Two million households in the energy capital of the United States were left without power in freezing temperatures; at least 80 people died as a result of the storms. Meanwhile, some Texas residents who were lucky enough not to lose power were hit with unexpected electricity bills of up to $11,000 for the month. Amid this statewide crisis, seven advisory board members to the state’s grid operator have resigned.
How did Texas, a state driven by oil and gas extraction since 1901, end up in this situation? First, energy companies were not required to winterize their power plants, and largely failed to do so despite telling investigators otherwise. In addition, Texas is the only state in the continental U.S. operating its own power grid. While a source of civic pride and independence for some Texans, the grid’s disconnectedness leaves its operator, the Electric Reliability Council of Texas (ERCOT)—which manages 90% of the state’s electricity—unable to borrow electricity from neighboring states, and therefore renders it uniquely vulnerable to localized outages.
Furthermore, ERCOT does not mandate a reserve margin of electricity, where capacity is held back and stored for surges in demand (as happens during extreme weather events). While having the lowest reserve margin of any North American region allows ERCOT to operate at close to full capacity, thereby cutting the costs entailed by storing additional energy, little electricity is left to draw upon if needed. Last month’s extreme weather precipitated such a need, when demand rose and supply plummeted—precisely when it was most required.
However, each of these explanations, while certainly part of the story, is incomplete. Texas’ approach to its electricity grid did not emerge by accident or in a vacuum. Instead, it is the result of decades of close ties between government officials and fossil fuel interests that have tipped the scales toward the latter to the detriment of residents across the state. This system of regulatory and state capture—wherein special interests (in this case, the fossil fuel industry) shape laws and regulations to their benefit—has become a core part of Texas’ deregulation story. Last month’s blackouts were the latest installment of its grim legacy.
TEXAS’ HISTORY OF ENERGY DEREGULATION
In the 1990s, policymakers and special interests began advocating for the deregulation of Texas’ power sector. The Houston-based energy company Enron piggybacked on a federal deregulatory push to lobby for the relaxation of controls in the state’s electricity market. Enron’s leadership, spearheaded by CEO and founder Kenneth Lay, targeted Texas as the would-be crown jewel of its deregulatory efforts. Lay maintained personal contact with then-Texas Governor George W. Bush, continually hammering the message that deregulation would lower prices and improve Texans’ quality of life by introducing competition into the monopolized market.
Enron’s gambit worked. Bush signed Senate Bill 7 (SB 7) into law in the summer of 1999. Nominally, SB 7’s aim was to lower electricity rates by removing price controls and dismantling utility monopolies in specific regions throughout the state. Texans already paid less than the average American for their electricity before SB 7’s passage, but the bill’s sponsors—and Enron—insisted that costs would continue to fall.
