Powering a monopoly: How February’s storm could destroy Texas’ energy market

February’s blackout could generate a new statewide energy monopoly.

In the two months since Winter Storm Uri left millions of Texans without power for days, several of the state’s small energy companies have declared bankruptcy. Entrust Energy, Just Energy, and Brazos Electric Power cited financial hardship caused by overinflated energy costs during the storm in their filings.

Small independent energy companies make up about 20% of Texas' overall energy market. In many cases, their size allows them to offer lower prices or unique payment options to consumers. They serve an essential free-market purpose — driving competition that helps consumers, regardless of their energy provider, achieve lower utility costs.

When small companies go bankrupt, their customers are forced onto “providers of last resort.” Consumers have no say in the matter and often see rate increases when providers of last resort charge more than their electric company of choice.

The choice by the Public Utilities Commission of Texas (PUCT) and Energy Reliability Council of Texas (ERCOT) to keep prices at the highest possible level during the storm means companies large and small are bearing a heavy burden. Vistra, a prominent Texas energy producer, estimated its Uri-related loss at $900 million to $1.3 billion. The Texas and Oklahoma subsidiaries of American Electric Power paid more than $1 billion for natural gas during the blackout. Exelon Corp.’s CEO went as far as telling investors the company was considering pulling out of Texas entirely after its $900 million loss.

Large companies like Vistra and AEP can weather the financial storm, taking a hit from the high costs without fatal damage to their overall profit margins. The same cannot be said for small energy companies. For some retail energy providers, the costs of February's storm were too much to bear. In its bankruptcy filing, Brazos Electric Power, the state's oldest energy cooperative, reported that it accumulated $2.1 billion in bills during the storm, which is $1.32 billion more than it paid for all electricity supplied by the cooperative in 2020.

Nearly two decades ago, Texas joined with a dozen other states to deregulate its energy market, moving from a system in which regulated monopolies were responsible for energy utility services and rates to one of market competition. Now, years of apathetic energy market oversight and a few days of overpriced energy is threatening to undo this decades-old switch to competitive markets and risking the financial wellbeing of consumers.

Currently, just two companies — NRG and Vistra Corp — control 70% of the Texas market, having acquired many small, independent organizations.

As the large companies grow, competition shrinks, creating an energy monopoly. This monopoly would get to set energy rates for most of the state. If the last few weeks indicate the state's response, there would be no government pressure to stop companies from keeping prices artificially high. The energy monopoly would rake in profits while Texans emptied their pocketbooks.

Equally terrifying for consumers is that this monopoly would become "too-big-to-fail," leaving lawmakers and taxpayers at its beck and call. An energy monopoly’s massive profits could fund the elections of legislators most eager to remove consumer protections and provide a taxpayer-funded bailout at the first sign of trouble.

Thankfully, Texas hasn't reached the point of a monopoly yet, and our leaders still have time to act. Passing legislation to mitigate the financial strain of energy overpricing on small retail energy providers, which occurred during Winter Storm Uri, would not only protect ratepayers from rising energy costs but is a crucial step in keeping Texas' energy market competitive, which saves money for taxpayers as well.

Further, by investigating the decisions made by PUCT and ERCOT officials during that week in February and holding them accountable for any mistakes, elected officials can restore regulatory balance within the state. A failure to properly investigate regulators' actions sets a dangerous precedent in which investors are valued over consumers. Opening an investigation serves as a critical reminder that while the market as a whole is deregulated, its goal remains the same: providing for Texans.

Our elected leaders would do well to heed the lesson learned in California in 2003 when Enron drove consumer energy rates sky high, causing voter outrage that eventually led to the recall of a newly elected governor. With only a few weeks left in their current session, Texas legislators need to act quickly. Otherwise, consumers will pay the price.