Epic Power Failures
By the middle of March, February’s Big Texas Freeze had begun to recede in official state memory. Redbuds and bluebonnets were ablaze, spring breakers were en route to super-spreading beaches everywhere, and the 2021 online version of SXSW (last year’s first coronavirus cancellation) was streaming the usual suspects. At the Capitol, Governor Greg Abbott, fresh from abruptly lifting pandemic safeguards, was attempting to turn Texans’ attention to “election integrity”—the current Republican euphemism for suppressing the right to vote.
Nevertheless, evidence lingered of the catastrophic winter storm. Many Texans, mostly apartment dwellers, still lacked consistent access to water while they awaited repairs of burst pipes and damaged homes. Other residents, who had not gone completely without heat or light during the February 15 through 19 emergency, received thousands of dollars in bills for the power they did receive. And state agencies continued compiling the count of those who died for lack of heat or power during the storm—from hypothermia, carbon monoxide poisoning, medical equipment failure, etc. An interim count (certain to grow) was at fifty-seven fatalities statewide from February 11 through March 5.
Likely consequences for electricity ratepayers were stunning. A February 23 Bloomberg estimate put Texas electricity sales for the disastrous week in February at $50.6 billion—the previous week’s total was $4.2 billion. An insurance estimate for “direct and indirect” economic losses added $90 billion.
The political finger-pointing is another lingering consequence. As it happens, the Texas Legislature (which meets for six months every two years) is in session, which should in theory allow a substantive legislative response—from the lawmakers who created the problem in the first place. The official reactions have been painfully predictable: Who can we blame? Gov. Abbott quickly jumped on TV to denounce wind turbines and the Green New Deal—although renewable sources were only a minor factor in the freeze, and the GND hasn’t gotten within rhetorical distance of the Texas Capitol, where the words “climate change” are treated as profanity.
Thus far, the designated candidates for political outrage have been the electricity grid managers (middlemen who direct electricity distribution) and the appointed public utility commissioners (who oversee the managers), many of whom have since resigned or been dismissed. The most recent casualty, on March 16, was the newly promoted leader of the Public Utility Commission, forced to resign after Texas Monthly reported a phone call during which he reassured out-of-state investors that he would dutifully defend their windfall storm profits. He might have pleaded that he was just doing his job—his only mistake was saying the quiet part out loud.
None of these departures are likely to have any effect on the underlying causes of the crisis—which was an inevitable outcome of policies adopted decades ago by the legislature itself. With a fervent ideological commitment to apply “free market” hammers to every available nail, legislators imposed the illusion of competition on an energy market that has a growing demand for a necessity and a dependence on readily manipulated supply. As the economists say, the demand is “inelastic”—it’s there whether the price goes up or down.
It might be incomprehensible to non-Texans that the state most awash in flammable hydrocarbons couldn’t keep the heat on in the wintertime. Texans were also left scratching their heads—when they weren’t burning furniture for warmth. How was it that states farther north—Wisconsin, North Dakota, Kansas, for god’s sake Oklahoma—managed to endure even colder February temperatures without triggering statewide catastrophes?
It might be incomprehensible to non-Texans that the state most awash in flammable hydrocarbons couldn’t keep the heat on in the wintertime.
The answer is both simple and complicated: the Texas power infrastructure isn’t prepared for such severe weather, and that lack of preparation is intentional. While state officials didn’t directly invite the latest disaster, they have refused to acknowledge its likelihood and have willfully bet against the inevitable results. When lesser storm episodes occurred in previous years, the regulatory response was to shrug and do nothing. The power companies, direct offspring of the oil and gas industry that has underwritten Texas politics for more than a century, consistently blocked any attempt at serious regulations that might undercut either their profits or their power.
Texas “froze by design,” explains James K. Galbraith, economist and professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. “In 2002, under Governor Rick Perry . . . Texas deregulated its electricity system and established a free market, managed by a non-profit [the grid managers] called the Electric Reliability Council of Texas (ERCOT), with roughly 70 providers [actually more, although the market is dominated by a few major companies]. While a few cities—including Austin—kept their old-fashioned public power, they, too, were tied to the state system.” Approximately 60 percent of Texans buy their electricity through this deregulated, privatized system, while the rest either rely on ERCOT-tied municipal utilities, or (if they’re lucky) one of two national power grids. Whatever the local source, according to ERCOT, “90 percent of the state’s electric load” is managed through its grid.
Since the private providers compete on price, the market system makes resiliency improvements counterproductive for the power generators. Without standardized regulations, if a company spends substantial money on winterization or other infrastructure improvements, it will be at a financial disadvantage against competitors that do not—unable to bid low enough to win the contracts it needs to operate. In the winters of 2011 and again in 2014, freezing weather had threatened the grid, necessitating “rolling blackouts” in order to maintain emergency circuits. In the aftermath, the Federal Energy Regulatory Commission (without enforcement power over most of Texas) “recommended” that the state take steps to harden its electric grid and power supplies, but state regulators offered only voluntary changes.
Nothing was done. “This should have been addressed in 2011,” University of Houston energy expert Ed Hirs told the Texas Tribune. “They skipped on down the road with business as usual.” And since the state’s major grid is not integrated beyond state lines—to avoid federal regulation—that also meant that during the emergency ERCOT could not request power from out of state. (Border regions on separate grids that could do so, like El Paso, suffered much less during the storm.)
In sum, when the grid was largely nonfunctional during the worst winter storm in decades, bringing most of the state’s electrical system perilously close to complete collapse, it was operating according to design. William W. Hogan of the Harvard Kennedy School (often described as the “architect” of the scarcity-based market system) acknowledged as much to the New York Times. Hogan even seemed puzzled, in a Randian sort of way, that anyone might be surprised by the catastrophic outcome. “It’s not convenient,” said Hogan. “It’s not nice. It’s necessary.”
As adopted in Texas, the private market system had two purposes: to avoid interstate connection and consequent federal regulation, and (in theory) to provide energy as cheaply as possible. Given a choice between low cost and system resilience, cheap power ruled. Under optimum weather conditions and therefore low power demand, generating companies would compete on price—on a daily basis offering regional utilities (and ERCOT, which middle-manages the system) the lowest possible prices. But under high power demand—annual Texas heat waves or comparatively infrequent severe winter storms—natural gas suppliers and thus power companies raise their spot prices accordingly, to whatever “the market” will bear.
Yet even under non-emergency circumstances, the system has not delivered the inexpensive power reflexively promised by free marketeers. According to a February analysis by the Wall Street Journal, Texans served by private electricity providers (about 60 percent of residents) “consistently pay more” than those served by publicly owned utilities. “Those deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities.”
One company, natural gas provider Comstock Resources celebrated “hitting the jackpot” during the freeze.
Under the pressure of the Big Freeze, the Public Utility Commission directed ERCOT to raise the wholesale price of electricity to its $9,000 per megawatt-hour cap, up from its average of $35, meaning some residential customers would receive bills in excess of $15,000. Reportedly, the highest bills came from a relatively small company (about 29,000 customers) called “Griddy” (no relation to the Philadelphia Flyers mascot—that’s Gritty) which in normal times bet against emergencies by charging the wholesale cost in addition to a $9.99 base fee.
Under the pressure of its own spiking power costs, Griddy passed the charges on to customers, raising prices all the way to ERCOT’s cap. The company’s casino-style pricing strategy made it a headline scapegoat for state officials; sued by Texas Attorney General Ken Paxton for “price-gouging,” the company has declared bankruptcy. As a result, Paxton has announced customers will be released from the $29 million they owed. Another company, natural gas provider Comstock Resources (majority stockholder: Dallas Cowboy owner Jerry Jones) celebrated “hitting the jackpot” during the freeze.
Although the prolonged sub-freezing weather affected the entire state, not every Texas region suffered equally. The city of El Paso had opted out of the Texas grid, and therefore was connected to an interstate system and could receive supplementary power. The public utility, El Paso Electric, had also responded to the 2011 outage by spending millions on winterization and redundancy. Almost all El Pasoans had heat and electricity throughout the February emergency, and didn’t suffer from the burst pipes, home damage, and loss of water that occurred throughout the state.
The central Texas city of Austin was not so lucky. Embedded in the ERCOT grid, it was subject to system demands of “load shedding” from early Monday, February 15, to Friday, February 19, in theory to allow “rolling blackouts” that would briefly inconvenience particular neighborhoods. But ERCOT quickly began directing that more and more circuits be shed, indefinitely. About 220,000 residents were without heat and power at the peak of the crisis, and when pipes and mains kept bursting, most of the city came under a “boil water” notice for nearly a week.
Austin does own its public utility—Austin Energy—meaning residents wouldn’t be subject to the price spikes imposed by private providers elsewhere. Even while it was shedding load at ERCOT direction, AE continued to generate sufficient power from its own sources to distribute to the broader state grid, and to avoid financial ruin. In the wake of the February disaster, periodic calls from conservative privatizers to sell the public utility are now even less likely to get much political traction.
The state’s privatization scheme, long a dream of libertarian Republicans, came to fruition under the administration of former Gov. Rick Perry. On February 17, when millions of still-freezing Texans lacked heat, power, or water, Perry couldn’t resist the reflex to stick his foot in his mouth. “Texans would be without electricity for longer than three days to keep the federal government out of their business,” he told U.S. House minority leader Kevin McCarthy’s blog under the heading, “What’s Up in Texas?” The moment recalled the energy crisis of the late 1970s, when Texas oil-and-gas boosters brayed, “Let the Yankees freeze in the dark”—although this time Perry’s fellow Texans were the butt of the joke.
In the aftermath of the Big Texas Freeze, it remains likely that little will change. Although pols are jockeying for advantage, Perry’s Republican successors, who still dominate state government, will maintain business as usual—unlikely either to mandate substantial improvements in the energy infrastructure or enact effective reforms to the privatized energy system. That system fails to deliver either consistent or inexpensive power, but it embodies conservatives’ ideological obsessions and enriches their major underwriters. To borrow from Upton Sinclair, it is difficult to get an elected official to understand something when his career depends on him not understanding it.