How the Texas Power Catastrophe Could've Been Avoided
After experiencing its fair share of summer humidity, dry heat, hurricanes and tornadoes, you’d think one of the largest and most populous states, Texas, would be well-equipped to mitigate potential power outages due to inclement weather. But as millions of residents lost power during winter storm Uri, many are wondering: How did we get here and what went wrong?
It started more than twenty years ago, when an alliance of energy traders and large purchasers of electricity banded together in an attempt to promote electricity deregulation across the nation. As a former state official and utility regulator, I was there with a front-row seat.
In the late 1990s and early 2000s the energy policy conversation was dominated by aggressive advocates for utility deregulation. Among the most prominent leaders of the cause were the now infamous characters from Enron, dubbed, “The Smartest Guys in the Room,” by the eponymous book. For those who thought electricity deregulation evaporated with Enron’s stock valuation, I have news for you: It didn’t.
A handful of states, including Texas and a few in the Northeast, stuck with deregulation, serving as a cautionary tale for states that wisely didn’t adopt the model. States with the highest electricity costs tended to deregulate, and yet they are generally still paying the highest costs today. They’ve been riddled by consumer protection problems and prices that are persistently higher and more volatile than their peers that maintained the regulated, vertically integrated utility model.
None of these deterrents have stopped a contemporary generation of “The Smartest” from bringing renewed vigor and vitality into the deregulation debate. Only now, it’s not high-flying Enron execs making the pitch: It’s a coalition of Big Tech and large corporations that are pushing electricity deregulation under the guise of “going green.”
Of course, utility deregulation itself does nothing to aid clean energy. In fact, deregulation is particularly damaging to the economics of the nation's largest carbon-free resource: nuclear power. Additionally, deregulation does little to incentivize investment in the economy-wide infrastructure we’ll need to decarbonize — such as the transmission lines required for a large-scale buildout of renewables.
Instead, deregulation enables large purchasers of electricity, such as Big Tech, to cut special deals for themselves at the expense of average consumers. As the Amazon’s and Google’s of the world strongarm regulators to eke out cheaper energy prices, run-of-the-mill residential and commercial customers who don’t have the same buying power are left to fend for themselves. In a number of deregulated states, this has resulted in stagnant competition for consumers who realize they would have been better off staying with the incumbent utility provider, versus being forced to shop in a marketplace controlled by just a powerful few. This is hardly the picture of healthy free-market competition painted by deregulation’s champions.
Big Tech advocates for deregulation yearn to be the great disruptors of the utility business model. By imposing a one-size fits all design across the country, instead of state-led regulation, Big Tech hopes to reinvent the electricity delivery model around its own virtual platforms and away from regulated utilities. This is very much in the mold of Enron, which had similar plans of a regulatory model built to favor its business interests. But, for policymakers, the key question is not, “how do we create a new business line for Big Tech?” It is, “how do we ensure all consumers have access to safe, reliable, reasonably priced energy?”
To be sure, the traditional regulatory model has its own set of failures, misaligned incentives and problems. Theories of regulation have a hard time keeping up with innovation, knowledge gaps and plain old opportunism. But ultimately, a regulated market creates a decisive advantage by avoiding volatility, retaining stability and maintaining capital investment. We can refer back to the current power crisis in Texas to exemplify the threat of an unstable, unsustainable deregulated utility market.
As a philosophically market-oriented former regulator who has supported deregulatory policies in other industries, you would think I would be one of the first to support electricity deregulation. If a model of electricity deregulation that consistently led to better overall consumer outcomes existed, I would be happy to hop on the bandwagon. Unfortunately, I haven’t found it yet. The real-world consequences of electricity deregulation can’t be swept under the rug in favor of theories that work better on a whiteboard than in practice.
It would be great if utility deregulation worked. The problem is, it just doesn’t. We saw that in California over the summer when the state faced significant power outages due to the heat, and we’re seeing it today with Texas unable to keep the heat on for millions, forcing people to evacuate their homes in search of warmth and even resulting in several deaths. What will it take for leaders to realize that deregulation is part of the problem?
Ray Gifford is a former Chairman of the Colorado Public Utilities Commission and managing partner of the Denver office of the law firm of Wilkinson Barker Knauer, LLP.