As a winter storm descended upon the central United States, one state proved itself unfit to handle itself amid the low temperatures: Texas. The Lone Star state’s inability to function in the wake of inclement weather is not a fault of its people; rather, it is a product of self-isolation and deregulation.
To understand why Texas’s electrical grid failed is to understand the state’s atypical energy grid management organization: the Electric Reliability Council of Texas, or ERCOT. The agency is self-defined as a “membership-based 501(c)(4) nonprofit corporation,” and such corporations qualify for tax-exemptions by operating “primarily to further the common good and general welfare of the people of the community.” Texas’s energy grid has not always been overseen by a nonprofit, however. In line with the state’s secessionist inclinations, ERCOT formed in 1970 from a collection of Texas utility companies. Their shared objective was to remain free from federal regulation, which, in this particular scenario, is only avoidable if a company is engaged in purely intrastate commerce. With rules for exemption in mind, the band of utilities all signed an agreement of mandatory self-isolation, which satiated their appetite for independence and bound them under the governance of a new bureaucratic layer—ERCOT.
Notably, this move to form an independent energy grid was spurred in part by the increasing interconnectivity of energy grids nationwide—a trend set into motion by post-war policies. As the rest of the nation was striving to build an interconnected and reliable grid, Texas saw isolation and deregulation as their required means to achieve those same goals. Unfortunately, as Dallas Judge Clay Jenkins reminds us, “bad policy predictably always leads to very bad results.” Emphasis should be placed on the plurality of bad results because ERCOT has historically exposed many of its shortcomings.
Of the grid’s flaws, the one proving most damning to ERCOT’s public image is their tunnel vision. In times of crisis, there will undoubtedly be public uproar if companies are unprepared to handle the situation. Unsurprisingly, the reason companies are perpetually unprepared is likely because they owe no accountability.
To see how this effect plays out, one needs to look no further than Texas’s last temperature-induced grid failure, which occurred in 2011. After an investigation into the matter, the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation found that Texas was “reactive as opposed to being proactive,” in their grid management. The report reads, “The lack of any state, regional, or Reliability Standards that directly require generators to perform winterization left winter-readiness dependent on plant or corporate choices.” This observation affirms the consequences of corporate deregulation—when faced with the option of preparation/winterization, ERCOT chose to abstain. When utility companies hold such drastic privileges, the general public will almost always reap the ramifications in one way or another, such as Texas did in 2011. But the issue runs deep.
Even after massive outcry, federal condemnation, and appeals for reform, ERCOT did not take steps to properly winterize the facilities they manage. Though they may not own every power plant they govern, they are mandated to “maintain electric system reliability”—an obligation that the 2021 power outages revealed was too intensive for ERCOT to fulfill. Twice in the past decade has ERCOT proven itself untrustworthy, yet it is the sole entity managing over 90% of the state’s power demands. One could imagine that such an unreliable grid would be forced to fix itself or suffer from reduced business in a free market; but in a state that prides itself on a laissez-faire approach to the electric industry, ERCOT holds a monopoly over 26 million of their Texan customers.
Another of ERCOT’s flaws has been particularly inflamed by the past month’s crisis: self-isolation. The move to establish an intrastate Texas power grid was justified by the reasoning that without the constraints of regulation, Texas businesses could provide power better than their federal neighbors. In normal times, it is easy for consumers to not feel the difference between a regulated and deregulated energy industry—after all, your lights will probably come on either way. The issue arises when tides of normalcy recede, and crises unfold.
The most visible implication of isolationist policy is that it severs one’s ties to the outside world. Such action is analogous to rejecting a life-preserver while drowning. There exists another more obscured yet equally potent effect: the creation of feedback loops. These feedback loops can exacerbate existing problems and create new ones. An excellent example of this is ERCOT’s handling of its most recent power outages, which played out as follows:
When the cold temperatures first hit, two things happened: demand for electricity increased, while electricity output decreased. More demand comes from the heating of now-frozen homes, and the now-frozen-over energy producers reduce the amount of electricity available. As these two values rise and fall, respectively, the generators still operating are increasingly strained. Often, these generators become overloaded and fail, which in turn redistributes the pre-existing demand onto a now smaller quantity of generators. A feedback loop has formed, and it can be disastrous. According to ERCOT officials, the entire grid was minutes away from fully collapsing during the midst of the crisis, which could have taken “weeks” to restore.
Though a state-wide blackout was avoided, millions of Texans were faced with extended outages, leading to the deaths of an undetermined, though large, amount of people. As if the isolation was not lethal enough for Texas residents, ERCOT’s wholesale model of electricity distribution also revealed its potential for destruction during the storm. For Texans whose lights stayed on—barring those who pay at a predetermined, fixed-rate—avoiding market manipulation became an impossible task. Though ERCOT claims to operate “primarily to further the common good and general welfare of the people,” it allowed extreme price-gouging to occur. Consequently, there are now countless families, business owners, etc. faced with electricity bills in the tens of thousands of dollars. Not only does isolation leave Texans with no alternatives and no lifelines when in need, but it also leaves Texans vulnerable to some of the most unethical business practices imaginable amid life-threatening circumstances.
The Texas 2021 power outage is a tale yet to be told in full. Thus far, it is clear that reform is needed, and cross-aisle collaboration should occur to make that happen. The extent of proposed reform is undefined at present, although calls for ERCOT’s absorption into federal jurisdiction are gaining traction. Already, ERCOT is under legal scrutiny and investigations, both of which will try to find an entity to blame for the failure. We should be slow to find a singular perpetrator; this was an event caused not by any individual but by a lack of regulation. We should work to hold energy industries accountable. Perhaps it is time to set aside resistance to interconnection and instead embrace cooperation to ensure a better and safer future for everyone.
Christian Browder ’23 (christianbrowder@college.harvard.edu) wonders why his home state’s corporations always say, “yee-haw” but not, “how are you doing? Is there any way we can better ourselves?”