Why the deregulation of the energy sector in the United States has failed – 02/23/2021 – Paul Krugman

No one is ever fully prepared for a natural disaster. When hurricanes, storms or tsunamis hit us, they always reveal weaknesses – lack of planning, lack of investment in precautions.

The Texas disaster, however, was different. The collapse of the state’s energy grid did not reveal just a few problems. He demonstrated that the whole philosophy behind the state’s energy policy is wrong. He also demonstrated that Texas is ruled by people who do not hesitate to resort to blatant lies, instead of admitting their own mistakes.

Texas isn’t the only state in the United States with a largely unregulated electricity market. But it has pushed deregulation further than anywhere else. There is an upper limit on wholesale electricity prices, but it is stratospheric. And there is virtually no prudential regulation – no requirement for energy companies to maintain reserve capacity or invest in things like isolation, to limit the effects of extreme weather events.

The theory was that regulation like this was unnecessary because the magic of the market would take over. After all, a surge in demand or a disruption in supply – two things that have happened in the midst of a widespread freeze – will result in high prices and therefore huge profits for any electricity supplier who can continue to operate. function. So, supposedly, there were incentives to invest in robust systems, exactly to take advantage of events like the ones Texas just experienced.

Texas energy policy was based on the idea that electricity can be treated just like lawyers. Does anyone remember the great shortage of lawyers in 2019? Soaring demand and a poor harvest in California caused prices to skyrocket, but no one called for a special investigation and regulation of growers.

In fact, there are people who see nothing wrong with what happened in Texas last week. William Hogan, a Harvard University professor who is considered by many to be the architect of the Texan system, said the drastic price hikes, while “inconvenient”, were how the system should actually work.

But kilowatt hours aren’t avocados, and there are at least three reasons pretending to be avocados is a recipe for disaster.

To begin with, electricity is essential to modern life like few other basic commodities; a person can go a few days without their avocado toast and will not die for it; but you cannot run out of electricity, especially when your home depends on the electricity grid for heating.

And it is extremely doubtful that even the prospect of extremely high profits in the event of a shortage is sufficient incentive for suppliers to decide to consider the immense human and economic costs of a prolonged power outage.

Second, electricity is supplied by a system – and the precautionary investment by one member of the system does not pay off if the others do not. If the owner of a natural gas power plant insulates and protects their turbines from winter, they will still not be able to operate if the pipelines do not deliver fuel or if the wells from which the gas is extracted freeze.

So can the free market guarantee that the whole system works, under conditions of crisis? Probably not.

Finally, a system which depends on extremely high prices in times of crisis is not functional, neither in practical nor in political terms.

At first, Texans who were not lacking in energy during the Great Frost considered themselves lucky. But the bills started rolling in and some families found they would have to pay thousands of dollars for a few days of electricity.

It is likely that many families will not be able to pay the bills, which is why we are potentially facing a wave of personal bankruptcies. And even people who do not face the possibility of ruin are outraged.

Perhaps the most revealing statement about the Texas crisis came, surprisingly, in a tweet from Republican Senator Ted Cruz (Cancun), who got angry and said that “no energy company is expected to make extraordinary profits due to a natural disaster, “and called on” local and state regulatory authorities “to act to” prevent this injustice “.

The senator, who is not known for his conscience, may not have realized what he did with this statement. But if even Ted Cruz – Ted Cruz! – believes that regulators should prevent energy companies from deriving extraordinary profits from the disaster, this removes any financial incentive for the private sector to prepare for the disaster. This in turn destroys the whole premise of radical deregulation.

So will the Republicans, who hold all of the state’s elected positions in Texas, learn from this fiasco and rethink their entire approach to energy policy? Of course not. His immediate reaction was to blame the crisis for wind power and to attack supporters of the Green New Deal – although something like the Green New Deal, i.e. public investment in energy infrastructure. – that’s exactly what Texas needs.

And one thing we’ve certainly learned in recent months is that when politicians decide to buy into a big lie, whether it’s epidemiology, economics, or election results, they never come back. backward.

And while the right-wing political and media complex won’t learn or learn from the energy fiasco in Texas, the rest of us can. We’ve just seen the dark (and icy) side of free market fundamentalism. And it was a lesson that should not be forgotten.

Translation by Paulo Migliacci

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