Ed Hirs, University of Houston

Ed Hirs lectures on energy economics at the University of Houston, where he is an Energy Fellow in the College of Liberal Arts and Social Sciences.

Texas’ state-managed electricity grid is failing at every step of the electricity supply chain—the most recent examples being the freeze of 2021 and the collapse in Houston following Hurricane Beryl.

There is no incentive to invest. There is incentive to not invest. Companies all along the supply chain—including renewable energy providers—profit from gaming the system at the expense of hundreds of lives and billions of dollars.

Every branch of Texas state government ratifies the thievery and shrugs off the lives lost during the state’s ever more frequent and extended power outages. It is not Republican versus Democrat. It is the state government vs. its own population. It endangers national security because any power failure in the oil and gas capital of the country will cut supplies of oil, gasoline, diesel and natural gas to much of the nation. Everyone in the U.S. needs to pay attention to Texas.

It is not a market failure. The market works within the boundaries and regulations set by the state and local governments. It is a failure of state government.

The February 2021 winter storm broke the Texas grid managed by the Electric Reliability Council of Texas, better known as ERCOT. It should never have happened. Following a 2011 winter storm and grid failure, the North American Electric Reliability Corp., noting that “…shedding load in the winter places lives and property at risk,” issued a list of recommendations aimed at ensuring the power system across the Southwestern United States take preparation for winter as seriously as it does for the summer peak season.

The Texas government did nothing. It was not until August 2021, after deadly winter storm Uri, that the Public Utility Commission (PUC) of Texas adopted some of the 2011 recommendations.

The results of the freeze and blackouts are well known. Both the electricity grid and the Texas natural gas supply grid failed. More than 240 Texans died. Tens of billions of dollars in real damages and economic losses were tallied. The legal fallout continues.

Testimony taken under oath at the legislature and in the Brazos Electric Power Cooperative bankruptcy case indicates the governor ordered the state’s PUC to set the electricity price at $9,000 per megawatt-hour (MWh).

ERCOT’s independent market monitor objected and called for the refund of billions of dollars in overcharges. ERCOT refused. As a result, Luminant filed suit seeking a refund. The Texas Court of Appeals for the Third District ruled in favor of the refund for Texas consumers, finding that the $9,000/MWh price was not the result of a competitive market process as required by law. 

Here’s where it gets weird. The PUC appealed to the Texas State Supreme Court to overturn the Court of Appeals ruling. Never in the U.S. has a regulatory authority gone to court against the interests of its own consumers and voters. Never. And certainly not in seeking the right to overcharge consumers by billions of dollars.  

The elected justices could have chosen not to hear the appeal and become heroes to Texans, but instead the Texas Supreme Court obediently overturned the Third Court of Appeals. 

Why did they rule against consumers? Was it because the ensuing bankruptcies would have dragged natural gas providers into federal courts where their egregious price gouging could be unwound along with the electricity overcharges?

Natural gas prices across Texas during the freeze jumped from less than $4/MMcf to as much as $1,200/MMcf. Industry proponents declared that it was the “free market at work.” But if Buc-ee’s had raised the price of gasoline from $3.50/gal to $1,200/gal, it is doubtful that any Buc-ee’s locations would be left standing.

Indeed, Texas Attorney General Ken Paxton, the only one empowered to sue for price gouging under the state’s Deceptive Trade Practices Act, attacked La Quinta Inns because a manager had raised the price of a hotel room from $100 per night to $300 per night! La Quinta settled for $18,000. But the attorney general has been silent on the natural gas price jump, even as his counterparts in Kansas and Oklahoma sued natural gas suppliers because the Uri price gouging extended to their states.  

Natural gas suppliers shoveled campaign contributions to Texas’ elected leaders even before the state had begun to thaw, and the cozy relationships continued. The Railroad Commission of Texas took less than 90 seconds to approve billions of dollars of natural gas overcharges to consumers.

If legendary Texas journalist Molly Ivins did not say it, she should have: there are no conflicts of interest in Texas politics. That is to say, there are no conflicts between regulator and the regulated, to the detriment of the 30 million Texans affected by their decisions. The State of Texas is a serial killer for profit.