By: Rachel May
There has been much talk about increasing political polarization in recent times. This chatter took on a new, intensified meaning when severe winter weather conditions created an entirely different kind of polarization in Texas. There are many theories about the cause of the Texas freeze – Tucker Carlson blamed wind turbines, and Ted Cruz traveled to Mexico in a selfless search for answers – but the issue of private management of public infrastructure is at the eye of the storm.
There are many reasons to favour the private operation of commercial activities. Private enterprise can be seen as generally more disciplined, more innovative, and more agile than the government’s operation of services. Whether or not that is true is traditional fodder for economists’ debates. What seems undeniable in the wake of the Texan fiasco is that unregulated privatization of critical public assets is not a panacea. This is not simply a reflection of my Canadian DNA: it is manifestly demonstrated by the ongoing Texas power crisis that left more than 4.5 million Texans without power and resulted in at least 37 deaths. The tragedies that have come out of this disaster raise important questions about the deregulation of (formerly public) essential services.
The direct cause of the power losses is fairly clear (other than to Tucker Carlson and his fans): severe storms froze natural gas lines and mechanisms which were not suitably winterized. The weather should not have been a complete surprise; as recently as 2011 a similar storm occurred, with similar power outcomes.
There are three features of the Texan power regulatory landscape that are critical. First, the power industry is privately operated. After the 2011 storm-related outages, the Federal Energy Regulatory Commission concluded that additional winterization was required. However, the Electric Reliability Council of Texas, which operates Texas’ electrical grid, simply produced a set of voluntary best practices, and largely dismissed calls for reform and regulation. Second, Texan faith in private power operation is so entrenched that Texas has its own power grid, distinct from the main electric grids servicing the United States, in order to remain autonomous and escape federal regulation. This independent spirit meant that efforts to support the Texan system from the federal infrastructure, particularly in areas furthest from neighbouring states were stymied. Third, the crisis led to reports of price gouging. Texans received electricity bills for upwards of $10,000 for only a few days of service. Wholesale electricity prices reached the system cap of $9,000 per megawatt-hour. The Governor, Greg Abbott, has stated that there will be an investigation into the causes of the outage, and that he hopes to create long-term solutions to ensure a situation like this never recurs. Hopefully this will trigger a thorough examination not simply of the mechanics of the outages, but of the philosophical underpinnings of the regulatory framework. The logic of deregulation must have been based in beliefs in some combination of better costs and lower prices. That is not what has happened in Texas. The Texas Coalition for Affordable Power has reported that Texans living in deregulated areas have paid more for electricity since deregulation occurred in 2002 than customers in regulated areas. On top of that, the process of deregulation itself cost taxpayers more than $28 billion.
The coalition maintains its belief that re-regulation is not the answer. In truth, significant investments have been made in deregulation, and there had been improvements in cost and service. But the decision does not have to be binary and polarized. For services critical to health, wealth and even life, there would seem to be an obvious need for a balanced approach between market-based solutions and a framework of requirements that protect the public’s interest. The full spectrum of policy alternatives should be on the table: requirements to regulate anti-competitive behaviour (in an industry where the barriers to entry are considerable and so the opportunities for price gouging are many); consumer choice between private and public options for electrical power supply; minimal price management requirements to encourage multi-firm markets; and a system of responsibility and accountability for critical requirements (beyond voluntary best practice guideline publication). There are models for this in many jurisdictions, no re-invention of wheels would be required.
This happened ten years ago in Texas, and not much changed. I hope I’m not writing in ten years about how it has happened again. It seems clear that a re-examination of the regulation of the power market in Texas is critically necessary. Ted Cruz, I expect, would be prepared to return to Mexico to continue his deliberations on the subject.
Rachel May is a Master of Public Policy candidate at the University of Toronto’s Munk School of Global Affairs & Public Policy. She is interested in social policy particularly gender equity and examining structural and societal biases. Rachel holds a Bachelor of Arts in Psychology from the University of Western Ontario.