Deregulation failed Texas, but we should learn from it

Nobody is ever fully prepared for natural disaster. When hurricanes, blizzards or tsunamis strike they always reveal weaknesses — failure to plan, failure to invest in precautions.

The disaster in Texas, however, was different. The collapse of the power grid didn’t just reveal a few shortcomings. It showed the entire philosophy behind the state’s energy policy is wrong. And it also showed the state is run by people who will resort to blatant lies rather than admit their mistakes.

Texas has pushed deregulation further than anyone else. There is an upper limit on wholesale electricity prices, but it’s stratospherically high.

And there is essentially no prudential regulation — no requirements that utilities maintain reserve capacity or invest in things like insulation to limit the effects of weather.

The theory was that no such regulation was necessary because the magic of the market would take care of everything. After all, a surge in demand or a disruption of supply — both of which happened in the deep freeze — will lead to high prices and hence to big profits for any power supplier that manages to keep operating. So there should be incentives to invest in robust systems, precisely to take advantage of events like those Texas just experienced.

Some see nothing wrong with what happened in Texas in the past week. William Hogan, the Harvard professor widely considered the architect of the Texas system, asserted that drastic price increases were how the system was supposed to work.

But it was all a recipe for disaster. First, electricity is essential to modern life in a way few other commodities can match. Having to go without it when your house relies on it for heat can kill you.

And it’s extremely doubtful whether even the prospect of sky-high profits during a shortage offers energy suppliers enough incentive to take the huge human and economic costs of a protracted power outage into account.

Second, electricity is supplied by a system — and precautionary investment by one player in the system does no good if the other players fail to do the same. Even if the owner of a gas-fired power plant insulates and winterizes its turbines, it can’t function if the gas pipeline that supplies its fuel, or the wellhead that provides the gas, freeze up.

So does the free market ensure that the whole system works under stress? Probably not.

Last but not least, a system that depends on the incentives offered by extremely high prices in times of crisis isn’t workable, practically or politically.

At first, those Texans who didn’t lose power considered themselves lucky. But then the bills arrived — and some families found themselves being charged thousands of dollars for a few days of electricity.

So we’re potentially looking at a wave of personal bankruptcies. And even those who don’t face ruin are, predictably, outraged.

So will the Republicans who hold all of Texas’ statewide offices learn from this debacle and rethink their approach to energy policy? Of course not. Their immediate reaction was to falsely blame the crisis on wind power and lash out at advocates of a Green New Deal.

But while the right-wing political-media complex won’t learn anything from the power debacle, the rest of us can. We’ve just been offered a clear view of the dark (and cold) side of free-market fundamentalism. And that’s a lesson we shouldn’t forget.