No one is ever fully prepared for a natural disaster. When hurricanes, blizzards or tsunamis strike, they always reveal weaknesses – inability to plan, inability to invest in precautions.
The Texas disaster, however, was different. The collapse of the Texas power grid did not just reveal a few shortcomings. He showed that the whole philosophy behind the state’s energy policy is wrong. And it also showed that the state is run by people who will resort to blatant lies rather than admit their mistakes.
Texas is not the only state with a largely deregulated electricity market. However, he took deregulation further than anyone else. There is an upper limit on wholesale electricity prices, but it is stratospheric. And there is virtually no prudential regulation – no requirement that utilities maintain spare capacity or invest in things like insulation to limit the effects of extreme weather conditions.
The theory was that such regulation was not necessary, as the magic of the market would take care of everything. After all, an increase in demand or a disruption in supply – both of which occurred during the deep freeze – will result in high prices and hence big profits for any utility that manages to keep operating. . So there should be incentives to invest in robust systems, precisely to take advantage of events like the ones Texas just experienced.
Texas energy policy was based on the idea that you can treat electricity like lawyers. Do people remember the great lawyer shortage of 2019? Growing demand and a poor harvest in California have caused prices to skyrocket; but no one has called for a special investigation and new regulations on avocado growers.
In fact, some people don’t see anything wrong with what happened in Texas last week. William Hogan, the Harvard professor widely regarded as the architect of the Texan system, claimed that drastic price increases, while “impractical”, were how the system was supposed to work.
But kilowatt-hours aren’t advocates, and there are at least three big reasons to claim they’re a recipe for disaster.
First, electricity is essential to modern life in a way few other products can match. Having to go without avocado toast won’t kill you; having to do without electricity, especially when your home depends on it for heating, can.
And it is highly doubtful that even the prospect of sky-high profits in the event of a shortage provides enough incentive for energy providers to consider the enormous human and economic costs of a prolonged blackout.
Second, electricity is supplied by a system – and the precautionary investment by one actor in the system is of no use if the other actors do not do the same. Even if the owner of a gas-fired power plant insulates and winterizes their turbines, it cannot operate if the pipeline that supplies its fuel, or the wellhead that supplies the gas, freezes.
So does the free market guarantee that the whole system is running under tension? Probably not.
Last but not least, a system that depends on the incentives offered by extremely high prices in times of crisis is not feasible, practically or politically.
At first, the Texans who did not lose power in the Great Frost considered themselves lucky. But then the bills came in – and some families found themselves billed thousands of dollars for a few days of electricity.
Many families probably cannot afford these bills, so we are potentially looking at a wave of personal bankruptcies. And even those who don’t face ruin are, as you might expect, outraged.
Perhaps the most revealing remark of the Texas crisis to date has been a tweet from Senator Ted Cruz (R-Cancún), who mad that “no electricity company should be given a windfall due to a natural disaster” and called on “national and local regulatory authorities” to “prevent this injustice”.
The senator, who is not known for his self-awareness, may not realize what he did there. But if even Ted Cruz – Ted Cruz! – believes that regulators should prevent power companies from reaping windfall profits in the event of a disaster, which eliminates any financial incentive for the private sector to prepare for such a disaster. And that, in turn, destroys the whole premise behind radical deregulation.
So are the Republicans who hold all of the Texas state offices going to learn from this debacle and rethink their entire approach to energy policy? Of course not. Their immediate reaction was to wrongly blame the crisis on wind power and to attack supporters of a Green New Deal – even if something like a Green New Deal i.e. an investment. public in energy infrastructure, is exactly what Texas needs.
And one thing we’ve definitely learned over the past few months is that once politicians engage in a big lie, whether it’s epidemiology, economics, or election results, it doesn’t. there is more going back.
But while the right-wing political-media complex cannot and will learn nothing from the power debacle in Texas, the rest of us can. We have just been offered a clear vision of the dark (and cold) side of free market fundamentalism. And this is a lesson we must not forget.
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