If a large number of people are allowed to trade electricity in the wholesale market and end up with bills they can’t pay, that’s not just a you problem, it’s now a structural one. At least for Griddy, and if they go bankrupt maybe for the electricity grid market itself. Kind of like how people’s unaffordable mortgages weren’t just a ‘them’ problem in the financial crash.
Some people are asking for the state to bail out people with these bills now. In other words, people liked the ‘freedom’ to benefit from cheaper wholesale prices, but when the market moves against them, the downside risk will be socialised.
I agree that wholesale electricity is not a product that should be easily available (or, at least, should not be marketable) to individual consumers. However, I do not see the systemic risk. Griddy could go bankrupt because of this. However, Griddy's debtors in this are the generators that were able to continue operation. These generators did not face a significant increase in cost to supply electricity (or, at least, any such increase was not the driving force behind the increase in electrical cost; which was driven by other generators going offline). While I am sure that these generators would prefer to have their windfall they are not reliant on it. In fact, they should know that this windfall comes with a significant counterparty risk, and will likely avoid depending on it until they see how that risk plays out.
Good point, but part of the ‘reason’ for the price to go so high is to incentivise the generation of electricity as much as possible in such a time of need. If consumers are allowed to participate in the wholesale market to such a degree that that significantly raise the counterparty risk once the price goes above some level, that incentive is weakened. The last thing you want in the current situation is for the remaining generators to shut off because they don’t think anyone will be able to pay.
Bankruptcy does not simply eliminate all debt. It is likely that the money available to the generators at the end of this would be somewhere between what they would have gotten at "normal" market rates, and what they are owed given the actual spot price.
The story here would be different if the driving force behind the increase in electricity cost was an increase in the cost of inputs (such as the cost of gas). This did happen a bit at the margins (spinning up expensive to operate generators), but for the most part, generators went offline not because of the expense of staying online; but rather because they were incapable of operating. The decisions about electricity supply during this emergency were not made during the emergency; but during the decade prior, when the equitment was not outfitted to prepare for such an emergency.
In theory, allowing high spot prices provides a free market incentive to make such preparations. However, in practice, the free market is simply not good at dealing with the long tail events like this.
Left to its own devices, it prefers the safe options of sitting out the potential long-tail event over the risky option of investing in preparing for a long tail event that may never come.
This is why the mechanism for preparing for this type of event, should be regulation.
Doesn’t really seem like a reasonable comparison. If someone doesn’t pay their bills you stop giving them electricity. This is not anywhere close to what happened with the 2008 crisis.
And yes, that’s the point. I don’t want the state to socialize losses, and I don’t want them to say I can’t buy electricity from a wholesaler. People should live with their decisions.
It doesn’t matter if the state bails out this kind of risky behaviour, if they didn’t then the downside would still be largely socialised through increased electricity prices for everyone else as sellers start to price in the risk of default on their trades.
Electricity market is regulated partly because providing a reliable electricity supply is seen as important for society, maybe more so than the importance of giving consumers the freedom to gamble on the electricity markets.
Most consumers already pay the increased electricity prices. The issue under discussion is the wholesale consumer, who had (up until now) been saving a bit of money by buying electricity directly at wholesale spot prices. Consumers who had payed a premium for a middle man company to take this risk in exchange for a fixed electricity price are not facing exorbitant bills.
I think that’s beside the point. If risky consumers are going to participate in the wholesale market, that risk will be priced in at the wholesale level instead of being separately hedged. The idea that consumers can have the freedom to participate in the wholesale market and get cheaper energy out of it seems unsustainable. They are inherently risky and have to pay for that risk at some level, in the long run (unless the state always bails them out)
Pre-paid plans are relatively common around the world and becoming more so in the US. Much of that is due to utility companies requiring quite large deposits that they will forgo if you are pre-paid.
The people with the debts should go bankrupt/be released from paying; the losers should be the companies who provided services without thinking about how they were going to be compensated.
I can see how this is going to be the taxpayer's problem - but that isn't because there is anything wrong with consumers taking on risk. The problem is corruption in the political process of wealthy politicians are friends with wealthy CEOs and big shareholders. Then magically bailouts happen with near bipartisan support.
The galling part of it is that there probably is a political consensus on the ground against bailing out companies that make bad decisions. I think at least the socialists and free marketeers would agree that if the owners make economically ruinous decisions they shouldn't stay on as owners.
Some people are asking for the state to bail out people with these bills now. In other words, people liked the ‘freedom’ to benefit from cheaper wholesale prices, but when the market moves against them, the downside risk will be socialised.