Apparently, Texas lawmakers have no intention of allowing a free market in electricity to work. They thought they did, but having seen it in action, they've realised it's as dumb an idea as you could find in a month of trawling YouTube.
Unfortunately, that's not what they're saying.
What they're saying is things like: "Texans who suffered through days of freezing cold without power should not be subjected to skyrocketing energy bills due to a spike in the energy market" (Governor Greg Abbott). Or "This is WRONG. No power company should get a windfall because of a natural disaster, and Texans shouldn't get hammered by ridiculous rate increases for last week's energy debacle" (Senator Ted "plenty of power in Cancun" Cruz).
Price spikes happen in every electricity market. Usually they don't matter to users, because retailers sell power at a fixed price. When they do that, the retailer forms a buffer between the market price and the consumer. That's - part of their function. How the retailer sets its contracts with suppliers, how it insures itself against spikes - those things are, literally, its business.
In a free market like Texas's, there's nothing to stop them selling power at a price that's indexed to the spot price. And most of the time, these deals look good for the consumer. It is possible to offer a contract with a "ceiling" on the spot price, but that's like insurance - it means paying more for the added peace of mind. And if you were the sort of person who believed in insurance, you wouldn't be buying those plans in the first place.
Apparently, a whopping 25% of Texans thought they could do without that insurance. Of course, many of them will be right: for them the occasional $5000 bill is a nuisance, but they can handle it. (Although my guess is that many even of those people won't pay it, because why should they? - the bailout is coming.) But others are not so well heeled.
The theory goes, when the price spikes, generators will bring more capacity online. That's what prices are for. However, that assumes the capacity is there. If - for whatever reason - that capacity fails, there is no price that can instantly create more.
It also assumes that the price charged will be paid. If the Texas market is anything like those I know, the retailers will have to settle their accounts promptly at the beginning of next month (i.e. next week), so they have until then to raise the money from somewhere. Since lawmakers have already forbidden them to disconnect people, clearly it's not going to come from deadbeat customers. It'll be coming from taxpayers.
So Texan politicians have already vetoed the "conservative" way of resolving the crisis. Prices, it turns out, can't be allowed to control the market after all. Who or what will?
The answer depends on who foots the bill for the present debacle. It could, of course, be dumped on Texan taxpayers. But that would invite hard debate about the future regulation, and it's hard to see how anything good can come of that in the age of Twitter and Facebook. More likely they'll take federal money, which would sidestep the whole messy business by inviting federal regulators in. Then there'll be a handy scapegoat for all the changes people won't like.
One way or another, regulation is coming to the Texas market. And not a minute before time.
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