But Texas’s energy grid was not designed to split Texas from the Eastern and Western Grids out of a desire for political separatism. It was, in part, designed to avoid the widespread power outages of the 1960s and 70s, the energy crises of the 1970s and 80s, and later organized to avoid the disastrous effects of California’s energy deregulation at the millennium’s end.
Texas’s recent failure during Winter Storm Uri was a consequence of what had made the Texas grid profitable (and, as a biproduct, sometimes even stable) for a half century. As US energy markets developed in the early 20th century, it was, in fact, the utility companies themselves who sought state-level regulation to avoid the threat of municipal control on one hand and intense competition on the other. Unlike other industries, early 20th century utilities were capital intensive and high risk.
Economies of scale required massive up-front investments. If cities dumped a company for its competitors, or if cities decided to take over the utilities themselves, the individual company’s investment was at risk. So, in exchange for being recognized as legal monopolies, utility companies agreed to the state-level regulation of prices and reliability standards. State regulation after an economic crisis was an opportunity for the utilities, because the monopolies could rely on the state to cover sunk capital and reduce competition. In other words, deregulation hasn’t always been the best way for Texas capitalists to make a buck. Capitalists seek divergent relationships with the state depending on their individual interests, market position, and the general level of infrastructure development.
In fact, Texas’s unique grid is actually a product of federal intervention. Such regulation began with the passage of the Federal Power Act in 1920, which created the Federal Power Commission, a body monitoring hydroelectric power generation and the natural gas and electric industries’ interstate activities. It was assumed that utilities would be a natural monopoly due to economies of scale, so private companies were allowed to function with public oversight. By 1932, the 8 largest utilities in the US controlled 73 percent of the energy market. The Public Utility Holding Company Act was passed in 1935 to break up these monopolies. The Act limited the size of utility companies and required them to serve geographically contiguous and integrated areas.
State-wide electrification through the development of the Texas Interconnected System (TIS) began in the 1940s. The northern and western parts of the state were already generating electricity, but the Gulf Coast region needed electricity to mobilize the military during World War II. Existing utilities were combined with new hydroelectric power generators along the Texas river systems, which provided energy for factories and shipping yards closer to the Gulf. Manufacturing, which increased 4-fold between 1929 and 1945, depended on the ability of the state to provide power. Until the federal government mandated rural electrification with the passage of the Emergency Relief Act in 1935, only 2 to 3 percent of rural Texans had access to electricity – despite rural Texans comprising nearly 40 percent of the population.
While the rest of the country was pursuing cheaper energy by breaking up monopolies, capitalists in Texas devised a protectionist market for their energy producers to avoid losing assets to companies from northern and western states. Texas energy companies opposed the busting up of monopolies and the regulation of interstate trade for 2 different reasons. On the one hand, despite being a large market with a vast reserve of fossil fuels, Texas utility companies were relatively underdeveloped compared to the rest of the US, and they didn’t want to have to compete with more established firms.
On the other hand, Texas was now home to some of the best and most easily tapped petroleum and natural gas reserves; subjecting them to federal regulation wasn’t favorable to local capitalists. However, once the market was fully developed, other capitalists throughout the US and inside Texas were itching to remove these very same protections.
In the 1960s and 1970s, energy prices rose across the US. The Northeast blackout of 1965 was one consequence—over 30 million people lost power. In fact, ERCOT was actually formed in response to a North American Electric Reliability Council federal mandate that sought to prevent another blackout like the one in 1965. Texas’s massive oil and gas reserves helped the state avoid such blackouts, and the relatively high price of Texas oil buoyed the energy sector.
Later, federal regulation of natural gas prices in the interstate markets pushed Texas to diversify into lignite, nuclear, and coal, which gave capitalists in Texas an economic advantage over the rest of the US. Despite its physical separation from the Eastern and Western interconnections, Texas followed the same pattern as the rest of the nation, and its separation allowed it to shift first away from coal to natural gas and then again towards renewable energy, especially wind, faster than the rest of the country.
One of the impacts of deregulation in Texas, though, is that it can no longer rely on high energy prices to maintain its counter-cyclical pattern of economic success. Now Texas is as vulnerable as every other part of the country to global changes, and, of course, economic and climate crises in Texas affect the rest of the world, too.