Deregulation a jackpot, and Texans fund it
You may not realize this, but you took out a $10,000 loan to pay for power during the vicious Valentine’s Day storm and you’re going to be paying this off for the next decade or two. I certainly hope you didn’t have a better plan to spend that money.
This is a product of our messed-up deregulated energy market, and the state government needs to move quickly to fix all the problems this storm revealed.
Let’s begin by making clear the cause of the blackout: When the cold temperatures hit, the supply of energy plummeted, with the majority of this shortfall due to a reduction in the production of natural gas.
In our deregulated energy market, this caused the price of natural gas and electricity to spike. The response is based on the Economics 101 idea that raising the price will cause supply and demand to equilibrate.
But in this event there was no price at which supply and demand would equilibrate, so prices of electricity kept rising until they were capped at around $9 per kilowatt-hour (versus the normal wholesale price of about 2 cents per kilowatt-hour).
The money transfers were staggering. Sales of electricity during the one-week storm were $50 billion, as much as the total sales during the previous three years.
This cost Texans billions while adding almost no power to the grid. This transferred an enormous amount of wealth from those of us shivering in the cold and dark to a small number of natural gas providers. One natural gas executive described it “like hitting the jackpot.”
When someone hits the jackpot, someone else needs to pay it out — and unfortunately, we’re the people who will pay. Some have received bills for thousands of dollars for the week, but most of us won’t. Nevertheless, make no mistake, you are still on the hook.
In most cases, the direct costs are falling on the utilities and generators. Atmos Energy spent about $3 billion procuring fuel during the storm.
They now say these costs will be passed to consumers in the form of higher prices over a very long time. Texans buying natural gas in the 2030s may still be paying for the energy from this single storm.
This is a clear example of how Texas residents have been getting ripped off by our deregulated energy system. Deregulation may sound good in theory, but in practice it’s been a disaster.
The Wall Street Journal reported that even before the storm, Texans in deregulated electricity markets were paying 13 percent higher prices than the nationwide rate. Meanwhile, those who purchased power in traditionally regulated markets were paying 8 percent below.
The time is now for our leaders in Austin to fix the mess they’ve gotten us into. First, the state government should move to claw back the price-gouging profits that energy producers made during the storm. The profits were not fairly gotten, and a properly functioning society would make them disgorge them.
Second, we need to prevent this from ever happening again. The government should mandate that our energy system be weatherized. Our deregulated energy market simply does not generate the incentives for energy producers to weatherize their equipment. The net result is a grid that works pretty well 99 percent of the time but fails in the face of extreme events.
We also need to alter the energy market’s structure to prevent the occurrence of ruinously high prices on the power market.
Finally, we should connect the Texas grid to the U.S. national grids. This may not have prevented the entirety of the blackouts, but it could have reduced the imbalance between supply and demand that drive the worst impacts.
Never forget that Texas has gotten rich selling fossil fuels to the rest of the world. As Texas becomes the U.S. leader in renewable energy, an interconnected grid would allow us to become rich selling renewable electricity to the rest of the U.S.
Our leaders are clearly committed to free markets. It’s time they commit themselves instead to the welfare of Texans.
Andrew E. Dessler is a professor of atmospheric sciences at Texas A&M University who studies the science and politics of climate change. Follow him on Twitter at @andrewdessler.