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Is A Deregulated Power Grid Good For Texans?

Unless you’ve been living under a rock for the last few weeks, you’ve most likely been inundated with all kinds of new stories and finger-pointing social media diatribes about Texas’ shocking grid failure as temperatures dropped below freezing across the Lone Star State earlier this month. And, adding insult to injury, after coping with rolling blackouts and a plague of burst pipes during the harsh winter storm, some residents were hit with power bills big enough to bankrupt them--in some cases over $15,000. 

As these disastrous (and in some cases deadly) developments unfolded, there was no shortage of accusations and blame games to go around, with different factions (mistakenly) pointing to frozen wind turbines while others blamed the state’s uniquely deregulated power grid. Now, as Texas lawmakers launch an investigation into the source of the energy system failures, state regulators have also come under fire amidst a general atmosphere of “finger pointing and blame shifting” at the unfolding legislative hearings

While the outages came as a shock to Texans, as well as to the rest of the world watching the news unfold on their various screens, the elements that came together in a perfect storm (so to speak) to cause the systemwide failures have been in place for years, and in some cases, decades. Texas’ unique utilities market has been blazing its own trail for a long time now, having begun its course towards energy independence in 1999, but it’s only when something goes wrong that these kinds of innovations (or “the nation’s most extensive experiment in electrical deregulation” according to the New York Times) come under scrutiny.

Texas is in a unique position to run its own grid however it sees fit, as 90 percent of the state’s energy is produced on its very own grid. And the state has seen fit to run that grid with very, very little regulation, “handing control of the state’s entire electricity delivery system to a market-based patchwork of private generators, transmission companies and energy retailers” as the New York Times reported last week. 


This decision was not a sinister and sneaky back-room deal; it was widely publicized and supported in equal measure by constituents and industry leaders alike. “Competition in the electric industry will benefit Texans by reducing monthly rates and offering consumers more choices about the power they use,” then- Texas-governor George W. Bush was quoted when he became a signatory on the 1999 deregulation legislation.

But while Texans were promised cheap electricity in exchange for rallying around grid deregulation, that simply never came to fruition. Since long, long before the $15,000 one-month utility bills, Texans have been paying a premium for the very same energy they were promised to receive at a discounted rate. A deregulated power grid is particularly vulnerable to the ebbs and flows of the market, and nearly 60% of Texans now buy their electricity from a retail power company at a market-based rate instead of a local utility. A recent Wall Street Journal analysis based on nationwide data from the U.S. Energy Information Administration revealed that not only have Texans not received the lower power bills they were expecting, on the whole they’ve paid more than other U.S. consumers--a lot more. “Customers of that deregulated energy market have paid a total of $28 billon more for their power since 2004 than they would have paid if they’d been covered by the state’s traditional utilities,” Earther reported this week. 

While the slow trickle of money of of Texans’ pockets over the last 17 years is newsworthy, considering that deregulation was sold to the public to do the exact opposite, it’s entirely likely that the system would have charged on unchanged without the massive and scandalous grid failures cause by this months storms--although with changing weather patterns this kind of catastrophic climate event was coming sooner or later. But in the wake of the devastating outages, the U.S. and Texas energy industries are already changing in response as power companies bail on deregulated grids. “Investors prefer steady dividends from regulated utilities over erratic profits in the freewheeling American power production industry,” the Financial Times reported this week.

While there are certainly still plenty of benefits to deregulation--incentivizing innovation and pricing out coal plants are just two examples--this months events show that those benefits no longer outweigh the risks for many Texan power producers and consumers. 

By Haley Zaremba for Oilprice.com

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