A little over 20 years ago, Texas deregulated its energy market. And Texas is not unique in that; deregulation obviously has been kind of the story of American policy for decades. And it came to the electricity market in Texas, as it did to other states. But in Texas, it took a form that we do not see anywhere else. Essentially, they created a compe ive market where supply and demand are the rule of the day. There’s no one power company that you go to, like there is in a lot of the country. You get these competing electric providers. But the real thing that makes Texas unique is that it is what they call an “energy-only market.”
In other parts of the country, a power plant, also known as a generator, gets paid to be around in case they’re needed. But in Texas, in an attempt to create this kind of perfect compe ive market, they said, “No, you’re only going to make money by selling electricity at the time that it is needed, at its time of use.” So our generators only make money selling power on the market.
When you take that approach and you couple it with the law of supply and demand, what you’re doing is you’re creating a system that is run on scarcity. The less electricity that is available, the more expensive it will be. So in our market, we created a system where power plant operators make their margins by relying on moments of extreme scarcity that will drive up the price of electricity. And this will be their big payday. These moments may only come a handful of times a year but this is where you make your money.
Proponents of this market said that it incentivizes efficiency. Like, you cut out all the fat, and you don’t have any electricity generators that are getting paid to just sit around. They would claim that that creates an efficient market. The reality, though, is that when you need extra power on hand, you have less of it available
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