Deadly Texas Freeze Cools Interest in Deregulating Energy
Except for the families who lost loved ones, most Americans outside of the Lone Star State have likely forgotten about Uri, the February winter storm in which millions of people—the vast majority of Texas—lost electricity for days. But, in fact, the fallout from the storm will go on for years, perhaps decades, and will be felt in other states as well.
The statistics are daunting. Close to 200 people died, according to the Houston Chronicle. The Dallas Fed estimates the final figure for the storm’s damage will be between $80 and $130 billion, which would make it the worst natural disaster ever to hit the state. For Texans lucky enough to have electricity during that terribly cold week in February, they were hit with astronomical rates for power, sometimes hundreds of times the normal rates. (A massive billing error compounded the problem.) The high prices are already the subject of litigation, like a $1 billion class-action suit filed by a customer who got a bill for $9,546.84 for 18 days of service. And now it appears that long-term bonds will likely be issued to keep municipal power agencies from going bankrupt. All this in the state that produces more electricity than any other.
The sweeping scope of the tragedy may also spell the end of utility deregulation, a policy enacted by several states for at least twenty years and actively considered by others at present, although no state embraced deregulation more than Texas, which in 1999 decided to impose no regulations on the retail or wholesale energy markets. The state went so far as to isolate itself from federal and regional power grids to insure independence. Most critics agree that this laissez-faire approach to distributing power produced the economic circumstances that led to a historic crisis that has created untold damage in Texas and rocked the energy industry.
Anthony Clark, a Republican who was appointed by President Barack Obama to serve on the Federal Energy Regulatory Commission from 2012 to 2016, has signed on to a group called Power for Tomorrow, a coalition of utilities, consumer groups, and big labor to kill attempts by other states to deregulate like Texas. “There were a number of states”—Arizona, Virginia, Maryland, and South Carolina are four—“that were talking about deregulation,” Clark says, “but I think the Texas experience has chilled some of that talk. It’s a cautionary tale.”
That was certainly not the case in 1999 when George W. Bush, then governor of Texas, signed into law the most radical program of utility deregulation in the country. “Competition in the electric industry,” Bush said, “will benefit Texans by reducing monthly rates and offering consumers more choices about the power they use.” That was the pitch employed by the energy industry—both then and now—to sell deregulation to the public.
It was the pitch used in Maryland, which also deregulated in 1999, although not to the same extent as Texas. “There would be far more choice, prices would go down, and it would be good for green energy too,” says Parris N. Glendening, who was governor of Maryland from 1995 to 2003. “That was the promise of deregulation. The legislature passed the bill with a veto-proof majority, so I signed it. I was wrong. Prices actually went up. One study showed that between 2014 and 2017 Marylanders paid $250 million more than if they stayed with the old system. Many of the increases were applied to the poor, the elderly, and minority communities.”
It would make sense that deregulation is supported by right-leaning, pro-business interests, but the issue has produced strange alliances since many green energy proponents support deregulation. “We believe that electricity production shouldn’t harm the planet,” reads a position statement of Green Mountain Energy, which is, according to its website, “the first energy company dedicated to clean energy in Texas.” “We want consumers to choose electricity that’s made from 100% renewable sources like wind, solar, hydropower, biomass and geothermal energy.”
However, many experts argue choice will not ensure renewable energy development. “Any proponent of green energy who thinks deregulation is going to get them what they want doesn’t understand deregulation,” says Barbara Alexander, a former Maine public utilities official. “They believe someone will build renewables in their state if the utilities were just out of the way. That’s not how it works. It’s wishful thinking.”
For example, the wind farms in Texas—the state produces more energy from wind than any other in the nation, accounting for upwards of 20 percent of the state’s electricity generation—were built not because of a free market but because a state agency mandated their construction as part of the deal to restructure Texas’s energy-related laws in 1999. Since many wind turbines had not been winterized, which would have been required if proper regulations had been in place, they failed to produce energy during the February storm.
The main liability of deregulation, besides periodic unreliability, is the problem that emerged in Maryland. While the price of electricity for the large business or corporate client tends to drop, the cost of power for the average consumer tends to rise. According to a Wall Street Journal analysis, residential consumers in Texas “paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities.”
A report in Massachusetts ordered by Attorney General Maura Healey, a Democrat, found deregulation produced higher electricity prices and a climate that creates predatory business practices. “We’ve heard far too many stories of these companies going door-to-door and calling residents over and over with false promises of cheaper electricity bills, only to stick customers with a higher rate and a contract they can’t get out of,” Healey says, “It’s time to pass legislation to protect our residents from these inflated prices and put an end to this deception.”
Healey is pressing the legislature to end deregulation of the consumer market. Deregulation attempts in states like Arizona and Virginia may be affected. Most dramatically, legislation in Maryland to further deregulate the state utilities was put up two weeks before the winter storm hit Texas; a week after the debacle, it was quietly withdrawn by its sponsors.
“Deregulation is an issue that ebbs and flows,” says Frankie Sue Del Papa, the former Democratic attorney general and secretary of state in Nevada. “Yes, there has been an attempt to deregulate. But deregulation hurts the little guys and benefits the big guys. Texas affected the movement adversely. I think the experience would make us look at this issue with more caution.”
Correction (May 25, 2021, 9:45 a.m. EDT): A sentence discussing wind power in Texas has been clarified to reflect the fact that while the state generates more electricity from wind than any other state, the share of the state’s electricity supplied by wind is not the highest in the nation.