This op-ed is part of a series published by The Dallas Morning News Opinion section to explore ideas and policies for strengthening electric reliability. Find the full series here: Keeping the Lights On.
By Ed Hirs
In 1998, about the time that Texas began to change the way it regulated electric utilities, NASA launched the Mars Climate Orbiter. It crashed on Mars due to a simple error, failing to convert English measures to and from the metric system. At any point in the design or even during the monthslong transit, the error could have been corrected. It was not. Last month, NASA’s Perseverance rover landed on Mars. NASA learned from its mistakes.
But the same week Perseverance touched down on Mars, the Texas electricity grid tragically repeated its same mistake from exactly 10 years earlier, only this time on a much larger scale.
The damage from the grid failure continues — deaths and funerals, bankruptcies, lawsuits, and more. The fired CEO of the Electric Reliability Council of Texas, the organization that manages a large part of Texas’ independent energy infrastructure, testified that the grid was minutes away from a complete failure that would have required months to restart. The Northeast recovered from the 2003 complete blackout in no more than four days. Southern California recovered from its 2011 complete blackout in hours. Months? This vulnerability makes Texas a national security risk in addition to being the laughingstock of the nation.
Worse, the economic development agencies of Arizona and New York are harvesting soundbites from the Texas Legislature’s grid-failure hearings to win Samsung’s competition for their new $17 billion chip manufacturing plant. Mississippi, Alabama and Georgia will gather clips from the hearings too, to make Texas’ electrical infrastructure look too unreliable. Can Samsung, or really any corporation, afford to risk their businesses and employees’ lives by moving to Texas?
In addition to the immediate losses of tens of billions of dollars, Texans were hammered in a Wall Street Journal analysis showing that they paid $28 billion more than consumers in regulated electricity markets. This is not news. Journalist L.M. Sixel of the Houston Chronicle has detailed the electricity cost disadvantages for Texans in several stories over the years.
Smart economists who supported the creation of ERCOT predicted that the Texas grid would flourish with no incentives to maintain or encourage investment in generation assets. One architect of ERCOT, a Harvard professor, stated that the market worked just as designed during the week of Feb. 14. If the market was designed to bilk consumers out of $50 billion at prices 300 times the average, providing only 60 per cent of the service, to cause dozens of deaths, to rack up tens of billions of dollars in economic losses and damages, and to line the pockets of some energy traders with billions of dollars at the expense of consumers, then his mission was accomplished. Funny that — to pay more and more for less and less is exactly what old-fashioned regulation of electric utilities avoided.
Midcourse corrections for the ERCOT market have always been possible. Free-market dogmatists scream “laissez-faire” but fail to recognize that the ERCOT market is very much regulated and constrained. “Laissez-faire” in this case can be translated as, “We are lazy.” The pending bills in the current session of the Legislature do not address the structural problem of under investment. These bills, if passed into law, will be temporary fixes and not address the profound weaknesses of the Texas electricity infrastructure.
Repairing the Texas grid requires top-down changes from the governance to the wires and generators. An expedient solution is to add carrots-and-sticks in a capacity market by which generators would be compensated to keep their equipment ready. We could also return to a vertically integrated and fully regulated market focused on reliability. The electric utilities would earn a return on investment that would not be that much different from what we have now. Texas’ fully regulated transmission companies and local utilities — as much as 70 per cent of a consumer’s bill — are guaranteed profitability by Texas law while ERCOT’s guaranteed fees are raked off the top.
California Gov. Gavin Newsom will now have to defend his stewardship following his state’s grid failures in August. He faces a recall election similar to that of Gov. Gray Davis 20 years earlier. Arnold Schwarzenegger won that vote, sending Davis packing. Clearly, California has work to do to improve its grid, but the state knows how to hold its officeholders accountable. In Texas, there is currently no provision to recall the governor or state legislators. What can we do?
Here’s a modest proposal. In January, Tom Herman was bought out of his remaining contract as University of Texas head football coach for $15.4 million. Isn’t failure of the electricity grid worse than failure on the gridiron? Perhaps Texans could buy out the terms of the governor, the lieutenant governor, the legislators, and the members of the Public Utility Commission for a comparable sum. We could then ask NASA to step in and fix the grid. We at least know they have the right stuff.
Ed Hirs is an energy fellow and lecturer at the University of Houston.