Texas’ deadly freeze exposes the danger of deregulation
Republican politicians have spent several decades fearmongering about “job killing regulations.” Perhaps the ongoing energy crisis in Texas provides a useful opportunity to examine job-killing deregulation instead.
Since at least the Reagan era, the GOP has worshiped at the altar of deregulation. Politicians promulgated the myth that all regulation is antigrowth and, therefore, any regulatory rollback is inherently pro-growth. In particular, they touted the Texas energy market as a sort of paragon of their deregulatory fantasy, an invisible-hand success story that should be expanded nationwide. It’s so pro-business, after all!
But if you were trying to run a business in Texas last week — or a decade ago, when severe winter weather previously knocked out power — you might have a different perspective.
Texas has long prided itself on its laissez-faire wholesale energy market, which dates to a deregulatory push in the 1990s. The Texas grid enjoys little government oversight, from the feds or the state, and compared to other states has almost no regulatory safeguards to ensure sufficient energy is available when demand spikes. So averse are Texas politicians to the idea of government intervention that most of the state is not connected to interstate grids. This exempts the Texas energy system from the purview of a federal regulatory commission. It also means the state cannot borrow energy from neighbors if its grid falters.
The deregulatory evangelists argued that such fail-safes were not necessary because market forces could ensure there were no energy shortages or service disruptions: When demand is high, prices will rise; this should incentivize producers to switch on facilities that might otherwise be offline. This moneymaking prospect should also induce companies to invest in the maintenance and weatherization that would enable generators to fire up whenever necessary, including during extreme temperatures. Otherwise, they’d miss out on huge windfalls.
That was the theory, anyway. Instead, this deregulated market led to a race to the bottom.
Deregulation has kept energy prices low and made price competition more cutthroat, which encourages producers to trim costs wherever possible. With the likelihood of severe winter cold seemingly remote, energy companies had little incentive to make the costly capital investments necessary to weatherize.
No government entity forced them to make these investments, so why bother spending the money? Neither did regulators force generators to maintain a “reserve margin” of extra power above expected demand, as other states do.
Most of the time, during the usually balmy Texas winter, this deregulated system has functioned fine. But severe weather can bring it crashing down. Subfreezing temperatures last week caused demand to spike, raising prices as predicted. But however much producers might have wanted to ramp up supply, they couldn’t — because they were felled by those same subfreezing temperatures.
The cold appears to have disrupted operations at power plants, pipelines, oil and gas wells, wind turbines and other parts of the supply chain. This led to widespread, days-long power and heat outages, causing deaths from hypothermia and carbon monoxide poisoning; shortages of potable water; and surprise energy bills, some above $10,000, for those lucky enough to have even occasionally had power.
These were foreseeable consequences of the state’s refusal to require energy producers to weatherize or maintain reserve margins. So foreseeable, in fact, that we’d actually seen them before.
A 2011 winter storm also led to blackouts across Texas for the same reason. Afterward, federal officials made recommendations for Texas to winterize its energy system. The 2011 report noted that similar recommendations had been made after winter-storm-related blackouts in 1989. Both times, the recommendations were mostly ignored. With climate change likely to cause extreme weather events with greater frequency, Texas can expect repeats in the years ahead.
So, why have these regulatory recommendations been ignored so far? Because to Republican politicians, regulations = bad. In the throes of the current crisis, as people were dying of hypothermia, Republican former governor Rick Perry, a past U.S. energy secretary, declared Texans are willing to suffer extended blackouts for the paramount objective of keeping the feds out of their grid. Apparently the warm, fuzzy feeling some Texans get from bucking regulators must substitute for actual heat.
I suppose Texas’ widespread power failures will create some new employment opportunities for plumbers and electricians, given the many buildings and homes with burst pipes and other structural damage. But for everyone else, the state’s failure to ensure minimum quality standards has been a humanitarian and economic disaster. Amid pandemic-driven unemployment, even more workers were displaced because regulators failed to ensure the basic infrastructure necessary for businesses to function.
Markets left to their own devices sometimes fail. That’s precisely the point of regulation, or should be: to correct for market failure, including by setting baseline safety and engineering standards. When it comes to the Texas grid and other demonstrable deregulatory failures, though, Republican politicians prefer to remain in the dark.