Texas, California provide important energy lessons for Virginia
State may see buyers participate in electricity deregulation
First it was California. Now, Texas. And if state legislators in Richmond approve electric deregulation, Virginia may be next.
As different as California and Texas are, their utility systems share one commonality: Both states broke up their incumbent utilities by forcing them to divest their generation assets to thirdparty companies that are heavily dependent on energy “markets” to stay afloat.
Unfortunately, some in Richmond are urging Virginia to follow their lead.
In California, the state hoped a complex mix of electricity markets and aggressive state mandated energy procurement goals would ensure reliability. In Texas, deregulation’s supporters crafted what they viewed as the free-market “gold standard,” where independent generators would willingly invest in resilient capacity in the hope of cashing in on price volatility and the opportunity for large profits if they were available when prices spiked.
In both cases, deregulation advocates assured consumers that running the grid at the edge of scarcity with “just-intime” pricing would result in an efficient, reliable market. They said that by breaking up the incumbent utilities, risk would be shifted away from “captive customers,” while the “market” would provide reliability when needed most.
But what California and Texas have instead proved is that the average customer always bears the risk of poorly designed regulatory policy.
We are learning the hard way that dependable generating capacity — the type that requires large capital investments in long-lived assets — does not happen in deregulated markets built around volatile short-term prices.
In Virginia, utilities own generation and build their systems with worst-case scenarios in mind. That added cushion creates a degree of headroom when the grid most needs it.
If these regulated utilities need to, for example, invest in additional weatherization measures to ensure their generation plants can perform in cold weather, they can make those investments and seek regulatory approval to finance them.
That doesn’t happen with deregulation. For deregulated generators, seeking the highest potential short-term profit margin takes precedence over investments in resilience.
What are the key takeaways for policy makers coming out of these electric reliability crises?
First, all states and their utilities will need to take lead roles in rigorous planning for worstcase scenarios and weather extremes. Our grid is being asked to respond to an expanding range of operating conditions and needs to be designed accordingly.
Second, the Federal Energy Regulatory Commission should recommit to efforts to beef up the resilience of the bulk power system — including better accounting for the value of always-available generating capacity, the interdependence of the gas and electric systems, and the associated transmission lines and pipelines that support energy deliverability.
Third, the push by several large energy buyers, especially Big Tech companies. to encourage states such as Virginia to deregulate their utilities — and to force all utilities into one-size fits all energy markets — needs to be rejected. Who would want to trade places with Texas or California when it comes to electric reliability right now?
Whatever comes next, the key will be honestly assessing grid vulnerabilities, and making sure energy companies have a reasonable opportunity to recover the cost of critical energy infrastructure investments.
Utility deregulation fails that test and should be rejected in Virginia.