The Ghost of Enron Haunts the Texas Power Grid

“There is one fundamental lesson we must learn from this experience: electricity is really different from everything else. It cannot be stored, it cannot be seen, and we cannot do without it, which makes opportunities to take advantage of a deregulated market endless. It is a public good…”

These earnest phrases sound like something said during one of the recent inquiries into the Texas power outage.

“Load-shed Ordered” is utility-industry speak for “Let the blackouts roll.”
Red River Rivalry gets a new twist. Oklahoma had as bad a freeze, but OG&E is a regulated utility.

Enron needs MOA

Enron’s free-market rhetoric was designed to appeal to politicians, although many, including libertarians, saw it as a very un-free market attempt to win special political favor. For example, to insert itself into the electricity markets, Enron needed politicians to give it something called MOA —mandatory open access — to the transmission lines of the existing utilities.

the message for consumer was you can save money if you drive without insurance

But the promise of lower prices was easy for companies like Enron to make — because the message really was, you can save money if you drive without insurance. And you can, until statistics catch up with you. The rates charged by regulated utilities included little tithes for a lot of things besides the electricity itself. Some went toward keeping up the utility’s plant and equipment. Some went to new investment, or to pay off old ones. There was also, of course, a regulated and “reasonable” profit for the utility.

ERCOT instant jackpot: $47 billion

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.

— J.M. Keynes, The General Theory of Employment, Interest, and Money (1936)

The accepted back-of-the-envelope calculation for the non-human cost of the February freeze in Texas — megawatt hours generated during the week times $9,000 — is $47 billion.

Biggest Winners: Electricity generators who kept running

When and if the figures come out, the biggest winners will clearly be the electric power generators who were able to keep running. These sold their power to ERCOT at the $9,000 price.

Winners: Anyone with natural gas — who could deliver it

Enron declared bankruptcy before the fracking revolution hit home around 2005. Jeffery Skilling’s group would have been thrilled to see how quickly the deregulated electricity markets became shackled to natural gas. California noted this in a post-crisis report in 2004. “Markets for natural gas and electricity in California are inextricably linked, and dysfunctions in each fed off one another.”

Loser: Mexico

Little-mentioned in the Texas fandango is its effect on northern Mexico. Mexico had Texas natural gas cut off. Millions use it there for both heating and electricity. The government-owned electric utility uses gas to generate about 60% of its power.

Biggest losers: retailers

What bankrupted Pacific Gas & Electric in 2001 — then the largest investor-owned utility in the country — was the fact that it could not raise its retail rates as the wholesale price soared. PG&E and Southern California Edison bled out slowly. Retailers in Texas were blown away within a few days.


To date, at least four retailers have filed for bankruptcy protection. “Protection” is an operative word in this context. Most would like to continue in the business. Ironically, the entity they seek protection from is ERCOT.

And then there’s Griddy

Much-maligned Griddy also filed for bankruptcy on March 15, listing its debt to ERCOT at $29 million.

Griddy’s sin was to take Texas free-market bloviation at face value

But a word in defense of Griddy. Griddy’s only real sin was to take Texas free-market bloviation at face value. It’s model was simple: it charged a monthly fee and then passed through ERCOT’s changing market prices directly to its consumers. Many of these were price-conscious and practiced “demand management,” meaning they consume less when prices are high. They are the very consumers proponents of markets fantasize about.


One retailer, Patrick Woodson, CEO of Green Energy Exchange, predicted early in the crisis that some 22 retailers might fail. Their customers would be assigned to what is charmingly called the “provider of last resort” (POLA) in their area. NRG and Vistra are likely to end of with most of these customers, at least initially (they can switch after). A shake-out among small retailers would push the Texas market in the direction of the old regulated model, with NRG and Vistra being the new-old utilities left standing.


Bankruptcies start dominos falling in most financial crises. Griddy’s bankruptcy filing, for example, shows it not only owes ERCOT $29 million, but also owes over $1 million each to two electric distributors, Houston-based CenterPoint Energy, Inc. and Dallas-based Oncor.

Eventual losers: Texas ratepayers and taxpayers

If we track the mighty river of money back to its source, it originates in tiny streams from individual ratepayers. The question is not if Texas ratepayers will ultimately pay for the crisis, but when, and over how much time. Griddy’s customers got the bad news all at once. Others will have it broken to them gently.

Is it possible to de-mess Texas?

At the moment, the Texas state legislature appears concerned with passing something about winterization and moving on. It declined to roll back some $16 billion in ERCOT charges that were levied after the emergency was technically over. The reason, again, was “incentive.”



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Will Bates

Will Bates

Will Bates writes about science, technology, and business. His journalism has appeared in the New York Times, the Wall Street Journal, and numerous magazines.