Wayne O'Leary

The Public Power Imperative

While the country at large was obsessively absorbed lately in its interminable racial and gender “reckonings,” developments in the Southwest offered an object lesson in what’s really significant in American politics. Mother Nature, ignoring climate-change deniers and free-market boosters alike, messed with Texas in a major way over the winter, burying it in Arctic-like weather conditions and bringing its deregulated and privatized energy system to a grinding halt.

As Republican Governor Greg Abbott and the Lone Star State’s conservative establishment looked on helplessly amidst burst pipes and flooded homes, 4.5 million Texas households lost power, 15 million (half the state) went without safe drinking water, and dozens were killed (and many more sickened) by carbon monoxide poisoning. In an affront to Texas chauvinism, federal disaster relief became the order of the day. And most startling, what the press characterized as “eye-watering” monthly electricity bills reaching highs of $5,000 to $10,000 were delivered to shocked consumers. Energy-wise, at least, all Governor Abbott’s horses and all his men couldn’t put Texas together again.

This disaster was predictable and not unprecedented. Texas had a similar stormy visitation in the winter of 2011, an ignored heads up that shut down a third of the state’s electrical-generating capacity and left 3.2 million without power in rolling blackouts. This year, conservative Lone Star politicians have conspired to falsely put the onus on acts of God (unpredictable weather beyond their control), or on the renewable-energy industry and a scary Green New Deal that hasn’t yet arrived.

Wind and solar, after all, provide only a minority share of Texas’ electric-energy needs; far more (over 50%) comes from natural gas, the state’s traditional go-to power source, which couldn’t respond when oil and gas facilities were incapacitated by February’s big freeze. Neither wind turbines nor solar panels were uniquely or predominantly at fault; the huge West Texas gas fields failed more spectacularly, and the failure, which was at bottom a policy failure, can be summarized in one word: deregulation.

The story begins with the fraught historical relationship between Texas and the Federal Power Commission (known since 1973 as the Federal Energy Regulatory Commission, or FERC), created in 1930 to regulate private hydroelectric power production, as well as the interstate transmission and sale of electricity — and (from 1938 to 1983) natural gas. (Intrastate distribution and retail sale of electric power was left to state agencies.)

Reacting negatively to Washington’s intrusion into the marketplace, Texas natural-gas interests and electric utilities put together an independent in-state power grid after World War II to assert a noncooperative stance and avoid the federal regulation and interference that came with being part of an interdependent, power-sharing national grid. Subsequently, in 1970, the Energy Reliability Council of Texas (ERCOT), an appointed executive board soon dominated by absentee industry representatives, was formed to fill the regulatory void; it has since served to operate the state’s grid and oversee its wholesale electricity market under the theoretical guidance of its hands-off supervisory agency, the Texas Public Utilities Commission. In practice, the power wholesalers have been largely left to set policy for themselves.

Then, in 1995, encouraged by the deregulatory, Reagan-era federal Energy Policy Act of 1992, Texas officially opened its wholesale electricity market and, in 1999, led by Governor George W. Bush, undertook a full restructuring of its retail power industry. By 2002, “competition” and “choice” had been completely phased in for the 85% of Texas consumers — it had been 69% at the start of deregulation in 1999 — not under the protective umbrella of public-power facilities run by municipalities or cooperatives. The stage was set for catastrophe.

The operational shortcomings of the free-market Texas approach to energy are painfully obvious in the wake of the February storm. First and most glaring, the state’s stand-alone grid can’t legally import electricity from other states connected to the national grid when emergencies arise. Second, there is no state-mandated “capacity market” (that is, reserve capacity) requiring companies to ensure the availability of extra power to deal with shortfalls and demand surges.

Third, the chaotic competitive nature of the Texas electrical market (several hundred retail providers vying for customers and seeking short-term profits) leads to shortsighted cost-cutting in equipment and winterization. Fourth, the concept of minimal regulation utilized by supposed supervisory agencies (EPCOT and the Texas PUC) produces poor industry-wide planning and multiple power companies going it alone in a natural-monopoly environment.

That leaves the whole question of deregulatory pricing in a fast-buck system where providers are not discouraged from driving up prices whenever feasible — the 1999 deregulation specifically eliminated limits on rate increases — and where imperfect competition is depended upon to replace established rules in controlling monopoly. A decade into the new dispensation (2012), average monthly residential electric bills in Texas were the fifth highest in the US. In 1999, prior to full deregulation, those rates were well below the national average; post-deregulation, they were noticeably higher, rising 64% in the eight-year period ending in 2007.

All told, electrical deregulation cost state consumers $22 billion from 2002 to 2012, according to a report of the Texas Coalition for Affordable Power (TCAP), an industry watchdog. However, TCAP noted, average utility customers served by public power, including residents of Austin and San Antonio, paid nearly $300 less in 2012 than those dealing with profit-making investor-owned companies. There appears to be a lesson here.

Meanwhile, as Texas was reaping the energy whirlwind last winter, the government of neighboring Mexico, faced with many of the same problems, was taking a different tack. Responding to Greg Abbott’s decision to restrict his state’s natural-gas exports, which Mexico’s gas-fired plants had depended on for two-thirds of their electricity generation, Mexican President Andrés Manuel López Obrador (a.k.a. AMLO) turned to public power.

Accelerating a long-expected reversal of his neoliberal predecessor Enrique Peña Nieto’s free-market energy policy — Peña had partially privatized the country’s government-run energy sector in 2014 and allowed outside investment — AMLO has begun to renationalize and restore self-sufficiency. Pemex, the state-owned oil company, will be given full control over imports and fuel distribution, and CFE, the state power company, will be accorded priority over private interests on the nation’s grid. In addition, Mexico will transition away from imported US natural gas and toward public hydroelectric power.

Which energy strategy ultimately succeeds, Abbott’s or AMLO’s, could have a lot to say about the future of public power in a climate-change world.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, June 1, 2021

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