Those high prices are supposed to drive power-generation capacity online. They didn’t—because of the ice-locked equipment and natural-gas crunch. “The price could’ve been a million dollars a kilowatt-hour, but you can’t supply with gas you don’t have,” Cohan told me.
Yet as the market foundered, those generators that survived made a killing. By one measure, ERCOT power plants have made more already this year than they made in the past three years combined. Meanwhile, customers are suffering. In four days, the city of Denton paid $207 million for electricity—which is more than it pays in a typical year, the Wall Street Journal reporter Tim Puko has found. When Texas’s power market does allow consumers to join as market participants, it does so through start-ups, such as Griddy, that give consumers unfettered access to wholesale ERCOT power prices. Most of the time, Griddy consumers pay alluringly low prices—except, this week, some found themselves owing $2,500 a day.
At the core of ERCOT’s structure is a total trust in markets, says Leah Stokes, a political-science professor at UC Santa Barbara. To design a system such as ERCOT, “you have to believe that markets are better at coordinating than centralized planning,” she told me.
Whatever the virtues of that hope, they were not borne out this week. The city of El Paso has its own utility, separate from ERCOT’s market system. That utility maintained power while ERCOT drowned. Why? After a winter storm swept through Texas in 2011, El Paso planned for future cold-weather disruption by winterizing its natural-gas infrastructure. ERCOT did not. Nor did the Public Utility Commission of Texas, which regulates power generation statewide, mandate such preparedness.
In short, the Texas government assumed that high prices alone could guarantee grid reliability and incentivize power plants to prepare for the worst. This didn’t happen. The market failed.
David A. Graham: Ted Cruz is no hypocrite. He’s worse.
This failure reminds me of what I observed while reporting on America’s COVID-19 testing failure. For months last year, the federal government failed to adequately plan and pay for the industrial-scale production of COVID-19 tests. It assumed that high demand for tests would lure companies to join the market. But no individual private firm had an incentive to risk short-term stability for potential medium-term profit. So the country went months without sufficient tests.
Texas’s crisis reveals, too, how independence, a praiseworthy trait in postcolonial states and precocious children, is less laudable in the power sector. Rick Perry, the former secretary of energy and Texas governor, implied this week that his old constituents should prefer the blackouts over federal control. “Texans would be without electricity for longer than three days to keep the federal government out of their business,” he said. He is more correct than he may have realized. After that 2011 winter storm, the federal government actually did require Texas power plants to draw up plans for how they would avert a worse disaster, Rhodes, the UT researcher, said. But it had no ability to enforce those plans, and power plants seemingly put them aside.