Energy News Beat Publishers Note: This article from the Brookings Institution has a lot of good information, and is tilted towards the renewable markets. We like seeing all sides to a story and do not always agree totally.
During last month’s winter storm that swept over much of the U.S., the electric grid in Texas came just “seconds and minutes” away from a complete collapse. Two million households in the energy capital of the United States were left without power in freezing temperatures; at least 80 people died as a result of the storms. Meanwhile, some Texas residents who were lucky enough not to lose power were hit with unexpected electricity bills of up to $11,000 for the month. Amid this statewide crisis, seven advisory board members to the state’s grid operator have resigned.
How did Texas, a state driven by oil and gas extraction since 1901, end up in this situation? First, energy companies were not required to winterize their power plants, and largely failed to do so despite telling investigators otherwise. In addition, Texas is the only state in the continental U.S. operating its own power grid. While a source of civic pride and independence for some Texans, the grid’s disconnectedness leaves its operator, the Electric Reliability Council of Texas (ERCOT)—which manages 90% of the state’s electricity—unable to borrow electricity from neighboring states, and therefore renders it uniquely vulnerable to localized outages.
Furthermore, ERCOT does not mandate a reserve margin of electricity, where capacity is held back and stored for surges in demand (as happens during extreme weather events). While having the lowest reserve margin of any North American region allows ERCOT to operate at close to full capacity, thereby cutting the costs entailed by storing additional energy, little electricity is left to draw upon if needed. Last month’s extreme weather precipitated such a need, when demand rose and supply plummeted—precisely when it was most required.
However, each of these explanations, while certainly part of the story, is incomplete. Texas’ approach to its electricity grid did not emerge by accident or in a vacuum. Instead, it is the result of decades of close ties between government officials and fossil fuel interests that have tipped the scales toward the latter to the detriment of residents across the state. This system of regulatory and state capture—wherein special interests (in this case, the fossil fuel industry) shape laws and regulations to their benefit—has become a core part of Texas’ deregulation story. Last month’s blackouts were the latest installment of its grim legacy.
Texas’ history of energy deregulation
In the 1990s, policymakers and special interests began advocating for the deregulation of Texas’ power sector. The Houston-based energy company Enron piggybacked on a federal deregulatory push to lobby for the relaxation of controls in the state’s electricity market. Enron’s leadership, spearheaded by CEO and founder Kenneth Lay, targeted Texas as the would-be crown jewel of its deregulatory efforts. Lay maintained personal contact with then-Texas Governor George W. Bush, continually hammering the message that deregulation would lower prices and improve Texans’ quality of life by introducing competition into the monopolized market.
Enron’s gambit worked. Bush signed Senate Bill 7 (SB 7) into law in the summer of 1999. Nominally, SB 7’s aim was to lower electricity rates by removing price controls and dismantling utility monopolies in specific regions throughout the state. Texans already paid less than the average American for their electricity before SB 7’s passage, but the bill’s sponsors—and Enron—insisted that costs would continue to fall.
Other states began to reverse course on deregulation of their electricity markets in the early 2000s amid pricing and supply fiascos and Enron’s infamous collapse. But deregulation in Texas stuck, with SB 7 taking effect in 2002. State officials marched ahead with their hands-off approach to electricity generation and supply even while California suffered a catastrophic blow to its electricity market as a result of its push to deregulate.
After a brief dip in 2002, electricity rates paid by consumers in Texas began to climb. By 2004, Texans were paying more for their power than their fellow Americans in both regulated and deregulated markets. That increase persisted through the 2000s. A Wall Street Journal investigation recently concluded that Texans in the deregulated market have since 2004 paid $28 billion more for their power than their in-state neighbors outside of ERCOT’s domain who buy electricity from regulated utilities.
By the early 2010s, another consequence of deregulation was becoming clear: the grid’s susceptibility to extreme weather. Despite polar outbreaks in the 20th and early 21st centuries, generators and providers opted not to outfit their infrastructure for extreme cold. Then, an influx of inclement winter weather blasted the state in 2011, knocking power plants offline and forcing providers to institute rolling blackouts.
In the wake of the 2011 freeze, the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) teamed up to write a report assessing the factors behind the outages. Top among their findings was the deregulated grid’s vulnerability to rare, though not unheard-of, cold. Unless electricity generators and providers winterized their equipment, the report found, the lights would go out and the heat would go off in future extreme-cold events.
State officials responded to the report’s dire warnings by asking grid operators to address the risks of extreme weather. But with a deregulatory approach all but sacrosanct, legislators did not require operators to act. Even as some policymakers have pushed for greater governmental control over the grid, most have largely balked at regulating the electricity market to mandate greater oversight and preparation in the face of extreme weather fueled by climate change. Most climate-related regulatory bills in the statehouse have died in committee.
Under deregulation, electricity prices have risen and millions of Texans have been left without power in the cold. These repeated failures—and the refusal of state lawmakers to meaningfully address them—suggest that special interests which benefit from continued deregulation, not the public good, are guiding the state’s approach to the power sector.
Persistent ties between Texas policymakers and the fossil fuel industry
Major fossil fuel players—including Enron, ExxonMobil, and Chevron—have made large financial contributions to Texas politicians for decades. Gov. Greg Abbott has collected more than $26 million in campaign funding from the oil and gas industry to date. Between 2019 and 2020, individual donations from fossil fuel company CEOs topped the roster of contributions to Abbott’s and Texas Lt. Gov. Dan Patrick’s political campaigns.
Other key Texas politicians, such as U.S. Sens. Ted Cruz and John Cornyn and U.S. Rep. Dan Crenshaw, also enjoy hefty donations and largesse from multinational and local interest groups and corporate PACs in the oil and gas industry. Gizmodo collected public and federal campaign finance data showing that Chevron and ExxonMobil, as well as several local fossil fuel companies and individuals associated with them, gave tens of thousands of dollars to all three congresspeople and their campaign PACs. In total, the three men received more than $1.1 million from the oil and gas industry throughout the 2020 election cycle. Their five biggest overall contributors from the fossil fuel industry were Chevron, Marathon, Energy Transfer Equity, Hilcorp Energy, and ExxonMobil.
Both Republican and Democratic members of the state legislature, too, receive gifts from industry donors. For example, the chair of the Texas Legislature House Committee on Natural Resources received more than $166,000 in contributions from oil and gas companies during the 2020 campaign cycle.
The fossil fuel industry’s influence goes beyond the governorship, statehouse, and halls of Congress; its reach also extends to the state’s regulatory bodies on electricity and utilities. ERCOT and the body that oversees it, the Public Utility Commission of Texas (PUC), are largely unaccountable and opaque. Comprising ERCOT’s board of directors are a mix of former industry professionals and public servants. Notably lacking from both PUC and ERCOT are elected officials dependent on the public for their positions.
ERCOT provides 90% of Texas’ electricity to some 26 million customers. Its grid connects more than 46,500 miles of transmission lines and upwards of 680 generation units. Despite the Council’s critical role in keeping the state’s lights on, critics have questioned its decision-making process in light of its failure to heed the achievable recommendations of the aforementioned FERC and NERC report after the 2011 blizzard. Winterizing 50,000 Texan wells would have cost approximately $1.75 billion in 2011. Even accounting for inflation, that expenditure would have constituted a fraction of the $13.9 billion the Texas oil and gas industry paid in taxes and royalties alone just this past year, according to data from the Texas Oil & Gas Association.
Perhaps most concerning is that ERCOT and PUC’s regulatory powers are minuscule, with industry forces retaining great leeway in emergency-preparedness. In the words of The New York Times: “Both agencies [ERCOT and PUC] are nearly unaccountable and toothless compared to regulators in other regions, where many utilities have stronger consumer protections and submit an annual planning report.”
It is hardly surprising, then, that Texas policymakers with longstanding financial and lobbying relationships to the industry scapegoated renewable energy during and after last month’s storm. In the first days of the crisis, Abbott went on Fox News and blamed the blackouts on wind energy while making broad attacks on the Green New Deal. Cruz was quick to blame wind energy as well (after he returned from his aborted Cancún vacation). In reality, wind power makes up just 23% of Texas’ annual electricity generation. At the time of last month’s storm, wind generated just 7% of the state’s total electricity, with the power outages almost entirely the result of natural gas-related failures. And the Green New Deal is an unrealized legislative proposal with little relevance to last month’s storm or Texas’ existing power sector.
Keeping in mind the longstanding influence of the oil and gas industry over these officials and their rhetoric, their deflections are easy to understand. Even after ERCOT publicly stated that the brunt of the state’s electricity woes were due to the failure of unwinterized natural gas plants, Texas figures (except for Abbott) who had erroneously blamed the state’s burgeoning renewables industry declined to correct their remarks. Beyond encapsulating their oil and gas industry benefactors’ affinity for deregulation, this refusal to place blame where it is due—and legislate accordingly—parallels the climate denialism propagated by its beneficiaries in the Republican Party.
Conclusion
The extent to which the oil and gas industry shapes Texas’ electricity market borders on regulatory and state capture. This dynamic was clear enough in the wake of the 2011 “once-in-a-lifetime” storm that caused major power outages; ten years later, another once-in-a-lifetime storm hit the state. In both instances, state lawmakers have seemingly refused to meaningfully address the fossil fuel industry’s grip on policy and regulation, choosing to proceed with deregulation despite the higher electricity prices and vulnerability to extreme weather. As the climate crisis worsens, such weather phenomena will likely become increasingly more common. If Texan policymakers do not take action to disentangle their interests and those of the Texas electrical grid from the fossil fuel industry—and if citizens are not fully empowered to hold them accountable for doing so—2021 will not be the last time that Texans are left in the cold and the dark.
