• Economist James K. Galbraith said policymakers failed Texas during the state’s recent power outage.
• Texas’ deregulated electrical system incentivized the cheapest production without accounting for resilient machinery.
• Galbraith says the only way to fix the system is to turn it into a public utility.
• Visit the Business section of Insider for more stories.

Millions of Texans lost power last week and were stuck living in freezing conditions as their electrical bills skyrocketed. The crisis was totally preventable, according to a left-leaning economist who teaches at the University of Texas at Austin, and the reason why has to do with the state’s deregulated electricity system.

James Kenneth Galbraith, a government professor at the University of Texas at Austin, wrote in a Project Syndicate commentary that these failures were baked into Texas’ power grid as soon it embraced deregulation under former Gov. Rick Perry in 2002. 

The Texas system had three vulnerabilities, according to his commentary:

1. Competition to provide power in the cheapest way possible meant that machinery was not well-enough insulated against extreme cold;
2. Wholesale prices could fluctuate while retail prices depended on consumer contracts;
3. And prices would rise when demand for power was the greatest.

Rather than working to overcome the vulnerabilities, Galbraith wrote, policymakers did nothing. And he has a unique perspective on the matter of government regulation. His father was famed 20th-century economist John Kenneth Galbraith, a former Harvard professor and advisor to several Democratic administrations, who long advocated thoughtful government intervention – and regulation.

John Galbraith’s views came back into vogue after the Great Recession of 2008, and James’ work in Texas has long swum against the state’s deregulatory tide, a fact brought into vivid relief by the current power crisis. In his own right, James has formerly served as executive director for the Joint Economic Committee of the US Congress and directs the University of Texas Inequality Project.

James Galbraith took Insider inside how Texas fell apart and left its residents freezing amid a polar vortex amid a pandemic.

The problems with Texas' deregulated system

Galbraith told Insider that while Texas created an incentive for energy producers to produce in the cheapest way possible, it didn't provide another to build resilience into the system for extreme events. This caused demand to go up while supply for electrical sources went down, causing major losses of power.

"The facilities that are fed by natural gas ran into a freezing up of their meters, pumps and fuel lines. In some cases, the power plants went offline and they had to cut power to the wells," Galbraith said. "So that was kind of a death spiral. At the same time, the consumer demand was going up very quickly, and in an electrical system, supply and demand have to be balanced at all times."

When Texas moved to a deregulatory electrical system in 2002,  it handed over the reigns to the nonprofit Electrical Reliability Council of Texas, which has around 70 providers. These companies competed with each other to keep prices low for consumers, but they also created a market where a surge in demand could overpower supply, as happened in early 2021.

Galbraith said the fossil fuel industry made "enormous contributions" to political leaders like Gov. Perry, who continued to support the fossil fuel industry as Sec. of Energy under former President Donald Trump.

Perry's views seem unchanged: he wrote in a blog post on February 17 that Texans would rather continue dealing with blackouts than having a regulated electricity system.

How the crisis could have been prevented

When Texas previously experienced extreme cold weather in 2011, Galbraith said that should have made clear to policymakers that the state's deregulated system was unstable, but they didn't take action then.

"They should have kept the system under a full-fledged regulatory regime, which other states have," Galbraith said. "And that meant that they should have been supervising the generating companies to ensure that they were doing a proper job of being prepared for worst-case scenarios. It's not hard to work out what they should have done."

If the state's leaders took action in 2011, the 2021 freeze could have gone over much differently. But since it didn't, Galbraith said he's not sure if there's a way forward that doesn't involve taking over the whole system and making it a public utility that decides on distributions and investments.

"There's so many weak links in the system right now that it's hard to believe that there's any fix available that's short of a really comprehensive reformation of the system. I'm certainly prepared to advocate that."

Moving forward

Lawmakers have responded to Texas' crisis in varying ways. Texas Sen. Ted Cruz came under fire for going to Cancun during the power outage, and current Gov. Greg Abbott blamed solar and wind as causes for the blackouts and said on Fox News on February 16 that the outages show "how the Green New Deal would be a deadly deal for the United States of America." 

Rep. Alexandria Ocasio-Cortez of New York, who first introduced the Green New Deal legislation, responded by raising nearly $5 million for Texans confronted with costly electrical bills. Similar efforts were spearheaded by former Rep. Beto O'Rourke, who lost to Cruz in the 2018 midterms.

—Alexandria Ocasio-Cortez (@AOC) February 22, 2021

 

 

Galbraith pointed to the electrical company Griddy, which supplied thousands of Texans with electricity at the wholesale price during a given time, and under a deregulated market, the prices spiked during the freeze, causing customers to face $5,000 electric bills for just five days, the Dallas Morning News reported. 

Some Texans owed Griddy over $15,000, according to The New York Times, while the Wall Street Journal reported that Texas electric bills were $28 billion higher under the deregulated system.

However, Galbraith said that while the skyrocketing of electrical bills is a significant problem, the biggest issue is the failure of the system as a whole to provide power to millions of people.

"You have to ask: who's liable? And I think the political leadership in the state of Texas is liable," Galbraith said. "Because the people didn't sign up to for the power system that was going to cause the pipes in their homes to break, and that is not the way a responsibly run system would work. They're the ones who are stuck with those bills. That's the scandal."