Did deregulation mess with Texas?

The Lone Star State did things on the cheap, but that’s not the whole story

The tragic collapse of the Texas power system has led to both an outpouring of generosity from around the country (along with federal relief) and calls from familiar quarters about the failure of free markets to respond to disasters.

The complaints, whether thoughtful or reactionary, blame the decision Texans of all political persuasions made a couple of decades ago to move from the 20th century standard of regulated, monopoly utilities to an independent, mostly deregulated system. But this isn’t a black hat/white hat story of evil profiteers versus noble public servants. The mostly deregulated Texas system got a lot of things right — generating memes urging Californians to move east for the cheap, reliable energy — but it had a blind spot that left the state with little insurance when an unusual but predictable disaster hit.

In the late ‘90s, Texas launched the nation’s most ambitious move from regulated utilities to a market-like system. Consumers could pick their power company and even change providers if they didn’t like the service or prices.

Regulatory agencies didn’t disappear. The Energy Reliability Council of Texas oversees the state’s wholesale market. The Public Utility Commission has charge of transmission companies that sell power to retail consumers.

But, as The New York Times reported, “both agencies are nearly unaccountable and toothless compared to regulators in other regions, where many utilities have stronger consumer protections and submit an annual planning report to ensure adequate electricity supply. Texas energy companies are given wide latitude in their planning for catastrophic events.”

For a lot of Texans, the scarcity of regulation is a feature, not a bug. 

The right touted cheaper energy to push economic development. The left wanted to dump monopoly utilities and nudge the growth of renewable energy. Under the old system, a utility could keep aging fossil fuel power plants in action forever and just charge ratepayers for their upkeep.

Renewable energy companies went to town under this system, innovating while rent-seeking, getting state and federal subsidies that flowed to businesses pushed by the environmental lobby. A wind facility might provide cheaper energy — and consumers who wanted to go green could buy their electricity from a company that specialized in renewables.

Here’s the bug: Texas also chose to sever much of the state from regional power grids that could fill in if state-based providers couldn’t keep the lights on. The move seemed to make sense. Texas exported energy. Why should it rely on outsiders and their weird rules, when it could be self-reliant?

The system worked … until it didn’t. The separate grid let Texans avoid federal regulations. It also isolated the state during the blizzard and hard freeze that paralyzed the middle of the country. The Lone Star State was indeed alone in the cold.

But we’re learning that the lack of connection to regional grids may have kept the power crisis from spreading far beyond Texas.

Doug Houseman, a grid-modernization expert at a major engineering firm, said this at a recent Institute of Electrical and Electronics Engineering panel (reported by National Review’s Kevin Williamson):

“Even if [the Texas grid] had been connected, there would have been blackouts, because SPP [the Southwest Power Pool] and MISO [the Midcontinent Independent System Operator] had no excess [capacity], and Southwest [which is distinct from SPP] had only four to six gigawatts, but we were turning off ten-and-a-half gigawatts at that point.” [Houseman said]. Far from having spare power to share, adjacent grids were experiencing rolling blackouts of their own.

The lack of oversight by ERCOT and the PUC also allowed power companies to operate on the cheap, forgoing measures that would protect transmission lines and power facilities from extreme if rare winter storms but not generate profits.

Share Deregulator

Severe winter weather hits the state often enough. Texas endured blizzards and deep freezes in 2008 and 2011. Under a regulated monopoly system, utilities might have been forced to make allowances for freezing weather. Ratepayers would have picked up the costs.

When the hard freeze hit, electric power lines went down, natural gas pipelines froze, wind turbines weren’t de-iced (Scandinavia gets a lot of its energy from wind power, even in winter). The system lacked redundancies and insurance.

Despite the recent devastation, the NYT says, Texans generally like the way the system has worked and prefer to tweak rather than scrap it. 

From the Times:

Steven D. Wolens, a former Democratic lawmaker from Dallas and a principal architect of the 1999 deregulation legislation, said deregulation was meant to spur more generation, including from renewable energy sources, and to encourage the mothballing of older plants that were spewing pollution. “We were successful,” said Mr. Wolens, who left the Legislature in 2005. ...

Wolens said the system is fixable. “The buck stops with the Texas Legislature and they are in a perfect position to determine the basis of the failure, to correct it, and make sure it never happens again.”

(The full story is worth a read.)

In a Washington Post op-ed, the University of Houston’s Ed Hirs suggests restoring utility monopolies. “Ultimately, electricity’s value is not in the cost at meter, but rather what it allows us to do: care for the sick, conduct commerce, live in comfortable homes and communicate with our loved ones across the globe.”

Fair point, but food is even more essential than electricity for human survival. The deregulated market for food seems to work pretty well.

Why? Over the millennia, we’ve learned to raise inexpensive, nonperishable foods to sock away for emergencies. You can live a long time and pretty well on beans, rice, canned goods, and filtered water.

Modern energy markets aren’t that mature. As Williamson says,

“Just as the economic incentives do not support the maintenance of a lot of reserve capacity, they do not provide much support for the storage of natural gas and other fuels. It’s a just-in-time world for energy, and that creates both efficiencies and risks.”

Maybe the winter tragedy will offer Texans an opportunity to rebalance those efficiencies and risks, and generate ideas others can share for secure alternatives to the one-size-fits-all power bill.

RIP, Papa Gene

As I write, roughly two dozen people have died in Texas from the storm. One is a terrific musician I’ve seen perform several times — with The Blasters, the Fabulous Thunderbirds, the Kim Wilson Blues Band, and the late Lynwood Slim. Pianist Gene Taylor apparently froze to death in the house in Austin he shared with filmmaker Monty McMillan. What a way to go. He was 68.

Here’s Gene with his “blues band” (aka The Blasters with Gene in the lead chair for a change) a few years back, playing a Big Joe Turner classic. Yeah, Gene played with Joe, too. Rest easy, big fella.