Power Failures Thrust Deregulation Into Public Glare

February 19, 2011
The New York Times
Kate Galbraith

For the Texas power industry, this has been a time of soul-searching angst. Three weeks ago, dozens of the state's power generators failed in frigid weather, causing the worst blackouts in years and prompting multiple investigations. State lawmakers are demanding to know what went wrong.

"Eighty-two units going down is unacceptable," State Senator Troy Fraser, Republican of Horseshoe Bay, said last week at a hearing in which lawmakers sharply questioned regulators and power companies.

The rotating blackouts, which hobbled the state for eight hours on Feb. 2, have called into question one of Texas' most basic tenets: that this state does things better than anyone else. The crisis even forced Texas to import power from Mexico.

During the hearing, lawmakers pointed out that Northern states routinely deal with worse weather without the lights going out. Some of the newest coal plants belonging to one power company, Luminant, failed — prompting State Senator Mike Jackson, Republican of La Porte, to say, "The brand-new stuff ought to be the best."

The heightened scrutiny of the Texas grid has reinvigorated longtime skeptics of electricity deregulation. When full deregulation began in 2002, state officials insisted that Texas could create a smarter system than California, whose deregulation effort had failed a year earlier amid intermittent blackouts. Essentially, deregulation in Texas split utility monopolies and encouraged competition between power generation plants and also between companies that sell electricity to consumers.

Consumer groups have long complained that deregulation created a system that is confusing to ordinary Texans. A Web site, powertochoose.org, lets Texans type in their ZIP code and select from numerous "offers" from competing electricity retailers.

Another hotly debated question is cost: a study of the state grid operator, released last week by a group representing two nonprofit coalitions of cities, argued that electricity prices in Texas were below the national average before deregulation but are now above it. The electricity industry says that the pricing question is complex and that Texans can choose among retailers to find lower prices.

No one is suggesting that Texas will re-regulate its system in the wake of the blackouts. Indeed, some of the worst failures occurred in El Paso, which gets its electricity from a regulated utility and is not even part of the grid that covers most of Texas.

But the blackouts have highlighted concerns about deregulation. One issue is that much of the activity in the electricity world is not made public, because it is classified as competitive information that could aid rivals.

The weatherization plans that power plants submit to regulators are also marked "confidential." And no one yet knows which companies profited during the blackouts, when wholesale electricity prices soared, or how much the price spike collectively cost Texans.

The power companies help make the rules governing the grid because they are heavily represented on the grid operator's board. A state review last year recommended establishing an independent board, but lawmakers seem reluctant to forgo industry expertise.

More investigations are under way. A consultant is looking into whether market manipulation occurred (early indications are that it did not, regulators said). Alarmed by blackout-related natural gas shortages that migrated from Texas to other southwestern states, federal authorities are opening their own inquiry.

That may send a chill through the state's power industry, which — due to Texas' unique stand-alone power grid — largely escapes federal scrutiny.

So may some words from Mr. Fraser at the hearing. "I would prefer a free-market solution if we can do it," he told power company executives. "But, guys, we're here — we're governing."

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