How much will the Great Texas Power Failure cost us?
By Scott Burns February 26, 2021
Texas thought the free market would bring investors opportunity and consumers low electricity prices. But its simplistic assumptions transferred massive risk to everyone — and everything — that depends on electric power.
Texas was guided by the assumption that free markets, very simply defined, would bring investors opportunity and consumers low electricity prices. But the cost of unexpected events was ignored.
That allowed state government to brag about the low cost of power in Texas. It also made consumers happy about low prices.
But those simplistic assumptions transferred massive risk to anyone, and anything, that depends on electric power. It stripped away precautions against unlikely weather events. Like a massive polar vortex.
Arguments will be made that it was entirely reasonable to ignore the consequences of an unlikely event. Long Term Capital Management, a hedge fund, made similar arguments about unlikely events in 1998, and its massive losses nearly took down global banking.
Our unlikely event started a cascade of bad events. It ended with people who had no power being told to boil their drinking water — if they had any.
It was the perverse answer to every politician’s dream: no bill to pay for government, only bills to pay for everything else. It was a rare, but huge, loss. It was a massive loss of income, wealth and time. The loss is far, far greater than any savings in electric power cost. And some people died.
After the initial shock of our grid’s shortcomings is past, someone will have to pay for the hours that our electric market rates soared to $9,000 per kilowatt-hour. That someone will be taxpayers, in one way or another.