Texas’ freeze exposed 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 anti-growth and, therefore, any regulator y 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 stor y 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.

The Texas grid enjoys little government oversight, from the feds or the state, and compared to other states has almost no regulator y safeguards to ensure sufficient energy is available when demand spikes. So averse are Texas politicians to the idea of government inter vention that most of the state is not connected to interstate grids. This exempts the Texas energy system from the pur view of a federal regulator y commission. It also means the state cannot borrow energy from neighbors if its grid falters.

The deregulator y evangelists argued that such fail-safes were not necessar y 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 other wise be offline. This moneymaking prospect should also induce companies to invest in the maintenance and weatherization that would enable generators to fire up whenever necessar y, including during extreme temperatures. Other wise, they’d miss out on huge windfalls.

That was the theor y, anyway. Instead, this deregulated market led to a race to the bottom.

With the likelihood of severe winter cold seemingly remote, energy companies had little incentive to make the (costly) capital investments necessar y 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 “reser ve 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 reser ve 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.

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 deregulator y failures, though, Republican politicians prefer to remain in the dark.