For millions of people who live in Texas, this week has seemed like hell. With the electrical grid collapsing, people were left to freeze to death in their living rooms while others watched their homes literally fall apart as frozen water pipes burst. But this is all simply a matter of perspective.
For electricity providers in Texas, this has been the best week ever. The same goes for natural gas companies. And coal companies. And drilling companies. And on down the line. The entire energy industry, including the owners of Texas wind farms, has seen a tremendous surge of profit. That surge was so great that on just two days this week, Monday and Tuesday, providers could easily have cleared more profit than they do in a full year of ordinary, full-scale production. Not providing adequate electricity to Texas is much more profitable than providing every Texan with the power they need. By design.
On Friday, as the electric grid begins to recover and people survey what’s left after days of no power, no water, and a governor who was so busy going on Fox News he didn’t have time to even distribute the stock of generators provided by FEMA, most of Texas is exhausted. But the energy industry is ecstatic. They’re coming down from a sugar rush that has sent an injection of billions straight into their pockets, and all they had to do to collect it was be bad at their supposed jobs.
When Naomi Klein wrote The Shock Doctrine in 2007, she described a system of “disaster capitalism” in which neoconservative free markets exploited extraordinary situations. Using excuses ranging from hurricanes to government overthrows, systems were instituted on “Chicago school” economics, with a laissez-faire anything goes policy for the wealthy, and a strict insistence that the government do nothing to help the poor. The forces behind this movement are well aware that neither nations nor individuals in the midst of crisis are equipped to negotiate fair long-term solutions. The whole point is disasters make people uniquely vulnerable, both economically and emotionally, to being manipulated by scam artists. That can be people hawking water for 10 times its normal price. That can be companies selling electricity for 27,000% its usual rate. Those who impose neoconservative market systems are simply at the top of the scam artist food chain.
Such systems insist on “austerity” when it comes to social programs designed to lift people out of poverty or buffer them from the next disaster. That’s because these buffers make people less vulnerable, and so less likely to agree to the conditions imposed by the disaster capitalists when the screws get turned again. These systems also insist that the other end—the end where billionaires play with options and financial instruments—has to be essentially unlimited. That makes every disaster an opportunity for a fat payday.
The Texas energy market, as managed by the Electric Reliability Council of Texas (ERCOT) isn’t just a market that’s designed to protect investors and harm consumers in each instance of disaster; it’s a market that’s tailor-made to induce disasters.
The incentives of that market are intended to keep the difference between supply and demand in Texas razor thin. The way that pricing is conducted under ERCOT means that the price of electricity can fluctuate wildly in a very short period on very small changes in the available supply. Those “spikes” in prices are the primary means by which the system incentivizes expansion of the electricity supply. And it really does provide incentive. It provides incentive to generate more spikes.
This doesn’t require that electricity providers be “evil.” It only requires that they mirror the economist’s ideal of a “rational actor” when confronted with a system where limiting supply generates increased profit. After all, when providing less power generates more money … why not?
Texas isn’t alone in this issue. In 2000 and 2001, California’s energy grid was brought to a point where supply and demand were very close when a drought limited electrical production from hydropower in the Northwest. Savvy private energy producers in California responded by determining that this was the perfect time to do “maintenance” on multiple plants at the same time. These outages then forced grid managers to purchase electricity at rapidly rising rates from the spot market.
Because the energy industry is highly intertwined, some of the companies speculating in electricity also had huge influence in the natural gas market. A couple of particularly clever companies determined that by simultaneously manipulating the price of natural gas they could, under California’s formula, raise the maximum spot price for electricity even higher. One of those companies went by the name of Enron. The other was Reliant Energy. Reliant is now part of NRG Energy, which controls power to 2.9 million homes in multiple states, including Texas.
By what is surely a pure coincidence, California had previously asked for changes to its market rules that would have placed a hard cap on spot market prices. The Federal Energy Regulatory Commission turned them down.
Texas suffered massive blackouts in 1989 after a cold snap raised demand far above supply. This happened again in 2011, leaving many Texas without power for days and leading to a federal investigation that suggested the system desperately needed to be winterized and prepared for future events. That didn’t happen. And The Dallas Morning News can explain exactly why it didn’t happen. Not only did electricity providers make more money in two days than they would have made in a year, there was a real trickle down effect. Just not to consumers.
This week is like hitting the jackpot with some of these incredible prices,” [Comstock Resources chief financial officer Roland Burns] said. “Frankly, we were able to sell at super premium prices for a material amount of production.”
That last sentence can be translated as “we made a killing while selling far less gas.” Which is easy to do in a market where prices have gone up 30,000% in a week.
For the energy industry, this really has been hitting the jackpot, and celebrations are being held by speculators at all levels—as well as by drilling industry analysts, who expect the failures of the gas industry to be met with demands for more of the same source that just failed. They are confident not only that Texas Republicans like Gregg Abbott will not be able to hold off making any significant changes to the market by blaming the problems on “green energy,” but that the Fox News bullhorn will stir up funds for more gas exploration and fracking.
Still, consumers are enjoying a trickle down of a sort. (Though “enjoying” is far from the correct term.) As The Washington Post reports, as the power begins to come back on, it’s only serving to illuminate the expanding scope of the water crisis in Texas.
With poor insulation in many homes and water lines that are often buried barely below the surface, the multiday cold snap means that many areas of Texas are seeing water problems both on a personal and municipal level. Over 13 million Texas are living with a boil-water order on Friday morning—an order that’s particularly difficult to meet for the hundreds of thousands still without electricity. Houston residents have lined up in parks to get water handed out by city officials, and bottled water is even being provided to area hospitals, which are also facing non-functional taps.
One thing is clear: With more than 40,000 megawatts of electricity still on “forced outage,” the fault is not wind turbines. Both wind and solar have performed from just under to well above projected levels of output throughout the crisis. Electricity production from wind is expected to exceed 11,000 megawatts on Friday evening as a new weather system brings additional wind to the area. Solar energy is expected to exceed 5,000 megawatts at midday. That’s helping to bring Friday spot prices for electricity back to something close to normal in many areas, even though prices for short-term energy futures are still near the maximum allowed.
And the deliberate outages now appear to be over.
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