have paid about $13 billion for the construction of these lines.
Robert Bryce 8:25
Now, that's an interesting number. Because I've asked the power in Texas, there's a website run by the Wind Energy Association to break down those numbers, in terms of what their what the credit lines of cost, but that $13 billion, that's roughly the cost of the South Texas project when it was completed, which is the twin reactor project in Bay City that the city of Austin and San Antonio own parts of but that project ended up costing about $13 billion. And I just making that connection, because trying to give some comparison about well, what is the expenditure here, but so why it I just want to stick on this issue of the state subsidy here for a moment. What what are those credit lines deliver on? Let me say a specific very specific time, say 1:50am. On February 15. Were they delivering any any power into the electric grid when the grid was about to fail?
Bill Peacock 9:22
Very little. If you add up the total of wind and solar, there's about 35 megawatts of capacity online.
Robert Bryce 9:33
gigawatts of 35 gig 35 gigawatts of wind and solar now enercon.
Unknown Speaker 9:38
Bill Peacock 9:39
Again, only about only about 10% of that was actually functioning of course, solar was producing zero. Generation at that time, because for the simple reason that there was no sun, right. And and when was the turbines were frozen or the wind wasn't blowing very hard and The time so there wasn't much electricity coming from wind or solar at all, at the critical moment when the when the when the when the PC and berkhout were shutting down the grid.
Robert Bryce 10:14
Right? So that 13 billion now you're saying by 2029 will be the total bill in eight years, it'll be 13 billion where maybe, I don't know, eight 910 billion now. But all of that money that was spent and how much of that was valuable, I mean, truly valuable in terms of keeping the grid up and running when it when all of this catastrophe was unfolding. So was that, in your view? I'm gonna ask the question, was that money well spent?
Bill Peacock 10:43
Well, no, I mean, it wasn't well spent. And Matter of fact, it wasn't not only was it not valuable, it was harmful. Because if that money hadn't been spent, and if it hadn't been for the subsidies that we've had coming through state, and federal and local levels, we wouldn't have any wind or solar at all on the grid, it just hasn't proven yet to be efficient, right, and they can't compete on price. The only way they can even be in existence today, on a grid level, we're not talking about rooftop solar, for people who want to do things at home, we're not talking about, you know, on an island or in a place where you can't get power off the grid very easily backup, those kinds of things. But just on a grid for a major populated area, they can't compete on price. And we can see that because everybody acknowledges that they won't really say it out loud. But they say well just wait till batteries come online. And we'll get maybe get to that later. But just wait till batteries come online. Well, batteries cost even more money to put online. So you spend more money to make the contributions of wind and solar are reliable. And but they can't even do it at a at a cost that makes any sense. And so none, we instead of all that, we would have natural gas generation built a lot closer to the people who need it. And we would have had probably enough power to keep the lights on that night. And if not, we would have had enough to maintain the rolling blackouts where people were without power for maybe 30 minutes. And the disruption is less than what you get when your average thunderstorm where the lights get knocked out because a tree takes out your power line and you're without power for a couple hours.
Robert Bryce 12:27
So if I'm hearing you write it, I'm paraphrasing. But we in Texas, there was 35 gigawatts of solar and wind in total, almost the vast majority of that is wind. But was that malinvestment. And how would you call that well, how would you typify that? And that spending? Was it? Well, yours? Was it well
Bill Peacock 12:47
spent or not? It malinvestment is a very good term. And, and the interesting thing is you don't see malinvestment on a widespread scale like this without some kind of government intervention, because no financier on Wall Street and his right mind would be throwing billions and billions of dollars at a industry that can't compete. The only reason they're doing it is to chase the subsidies. And I've seen numbers that estimate somewhere between 40 and 50% of the capital that goes into any wind or solar project is is through subsidies, right, the benefits and the subsidies they get. And so that's a pretty good return on your investment. You put half the money in and and half of your return basically is coming from the government
Robert Bryce 13:36
and is guaranteed through the production tax credit or some other incentive that's out there. So let me come back. I'm going to keep you on track. He said there are three different levels of subsidization we talked about the federal level, PTC and ITC, the state level, which is the the credit lines in the transmission capacity. And then you mentioned local how does that play out in the local local areas in Texas? Well, it's
Bill Peacock 14:02
really another tax credit. Here in Texas, we call it tax property tax abatements are limitations on Property Tax Valuation, but it all works out the same. Basically, what happens is a it's it's become its own cottage industry here in Texas. So you have for instance, in the oil and gas industry, you have land men, and they go out and they signed leases for people say I'd like to drill on your property and if you give me your property, let me do that. I'll give you a certain percentage of the of the return which is royalties on that well, the same thing is going on in the wind and solar business today. They have hired landmines, I'm unemployed Landman from the from the oil and gas industry, that type of thing and they they've scour Texas today, looking for any place where they can put together enough property to build a wind or solar farm and get the people to sign on to it. And in the way they incentivize. This whole thing is to get the local school districts and the local counties because these things aren't usually built in cities. So counties and school districts are the main people they go to. And they say, look, we'd love to come build this wind farm in your area. But no, it's kind of expensive to do this. So if you'll give us a property tax abatement on our property, cut our property taxes over 10 years, the first 10 years of this project will come do this and build this here. And so there's a big public hearing. Except a lot of cases not many people show up because the notice on these public hearings at the local level, or 72 hours, sometimes the people find out about him beforehand, but all the negotiations generally take place in secret, that then they announce a hearing. And then nobody shows up and they say, hey, great. Nobody cares about this. It's because nobody knows about that. So anyway,
Robert Bryce 15:56
to be specific, this is chapter 312 313. Is that the the how they're described? Is that right?
Bill Peacock 16:02
Correct. Chapter 312. Property Tax abatements for counties and pre 13 is for school districts. And so they hold these hearings, and then they Grant abatements, and then the wind farms come in, or the solar farms come in and build these wind farms and solar farms all across Texas?
Robert Bryce 16:19
Well, I noticed in in doing some of the preparation for our discussion that one of these last year in fact, I saw it on it was a clip on the energy Alliance website that reminder, Bill peacock is the policy director at the energy Alliance, which is a project of the Texas Business Alliance and he's there you can see his step at energy Alliance comm I was just looking there about a chapter 312 and 313 abatement in Zapata County. Now, I'm not certain, but I'm I'm assuming that Zapata county is has a median household income below that of the statewide average that these are generally lower income counties where these wind projects are going. Is that a fair assessment?
Unknown Speaker 17:02
Well, you know, I think
Bill Peacock 17:05
most of these take place in rural Texas. I mean, while I'm all of them do, right, and right, which, which is one of the amazing things, you have them building solar farms, like in East Texas, which which makes no sense, there's a lot more cloud cover, and all that kind of thing. But you know, instead of out in West Texas, Rio sun, but but they don't care where they build these things. All they need is enough property to get the federal credits and the local property tax credits. And so yeah, I think they are lower income just because generally, they're in areas where there's not a lot of population. And typically, the rural areas in Texas are less wealthy than the metropolitan areas.
Robert Bryce 17:41
So let me play devil's advocate for just a minute here, Bill. And and I'm sure you've heard some of these, these kinds of expressions before, but oh, well, you're just an oil and gas guy, or you're just opposed to renewables or you don't care about climate change, or the rest of it. How do you respond to that? Because I mean, that is generally the kind of the knee jerk the reflexive reaction, anyone who's criticizing these subsidies that oh, well, you're in the pay of you name it, Chevron shell, you know, all the bat that character? How do you reply to that? Well,
Bill Peacock 18:15
a couple of ways. One, I just say, look, let's talk about the facts. And you know, all my life, since I've been doing this, the Texas public policy Foundation, for sure. And since then, at the energy Alliance, I've done research. And so I've written papers, and I've taken the facts, and I've put them on paper. And so the first thing I say is okay, you can think what you want about me, you know, you're no different than I am, though, because you you maybe work in this industry, or that industry. But let's put all that aside. Let's just look at my paper here, and the facts on the paper. And if you have facts, bring them to me, and let's go over the facts. And we can talk about them. But I rarely see the folks who are critical of my work and the foundation's work. And then alliances work, ever want to do that. Because they're not really serious when they criticize us for that they're just trying to score rhetorical points. They don't really want to get to the bottom of things. So that's the first way I respond. Okay, let's sit down and look at the facts. And the second thing is, is that, you know, it could be just possibly, that I actually believe in liberty and freedom and free markets. And I'm motivated by seeking what the best way for people to live is through through free markets and freedom of the choice rather than corporate cronyism and big government regulation. And maybe that's my motivation, rather than some payoff I might be getting. Not that I'm getting any from the oil and gas industry or anybody else.
Robert Bryce 19:46
But that but is that isn't that the knee jerk? I mean, you certainly you've heard this before, right? This kind of criticism hundreds
Unknown Speaker 19:52
Robert Bryce 19:54
and it doesn't bother you.
Bill Peacock 19:56
Now, you know, like I said, Let's sit down and Look at the facts. I'm happy to go through them. And if I'm wrong, I'm happy to issue a correction.
Robert Bryce 20:06
So in terms of the total, then now I know you did a paper that I saw in 2019. For the Texas public policy Foundation, you're not there anymore. And then you've done some subsequent work for the energy alliance in which you've done some tabulation. Some calculations on what are the payouts? So what are your calculations then in terms of the overall subsidies for renewables in Texas? Do you have those numbers in hand?
Bill Peacock 20:32
Yeah, $19 billion dollars since 2006, is what's poured into Texas since
Robert Bryce 20:39
19 billion and and what does that consist of? Well, how do you break that down?
Bill Peacock 20:44
Well, it the state subsidies are like we talked about the renewable energy, the credit credit lines, it's also the RPS program, the renewable portfolio standard program in Texas, there's interconnection costs, where they pay the interconnection cost onto the grid, those those types of things. And then the big number you can't calculate at the state level. Is that the benefits that the renewable energy industry gets from not having to be online, like everybody else does when we're when they're needed, right. So everybody else gets in the Texas market says, okay, you know, if they, you know, it's a complicated market, as most markets are, but the bottom line is, most, most of the generators say, okay, we're going to be in the market tomorrow. And we're going to supply this much energy, because they're looking ahead, and they want to place in line. And if they don't step up the day before and say we want to be there, they're not guaranteed a spot. And so they step up and say, we want to be there. And if they don't show up, when they're needed, then they have to go find the energy somewhere else, if their plant breaks down, they have to go find the energy, wind doesn't have to do that. They don't have to commit to be part of the market, they just show up when the wind starts blowing, or solar shows up when the sun is shining. They force everybody off the market, or, or and or drive prices down because of their subsidies. And so that's a huge benefit. That that we can't calculate, but that's one of the subsidies at the state level, the federal levels, the production tax credit and investment tax credit, that's $9 billion, and then the local property tax abatements calculate those about $1.1 billion since 2006.
Robert Bryce 22:35
So is it fair to say then that the wind and solar free ride on the existing generation that's already in the state? Is that a How would you say? What's the simplest way to describe that?
Bill Peacock 22:47
They're just writing their subsidies to to the bank. Really, that's the way to put it, and they're driving the other companies out of business. I mean, one of the challenges we face today is we have fairly low reserve margins in Texas, there's, you know, Texas is the only state in the country and one of the only markets in the world where the government isn't telling you how much generation to build. And, you know, but that sounds like a risky thing. But no government is telling, you know, industry, how many computers to build, and nobody's telling us how many TV channels to have. And nobody's telling us how many lawnmowers to build, or how many insurance policies we need to have. I mean, it's so it's, it's the way the world works. But for some reasons, people have come to this idea that, oh, the government needs to manage and control the electricity grid are all going to wind up in the dark. Well, we've seen examples of how government control of the electricity grid has actually put people in the dark, it's happened down in California, it happens in New York on a regular basis. And now we've seen it happen in Texas, because as much as Texas does have a competitive electricity market, it's these policies we're talking about now, renewable energy subsidies and others, they're really led to these blackouts. And so, you know, what we, what we need to do here is get rid of some of those kinds of things, rather than increase them.
Robert Bryce 24:13
So I want to come back to the cures, because I want to leave that to the end of our discussion. But one of the things that, to me is interesting is this issue of driving down the wholesale price, and I've seen a lot of discussion, and I've written about it some, but why are that you mentioned that solar and wind drive down the wholesale price of electricity. Now, if I'm a consumer, I'm thinking well and lower price. That's great that you know, what's the problem with that? Why is driving down the wholesale price of electricity and even sometimes driving it into a negative price? Why is that a problem for the other generators? That I'll call him the traditional generators in the market, the coal gas nuclear plants. Why is that a problem for them?
Bill Peacock 24:55
Well, we all love low prices, and there's absolutely nothing wrong with that and in fact, The market is always striving towards low prices. But But that's not the only thing the market is striving for. Because what they're ultimately striving for are consumers, you know, business, businesses can't sell their product unless they have somebody to sell it to. So they have to do their best to satisfy them. Sometimes that's with low prices. Sometimes that's with high quality. Sometimes that's with just a great reputation. I mean, like Amazon, for instance, you know, people buy from Amazon all the time, it's not the low cost seller, it got in the marketplace, because it was generally the low cost seller, a lot cheaper than the stores around you at home. But it's not the low cost seller today, you can go anywhere on the internet and generally find lower prices, and you can Amazon, but they have a reputation for quality and delivery and reliability. Well, so that's what the electricity market would be driving for to write lower prices. And that's a good thing. However, when the lower prices come at the cost price of affordability, I mean, I'm sorry, reliability, that's a problem. And that's what we're seeing today. The subsidies are coming into the market and causing lower prices, but they're not. But they're sacrificing reliability at the same time. And let me see if I can explain that to you. So
Robert Bryce 26:25
I like that. I like that the low prices are actually as they're they're reducing reliability. Is that a fair way to say it?
Bill Peacock 26:33
Yeah, yeah, they're doing that. Because for the simple reason that the generators wind and solar generators get paid for essentially, on a per kilowatt hour basis, they generate a kilowatt of electricity, and they get paid for it. And so from the federal government, in addition to whatever they get on the market, and so, you know, for instance, it you know, it's been various levels, but two cents per kilowatt hour is is a good example. So the wind starting to blow the markets, not very strong, you know, let's just say it's a, it's a mild, you know, April day, 70 degrees outside, not a huge demand for electricity. And coal, and nuclear and natural gas are generating, let's just say, 90% of electricity out there, well, all of a sudden, the wind starts to blow. And wind starts ramping up to the place where it's it could put on 25% of the power onto the market. Well, what happens to those folks out there? Well, they have to compete for space on the transmission lines, and who's going to be buying the electricity? Well, the way when gets on the grid, and those kind of times as it starts lowering its price and lowering its price and lowering its price. You know, in theory, there's nothing wrong with that, because that's the way markets work. But what gives when the benefit or solar the benefit over these other ones is they're getting this per kilowatt hour subsidy. And so if they need to, they can actually go to the point to zero or below zero, where they're actually paying people to take power off the grid. Let's say they're paying somebody one penny, one cent per kilowatt hour to take the power off of their wind farms, they're still making a marginal profit, because they're getting two cents from the from the federal government. Well, some of the natural gas plants can shut down and just not have customers at that point in time. They said, we're not going to do that, that we're losing money. But the coal and the nuclear can't do that. Because you just can't ramp them down and ramp them up. They have to stay on line, and they have to follow those prices down. And so they're actually losing money. Well, so two things to just bring out of that. One is that's driving these other companies out of business, or at least, nobody's coming in to build these plants in Texas.
Robert Bryce 29:01
Yeah, that was the key point that I because one of the things I've heard is because of the way the market is structured that that reliable generation sources like gas, that entrepreneurs aren't going to come into the Texas market, because it makes no financial sense where they can't get the financing to build it, even if they wanted to come in.
Bill Peacock 29:21
Right. Well, that goes back to what I said earlier, is the Wall Street's chasing the subsidies, no wind, or natural gas, for instance, has the generation capacity in Texas grown 3.5% over the last five years, and almost next to nothing the last couple of years. And the meantime, when capacity has increased by 113% during that period of time, and solar has increased by almost 2,000%. So you can see where the money is going Wall Street and everybody else. They're they're chasing those subsidies, and it's not going into reliable generation, the kind of generation that was needed it She talked about Monday night at 1am when the grid started to shut down.
Robert Bryce 30:04
So give me those numbers again, you're saying so this is Texas installed capacity over the last five years or so. Right? Yeah. So yeah, three and a half percent increase in gas fired generation and wind was up how much 100 113%.
Bill Peacock 30:16
And solar is almost 2,000%.
Robert Bryce 30:23
Well, now, so now you're hitting me close to home here, Bill, because I got solar panels on the roof of my house. Right and great, right. And I don't, and I'm gonna remind, I got three different subsidies for it. I got and I have eight and a half kilowatts of solar capacity. And six months out of the year, I don't pay anything on my electric bill. So that's great. That's great. For me, that's great for me, and I'm a selfish guy. I'm selfish pig. But what does that mean? If I'm not paying my you know, what would have been in the you know, when the spring of $80 $90 electric bill, I'm guessing, I'm not paying that same amount to Austin energy. What does that mean for the
Bill Peacock 31:02
Starbucks? What it means is, I'm paying for it. Right, me, right,
Robert Bryce 31:06
Bill Peacock 31:09
But that's what's going on. I mean, and that was the second point, I wanted to get to his, you know, you know, you're not destroying the grid with your rooftop generation. But there's no reason I should be paying for it with through tax credits. Well, when it looks at the industrial level, solar or wind, when the prices go down, for it on the marketplace, the cost hasn't gone down, the cost that we're paying for wind and solar and energy overall hasn't gone down. It's just, we're paying it through the back door, through federal and state and local subsidies. So consumers don't save money when the prices go down on the electricity grid. It's just a reflection of how much we're paying on the back end.
Robert Bryce 31:55
And other ways that we're being another way through the subsidies. But let me just pursue that for just one second here, Bill, because in talking with what to me is interesting kind of stepping back from Texas for a minute is that it'd be one thing if California was just having blackouts, and Oh, those loony California is, you know, with their keen wine, you know, you know, whatever, you know, lots of people make fun of California. But there's a similar kind of animosity among the liberal states toward Texas, that so now that this can't be just oh, this is just a one off of you know, it was cold weather, what have you, but if I'm buying fewer watt hours from the grid, is it one of the things that's been apparent in California is that as their prices go up, more and more people are putting solar on their rooftops, and therefore the utilities are able to bill for fewer watt hours? So the cost of the grid is spread over a smaller number of watt hours that then is socializing the cost of the grid? Is that also in play? Well, yeah, I
Bill Peacock 32:57
mean, I think, you know, there's, again, there's nothing wrong with rooftop solar. But it is really expensive, it costs more to generate solar with a few panels on your roof top than it does to build a natural gas plant 50 miles away from you and get it from there, you know, as long as you spread those costs out over everybody. And so the thing with rooftop solar, you know, distributed generation is generally what they they use that term for, there, there may be a time when that is economical, and affordable, and makes makes sense. But it should make sense through the Marketplace, not through the determinations of folks up in Washington, DC, or folks over Greenpeace, or those kinds of things, or the Texas Capitol. And they just say, Hey, we need to do this stuff, because it's going to save the world. And you know, and that gets us off into, you know, global warming and those kind of things, which, I don't know if you want to talk about that now. But we can. But but that's what's driving all this, although, you know, before it was global warming driving things, there's global cooling, and before that it was air pollution. And so people have always had this hatred towards the fossil fuel industry. And even though it's the most reliable and affordable source of energy out there, and by the way, wind and solar are the most mature, along with water, the most mature sources of energy in the world, they've been being used for 1000s of years, whereas coal and oil and natural gas really haven't become, you know, you saw coal coming up in England and other places around 1200. But they really haven't been on a industrial scale for more than like 200 years or so. oil and natural gas are the nuclear the new technologies here. There's a reason they pushed wind and solar off the grid, because those technologies don't really work well.
Robert Bryce 34:55
And when you say off the grid, and I remember in some of my research, I think About slops mill trace the first wind wind mills to somewhere in Persia in the ninth century, something like that. And solar was being used because of biomass we were, you know, we were growing grass and feeding it to the oxen or the cows or whatever, raising them or horses for draught animals. But just I want to come back to the I've one question I want to make sure I get into before I come back to the hydrocarbon question, but it's about this reaction right after the blackouts that said, Don't blame wind. Right. And we saw it in the national media, the local media. Oh, it's not windfall. So put that in the in the hopper. But yeah, before you answer that, when I, you know, I've been in journalism for more than 30 years. I you know, in years ago, I wrote things are critical, the oil and gas industry, and rightly so, because I saw some of the damage. Why do people what is the Why is there such widespread loathing or discussed at the oil and gas industry? What where do you how do you attribute that or whatever? What do you base? What do you think that loathing and hatred comes from particularly? And I'm going to use this word is these words, coastal elites? Why does that why do they hate them so much?
Bill Peacock 36:11
Well, I think ultimately, it goes back to human nature, Roberta, I think people are jealous and greedy. And they hate profit, at least when they're not sharing in it. And so you've seen it, it hasn't just been oil and gas over the years, or, you know, lots of businesses that people hate, you know, you go back, you know, for instance, to, to Jews in the Middle Ages, right, when, and they were a hated race. Why were they hated race? Well, because they had discovered a way to be the intermediaries in a lot of ways to bring products to market. You know, this all started up in the 1300s 1400s, you know, in the rise of the Renaissance, and merchant banking and those types of things, when we got off the feudal system, and they were one of the first ones to step in and say, Look, we can be intermediaries, we can get these products to you, and sell them to you, then in a way nobody else can much cheaper and better. But they also made a lot of profit. And they were the ones standing in front of everybody, you could see their wealth, you couldn't see the folks behind it. But of course, it wasn't Jews, you know, gypsies and you know, our mediums and others did the same thing very well. They also became hated folks. So I think really, it's not so much about oil and gas. And I think most of the things we see today about you know, weather, pollution, not that pollution hasn't been a problem. But But, but it has happened, but it's continues to get better, not just because of government regulation. But whether it's oil and gas, or pollution, or global warming or global cooling, whatever else, I think people are just looking for ways to take down others who are more successful than themselves, or, or are challenging them for leadership of society in the hierarchy.
Robert Bryce 38:05
And so it's about it's about, well, money in power, right, or any power. Going back to those basic ideas, but it's also just a dislike of capitalism, the dislike of that system. Because I remember a few years ago, back when Exxon was making record profits, I remember very distinctly it was the lead story on when Katie Couric I'm pretty sure it was. She was the lead on the evening news. Exxon Mobil just reported, you know, zillion dollars, and they made 6000 1000 per second or something like that. And I thought, well, that's interesting. When did they ever do a similar comparison to Apple, who was profits on per unit of revenue are far greater than anything ever seen in the oil and gas industry? But it is, it's something that I think is quite interesting. And it's something that in the wake of the blackout, I'll just make this editorial comment here is that I, having been blacked out for 45 hours, and also seeing this push to electrify everything. It's kind of radicalized me and thinking, no, these some of these ideas are not just wrong, they're deeply dangerous, because they're going to make us more vulnerable to extreme weather that could in fact, kill people. But again, that's just my observation. So back back to the wind part of this the after the blackouts. I was stunned. I mean, and frankly, pretty impressed. I have to say, you know, as somebody who's watched journalism for a long time, how many stories came out right after the blackouts that the message was all the same? Don't blame the wind business. Why did we see all those stories? Why what was going on? Yeah, I
Bill Peacock 39:44
thought it was really funny. The first story I saw on this because so you know, it all happens while you're while we're asleep. Monday, Monday night, although my pipe start going off and just shaking wildly about three o'clock in the night. And they wake me my wife up and we're trying to figure it all out. And they're shaking
Robert Bryce 40:03
because they're freezing or wet.
Bill Peacock 40:06
I guess I don't know, it took me two hours. But I finally figured out there was a faucet outside that I'd left dripping. And it was just barely dripping. I went outside, turn it off, and the whole system shut down. I mean, I mean, that's the system, then shut down the whole, everything stopped and everything was back to normal. And I couldn't figure it out. And we just had to have it fixed yesterday, because the shaking was so violent, that it did the the pipes and they had and it was just a little leak, and the plumber was out yesterday just to fix it. And so. So you know, that's all going on while we're sleeping or waking up anyway. And then we get out Monday morning, and it's white everywhere. And a lot of people don't have power. We had power. We live right around the corner from a nursing home. And apparently that saved us. Because as you know, they're supposed to go through rolling blackouts. But the power loss was so great. And the protected areas were so widespread that they couldn't do rolling blackouts. Very, very wrong. on critical networks. Yeah. Right. Yeah. And so. So that's a different matter what, you know, what's a critical network and you know, those types of things, different issues. But anyway, so we wake up and, and so I'm looking all this and the first story I see on all this is about, I don't know, one or two o'clock in the Dallas Morning News. It's a
Unknown Speaker 41:25
Monday, on Monday, the 15th.
Bill Peacock 41:28
Monday the 15th. Right. So right is this is all getting started. It's a Bloomberg report. And what it one of the the headline it says, well, the subhead is that it looks like the winter storm caught the Texas deregulated market by surprise. I mean, so the it had already started. Right, right. We're looking to blame markets. They were looking to blame competition, they were looking to blame Texas regulators, you know, people getting fired, all those kinds of things. But from the very beginning, they wanted to make sure that we weren't blaming renewables.
Unknown Speaker 42:10
Bill Peacock 42:11
Well, because it doesn't fit the narrative. I mean, the narrative is that renewables we're gonna are gonna save the planet, right, we're leading to destruction of society and of the planet. If we don't do something about global warming, or global cooling or air pollution, whatever the the current story is, and so we've got to shut down these use of fossil fuels. And in order to do that, we have to have everything electrified, to use your turn. Right,
Unknown Speaker 42:44
right, right, electrify
Bill Peacock 42:45
everything push electric look to my area. I'm still waiting to fly around in an electric airplane. I'm not quite sure how that works. But
Robert Bryce 42:52
the Latvia electric 737. Yeah,
Bill Peacock 42:55
exactly. Right. Yeah. Yeah. But But anyway, so that's the narrative that we have to do this, because it's saving the world and the planet. And, and therefore, we can't blame these things. That anything, we can't have anything coming to the narrative that disrupts where we're going,
Robert Bryce 43:14
that that might tarnish the green Halo,
Bill Peacock 43:17
the green Halo, correct?
Robert Bryce 43:21
I'm not sure I'm sure. I'm not the first one to use that line. But it's the one just popped in my life. Yeah. So the who made the money. You know, this is one of the other things that you've been following or caught now for a very long time. But the numbers that are thrown around there, frankly, are staggering, right. And I've been writing a piece that I'm going to publish about. What I think is clear, and I want to get to this as well is that the state is going to somehow have to step in here. I just don't see any there any way that the state is going to come out have to come in and somehow backstop or cut. But where did the money go? I mean, estimates that there were $55 billion worth of electricity, that in theory anyway, that was the headline number that was sold. Who made the money?
Bill Peacock 44:06
Well, you know, we've talked about when we talk about subsidies and everything I mentioned that it's not just the renewable folks who are getting these things, and that's in fact the case. So when I first got engaged in this issue back in 2005, on a renewable issue, I was brought in and I started talking with generators. I got involved in this because the lieutenant governor's office actually called us metal foundation and said hey, can you help us the renewable industry is pushing to increase the RPS. Can you help us on that? And we said, Sure, so we did the research. We looked at the numbers and say this is a bad deal for Texas. We I hadn't done the foundation hadn't done any research on it before but it's pretty apparent pretty quickly that this was a problem. And so what
Robert Bryce 44:54
I get so if I can interrupt so this would have been Bob Bullock was in office then now David do hers. Oh, David. Her said so, and 2005, this would be around the time when the credit lines were also being discussed as well, then
Bill Peacock 45:05
it was the same session the legislature gave in 2005, they gave the PC more authority over or cut. You saw how Dan Walker, before she resigned during the testimony, she was saying that, well, we don't have that much authority over her cot didn't testimony in front of the Texas Senate. But she was wrong. And they basically control everything they do over there. And that was the session were Texas,
Robert Bryce 45:36
the PLC controls everything at our cut,
Bill Peacock 45:39
right, they don't do everything, but they're in charge of it. Okay, and, and so that was that happened 2005, they authorize the credit lines in 2005. And they increased the RPS in 2005. And is really, you know, things were okay before that. But as 2005, which was really the turning point that has led us to where we are today. So we got involved in and one of the groups I went to, for information to find out about all this was the generators, because they were concerned about all this. And so they gave me good information. And then then I started finding out about the competitive Texas electricity market, like any other market in the world. And at the time, the left was trying was attacking it because they hated things where consumers weren't protected, right? Of course, they're the ones who want to do the protecting through government. And so they were attacking the competitive nature of the market. And so I went to work trying to protect competition in the Texas market. And again, I got some information, helpful information, always fact check it just for the conspiracy theorists out there. But you know, sure, for the from the generators and from other participants in the marketplace. But then about 2011 or so all the benefits of the early market to the generators, started evaporating profits, because some of them had made bad bets on the market. As you recall, natural gas prices had skyrocketed during this time, in part because we had more competitive, more competitive markets, not just in Texas, but across the nation. And the bigger demand for natural gas because of that, and prices were skyrocketing. Will you turn those prices for natural gas, you run them through the heat rate calculators and they're making money hand over fist. And so they say, Hey, this is gonna go on forever. They are making
Robert Bryce 47:36
money making money hand over fist by turning that gas into electricity, right? Because the deregulated gas market enabled the deregulated electricity market because they might get gas, build a power plant as on spec, right saying, All right, we think we'll be able to sell this power, but it was based on price assumptions on natural gas. That didn't turn out to be true.
Bill Peacock 47:58
Right? Well, high prices because those prices stayed high. They could turn around and sell high cost electricity, right? They they wind up not doing that. And you know, Tsu was taken into the worlds at the time the world's largest leveraged private buyout by I think was Katie thing is KKR. And
Robert Bryce 48:17
so so just to back up, so just this this, this was the regulated market, which was Texas utilities, which is known as Tsu. But then they were it was a Yeah, it was one of the largest leveraged buyouts in American history by Keighley. Yeah, it was, like 40 billion or $50 billion, if I recall,
Bill Peacock 48:34
right. It wasn't regulated by that time, right. It was in a competitive market. By that time, they had split into three companies, but they were still under one shell Corporation. And so what they what they went bankrupt, because natural gas prices came down, electricity prices went down, they went bankrupt. But that happened to other other people as well. And so the profits became a little tougher to come by. And all these Wall Street investors and Wall Street. I mean, and generators here in Texas, who were rate of return regulated and most other places of the country or had gotten into markets that were becoming capacity markets. They started getting a little shy on competition. And so they started coming into Texas and saying, you know, we're not so sure about this energy only market, which is the the name for the competitive market here in Texas where the market rather than the state determines how much electricity is built, curation is built. And so they said, How about some subsidies and this wasn't the renewable guys, this was all the big guys. And so it really since 2011. They've been pushing us. They, they decided at that time to stop working with me because we were still pushing for competitive electricity. And so since about 2011 1213, most of the generators in Texas have been pushing for subsidies and so
Robert Bryce 49:56
bring them up and by and by subsidies, you're saying capacity payments. They wanted to Similar market structure that Texas didn't have we in Texas and ercot have this energy only market, you only get paid for watt hours. But they wanted a capacity payment to provide standby capacity, which other is the standard in many other artios? around the country? I right?
Bill Peacock 50:20
Correct. And so, in 2012, they're actually pushing to change to a capacity market. They didn't get that, but they got the, the PC to adopt this thing called the RDC. The operating reserve demand curve, which is it's basically creates an artificial demand curve for electricity, in times of high demand. And so it was at a pretty low level, but in 2019, the industry was still pushing for this. And they they got the PC to increase the times when the RDC operates. And so in 2019, that actually increased wholesale electricity prices in Texas by $3.6 billion, which, you know, we call it the $3.6 billion electricity tax on Texas, you don't see it on your bills anywhere the legislature didn't for beauport. Even the PC didn't vote for it, they just told their their minions to go do this stuff. And consumers pay $3.6 billion more for electricity in 2019. We'll bring this back to a couple of weeks ago. And what you had was right, that Monday we're talking about now we're in the afternoon prices are somewhere around 112 $100 per kilowatt hour to $2,000 per kilowatt hour
Unknown Speaker 51:40
two, mega mega mega mega I'm
Bill Peacock 51:42
sorry, I'm sorry, mega watt hour. Yeah, so let me just pull up my phone here. And I can tell you right now, the prices and market today are at, let's see, where I'm living right now. $14, West Texas $5. So you can see that it's a little jumped from $5 to 12 $100 sure, megawatt hour, but that price wasn't high enough for the PC on Monday, because they thought or cut told him however you want to look at it, that if we raised the price of electricity to $9,000, which is the Mexican go in Texas, then that would bring more generation online. And so I piece PC ordered ercot to totally ignore all the market constructs. All the mechanisms have been built and, and fine tuned for years and years and years, and raise prices from about 1200 to 2000, from about 12 $100 per megawatt hour to 9000. And it didn't help. We didn't we didn't see much of any more electricity come online. But for a couple of days, prices were trading at 9000 megawatt $39,000 per megawatt. And people were paying out the wazoo for it. And it's much and
Robert Bryce 53:00
that's and that's and that's where we got these estimates of $50 billion for that week of of electricity that that was extrapolated out of those numbers. But you make a key point that it was one that bill Magnus made during the call on February 24. was, yeah, we raise the price cap, and we saw no new generation come in, presumably because there wasn't any to be had. So was that? Is that your answer? Then that showed there were some generators that are that made out like bandits, this is where some of the money went that they made hundreds of millions or billions of dollars, then in those few hours or days. Is that right?
Bill Peacock 53:35
Yeah, well, the money, it's a wholesale price, $9,000 per megawatt hour, it goes to who's selling the electricity in the market. And for the most part, at that time, it was nuclear, coal and natural gas, you know, wind and solar got some two, and they were operating. But but mostly it was went to those folks.
Robert Bryce 53:55
So but it was only if they were then selling into the spot market instead into
Bill Peacock 53:59
the spot. Right. Yeah. You know, because
Robert Bryce 54:01
Austin energy has said, customers shouldn't expect massive increases in their bills because they were buying electricity on on fixed prices. That's what Austin energy has said,
Bill Peacock 54:11
on a normal basis, day to day basis, somewhere probably an 80% of the electricity in Texas, may try trades versus bilateral contracts, you know, you know, Austin in our Austin energy contracts with a generator out there, or Exxon Mobil contracts with a generator and they, you know, it goes to the market but it but it's all on contract. But you know, in times, you know, when when I mean electricity use is uncertain. So you need this the spot market to operate, real time market operate to bring in electricity because demand shifts or supply shifts, and that's what we're talking about here. But in this case, with so much down and so much so many commitments down, people not being able to come through a lot of the a lot More than electricity traded through the real time market and the auctions, and that's not everybody's going to be affected by that. But a lot of people are.
Robert Bryce 55:09
Right. And so that was presumably one of the exposures that brazzers Electric Cooperative had. And then therefore, why they filed for bankruptcy that they had to find power on the spot market. Right. So just last couple thing. Last couple of things, Bill, because we've been talking about an hour and again, my guest is Bill peacock, a friend of mine here in Austin, he's the first austinite actually on blackout week here on the power hungry podcast, I've talked at Meredith ng woods in Vermont, and Steve Briggs in Wisconsin, Lee quarters in California, Jay Paul oxer, was in Houston, but I'm talking about us tonight, which is a good thing. And a very knowledgeable man about who knows about Urquhart for many years. So to two last questions, is the state going to have to bail out are caught? And second, and more importantly, I think, what happens next? Or what should happen next? I know you're a proponent of free markets, but a lot of people are saying no, there's gonna have to be some more regulation here requiring on site fuel, other things that are going to assure reliability and resilience. So. So yeah, take those in order, if you don't mind. Well,
Bill Peacock 56:20
is the state going to bail out or cut? I don't know the answer to that. I have seen, you know, we talked about earlier KKR went bankrupt billions and billions of dollars into bankruptcy, nobody had to bail them out. Because the thing is they had generating assets on the ground that were valuable. And so they went bankrupt, they lost a lot of money. But people came in and bought that generation. And it continued to work. So it's not clear to me that that the state needs to bail out anybody. Now what the state does need to do is to reverse the PCs decision to bring generation up to $9,000 per megawatt hour that that was wrong. That was government intervention. And that's what caused a lot of the problems here. So they shouldn't do that. And that kind of takes us to the next. Your next question is would you know, how are we going to solve this problem? Let me tell you one quick story. So I wasn't without I was on without electricity for very long, a lot of people without electricity for, you know, a day, day and a half, maybe two days, something like that. But the real problem in Texas, particularly in Austin, was we were out without water. Right? And why were we without water in Austin? Well, it turns out that the plant in Austin, the largest water plant in Austin, that produces about half the electricity, half the water for the people in Austin, ran out of power. That same night, we're talking about Monday, Monday morning. And like all other water plants, they were supposed to have backup generation to keep the power going. And they did. But nobody at the plant was trained to know how to turn the backup generation on. And so they went for three hours, three hours plus waiting for Austin energy to come in and do the work. In the meantime, the water levels are dropping rapidly because they can't get new water in. And people are all that everybody has their waters, faucets going during the night to keep it out. And so by the time they got the power back on, water levels were so low and water pressure was so on. They had to start shutting down the system
Unknown Speaker 58:35
Bill Peacock 58:36
So why do we think that turning the electricity grid Moreover, to people like that is going to help solve any problems? It's just not going to? Right? So what we need to do is we need to get rid of the renewable subsidies, we can get rid of all the Texas subsidies we can't in Texas, we can't get rid of federal subsidies. But we can force generators renewable generation in Texas to pay for the cost they're imposing here in Texas by essentially making them pay for transmission for InterConnection, and for not showing up. Right. There's massive costs being imposed on the grid, we can make them pay for that. It's pretty simple how to do that.
Robert Bryce 59:16
What is required require them to provide power when power is dear. Right?
Bill Peacock 59:21
Right. If they want to be market participants, they don't have to. But if they don't want to obligate themselves that way, then they're not going to be guaranteed to be able to get on the grid and lowering their prices won't help them at that point in time. Right. So you kind of put that construct in the place, then you show you show you
Robert Bryce 59:38
change, you change the market rule. So if you're going to be a participant, you you have to put in, for instance, a performance bond or something that says we will show up and if we don't we forfeit the bond or something to that effect. I mean, you're talking about a rig or you're talking about a regulation and I know you like a light hand and regulatory issues but you've got to have some care. Some big big honkin stick, right? It's a punish them, if they don't deliver. Is that is that fair?
Bill Peacock 1:00:06
Well, again, it's not. I mean, yes, yes, it's fair. I think though, it's just like, you know, there's rules for everybody, you just make wind and solar play by the same rules as everybody else's, as a market participant. And you know, it's it's a regulation only because the market is reg driven, regulated by the state, there's no reason the grid needs to be operated by the government, it just happens to be. So that's it. The Another thing you can do here in Texas, is get rid of all these regulations that allow the PC to do what it's been doing to deconstruct the market. And there's all kinds of antitrust regulations, market power abuse regulations that are people are afraid of, you know, and the funny thing is that most of these regulations are in place, because the regulators and the state policymakers are afraid that the generators are going to make too much money. And so what happens when the regulator's the generators start coming in and complaining that they're not making enough money? Well, the state just steps in and raises prices, either through the RDC, or just like the PC did the other night. So they're making hassle the market, you need to get the PC out of the business and let the market handle itself.
Robert Bryce 1:01:18
So you think that ultimately, if you and I guess this is always the challenge? And what I've, you know, my own bias has been, there was a misunderstanding of the grid and the importance of the grid that this idea, oh, you can sell electricity, just like hamburgers or tortillas? Well, it's not a hamburger. It's not a tortilla. It's a critical service. Right? So it has to be handled in a different way. But you're saying that if the if the incentives are right, that the government can still reduce the mandates, if the if the rules are, are AR properly constructed? So it's a level playing field? Is that a fair recurrent recounting of what you're trying to say? Or am I making a
Bill Peacock 1:01:58
hash of it? Well, let's step away from tortillas and hamburgers and just look at food generally for a second. So think, think about New York City, right? I used to work in agriculture, and went up to New York City one time, there's enough food on Manhattan Island to survive for about four or five days. Okay, you know, and, you know, after stocked in for people to buy after that it's gone. Right? And then people would start starving to death. Pretty soon after that after they go through their cabinets. Nobody is mandating the grid that delivers all that food to New York City. It's just as complicated and just as important. And just as as as the electric grid is. Nobody's mandating how that works. It just works. Because people have figured out how to do that. I think you can see the same thing happened with the electricity grid. And actually, we have seen that occur in Texas. And so it's, I'm not just making this stuff up fantasizing about it. We've actually seen it work in Texas, what we've seen the last few weeks is because that wasn't allowed to work. And realistically, because we had a record storm here, the state meteorologists said that is probably the third or fourth worst storm in Texas history. But from variance from norm, it's the worst storm ever, because late in the season. And so you put that together with all these subsidies and market interventions, and that's what caused this to happen.
Robert Bryce 1:03:30
Gotcha. Okay. Well, good. Well, Bill, we've been talking an hour and I don't want to keep you I know you have other obligations today. But this has been great. I mean, he really provided to me and I've been looking at these issues for a while as well. But a better breakdown of the the incentives attached federal tax incentives being one of them, that ended up in distorting the market and leading in part two, this catastrophe which it is a catastrophe that is going to be continued to play out in the in the weeks and months to come. So my guest again, is Bill peacock. He's the policy director at the energy Alliance, which is a project of the Texas Business Council. You can read some of his work at the energy Alliance Comm. Bill. Thanks a million for being on the podcast. I sure appreciate your time.
Bill Peacock 1:04:17
Thanks for having me. I enjoyed it.
Robert Bryce 1:04:18
Thanks and draw you in podcast land, give us 10 1245 stars, whatever is available on your local podcast outlet. That'd be great. And until then, I think this is the last episode of blackout week on the podcast. But I'm sure we'll be talking about some of these issues more in the future. But until the next episode, thanks for tuning in. And then I'll see you next time.