ineteconomics | In 2002, under Governor Rick Perry, Texas deregulated its electricity system. After a few years, the electrical free market, managed by a non-profit called ERCOT, was fully-established. Some seventy or so providers eventually sprung up. While a few cities – including Austin – kept their public power, they were nevertheless tied to the state system.
The market system could, and did, work out most of the time. Prices rose and fell, and customers who didn’t sign long-term contracts faced some risk. One provider, called Griddy, had a special model: for $9.99 a month you could get your power at whatever the wholesale price was on any given day. That was cheap! Most of the time.
The problem with “most of the time” is that people need electric power all of the time. And Texas’s leaders knew as of 2011, at least, when the state went through a short, severe freeze, that the system was radically unstable in extreme weather. But they did nothing. To do something, they would have had to regulate the system. And they didn’t want to regulate the system, because the providers, a rich source of campaign funding, didn’t want to be regulated and to have to spend on weatherization that was not needed – most of the time. In 2020, even voluntary inspections were suspended, due to Covid-19.
Enter the deep freeze of 2021. Demand went up. Supply went down. Natural gas froze up at the wells, in the pipes, and at the generating plants. Unweatherized windmills also went off-line, a small part of the story. Since Texas is disconnected from the rest of the country, no reserves could be imported, and given the cold everywhere, there would have been none available anyway. There came a point, on Sunday, February 14 or the next day, when demand so outstripped supply that the entire Texas grid came within minutes of a collapse that, we are told, would have taken months to repair.
As this happened, the price mechanism failed completely. Wholesale prices rose a hundred-fold – but retail prices, under contract, did not, except for the unlucky customers of Griddy, who got socked with bills for thousands of dollars each day. ERCOT was therefore forced to cut power, which might have been tolerable, had it happened on a rolling basis across neighborhoods throughout the state. But this was impossible: you can’t cut power to hospitals, fire stations, and other critical facilities, or for that matter to high-rise downtown apartments reliant on elevators. So lights stayed on in some areas, and they stayed off – for days on end – in others. Selective socialism, one might call it.
When the lights go off and the heat goes down, water freezes and that was the next phase of the calamity. For when water freezes, pipes burst, and when pipes burst the water supply cannot keep up with the demand. So across Texas, water pressure is falling, as I type these words. Hospitals without water cannot generate steam, and therefore heat; and some of them are being evacuated right now. Meanwhile, ice is bearing down on the power lines.
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