Unfettered Capitalism

Texas calls itself the energy capital of the world — yet, tragically, millions of Texans have been shivering, and many are dying, in dark, unheated homes without running water. They are victims of unfettered capitalism and politicians whose commitment to Texas’ defining trait of independence led to deregulation of the production and delivery of energy.

Energy independence for Texans meant virtually eliminating the regulatory role of government and refusing to link the state’s power grid with the rest of the country. In 1999, under then-governor George W. Bush, Texas undertook the most extensive experiment in energy deregulation in the United States. The Lone Star state handed control of the state’s entire electricity delivery system to a patchwork group of private generators of energy, transmission companies, and energy retailers. “Competition in the electric industry will benefit Texans by reducing monthly rates and offering consumers more choices about the power they use,” Bush said.

What could go wrong in the state that produces more energy than any other in the nation? A lot, it turns out, but not immediately. At first, the free-market electrical grid worked well, most of the time, and Texans paid lower costs for power because Texas has so much cheap and available natural gas and abundant wind. But, and this is the big but, the newly deregulated system had few safeguards and virtually no rules. 

Deregulation led, as expected, to a plethora of companies, all of which tried to keep costs down to attract budget-conscious consumers. With profits razor thin, and without government regulation, companies had little incentive to invest in weather protection. No one planned for cold weather — “We are not known for our winters here,” one Texan told The Atlantic — so, when the unusual occurred, disaster struck.

Yes, the wind turbines froze, and Republican Governor Greg Abbott engaged in a bit of political theater when he blamed the plight of Texas on the Green New Deal (which does not exist yet). Wind turbines work perfectly well in the Upper Midwest, where they are weatherized, and Texas gets only a small percentage of its power from renewable sources. More critically, natural gas production screeched to a halt in Texas as equipment froze in the unusually cold weather conditions last week. In Texas, due to the ready supply of natural gas, most power plants do not buy fuel in advance. Texans do not believe they need to maintain natural-gas storage because their state has a built-in supply of reserves in the ground. If Texas needs more gas, it drills. Until, that is, the wells freeze.

The United States has three major power grids: One for everything east of the Rocky Mountains; one for everything west of the Rockies; and one for Texas. The first two grids connect the states in their region, but Texas refuses to cooperate in interstate power systems because, by going it alone, the Lone Star state avoids federal regulation. Former Texas Republican governor Rick Perry said, “Texans would be without electricity for longer than three days to keep the federal government out of their business.” Easy for Perry to say as he probably has the means to withstand last week’s tragic circumstances more easily than many families in Houston who barely get by in the best of times.

In emergencies, the national power grids share power across state lines, but the Texas grid — which serves 90 percent of the state — is isolated from the two major national grids. So, the state’s one grid operator — the wonderfully oxymoronic Electric Reliability Council of Texas (ERCOT) — has nowhere to turn for surplus power in an emergency. Tellingly, El Paso survived the deep freeze better than the rest of the state because it is linked to the much larger grid covering the West. As for the bulk of the state, energy independence — the result of unfettered capitalism — meant frozen pipes, freezing homes, undrinkable water, and days of misery that have yet to end for many. 

When Texans deregulated energy, they thought they would be able to choose among many energy companies, each competing for the consumers’ dollars by keeping prices low. But, buying energy is not like buying cereal at the grocery store, where the customer has a plethora of choices as to price, quality, healthiness, and so on. Power in Texas is supplied through an auction between power plants and distribution companies, and ERCOT is the auctioneer. When energy is plentiful and conditions normal, the price remains low. But, when Texas needs extra power, the price in the auction rises, sometimes dramatically.  Last week, the price of electricity in Texas was roughly $9,000 per megawatt-hour. In most of the rest of the nation, the price is usually around $100 a megawatt hour (much less for renewable energy). 

In four days last week, the city of Denton paid $207 million for electricity, about what it pays in a typical year. Customers of Griddy, a small power company that supplies energy at wholesale ERCOT prices, usually pay lower prices, except last week, when some consumers received bills for $2,500 a day. Scott Willoughby, who survives on his Social Security benefits in a Dallas suburb, discovered that $16,752 was charged to his credit card by his power company. 

Texans have no one to blame but themselves. In an unregulated market, supply and demand govern prices. And, in a state that likes to think of itself as an independent country and which is heavily reliant on one source of energy, supply inevitably dwindled in extreme weather conditions. The result was predictable: Consumers paying exorbitant prices — the cost of so many years of cheap energy.

Self-reliant Texans fell victim to the conservative mantra of free-markets, the essence of capitalism. In the 1930s, in the midst of the Great Depression, Americans reached a different conclusion as the New Deal saved American capitalism by inserting the hand of government to protect consumers from the power of larger, soulless corporations. That system worked so well, that in post-war America, Republicans — and some centrist Democrats — concluded that regulation was no longer necessary. In the era of Ronald Reagan, the nation deregulated large parts of its economy in the hopes of restoring unfettered capitalism. The result: Texans shivering and dying a deep freeze.

Posted February 23, 2021


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