During the past week, Texas has been struck by bitter cold weather that is bringing an old argument back to the forefront. What are the boundaries of government and industry-provided services? In this article, we’ll examine the pros and cons of both approaches, using the Texas energy crisis as a backdrop.
An analogy that everyone is use to is the “stocks vs. bonds.” Stocks have higher risk, but also higher upside. Bonds have lower risk, but lower expected returns. Stocks are great when the times are good, but can turn negative on a dime. Bonds are boring, and while you are guaranteed to make a positive Return on Investment, you’ll make less than stocks.
In the case of Texas and their power providers, industry is stocks and government is bonds. Industry is going to offer more choices and lower costs, but Government will never leave you without power.
Texas and the Deregulation of Energy
In January of 2002, Texas lawmakers passed Texas Senate Bill 7 which called for the creation of the Electric Utility Restructuring Legislative Oversight Committee. That Committee would eventually lead to the Electric Reliability Council of Texas that currently “manages the flow of electric power to more than 26 million Texas customers — representing about 90 percent of the state’s electric load.” (quote from About ERCOT)
The goal of the ERCOT was to provide transparent competition for the servicing of energy for Texas residence. Transparency would drive down prices as Texans would be able to choose who provides them their electricity. And ERCOT would essentially “own the rails” (think of them as the Apple App Store or Google Play Store) to govern the market and supply the power.
While there is some reporting out there that ERCOT has, to date, not had its desired effect, it does provide the environment for competition. Meaning, if in the future a company disrupts the electricity-production market, or embraces creative destructions, they’ll have the opportunity to corner the Texas market.
But, running the electricity market as a business does have its downsides.
Once in a Decade Storm
As John Oliver noted on February 21, 2021 on his show Last Week Tonight, Texas experienced a storm similar to the one they are living through now exactly one decade ago and nine years after the passing of Texas Senate Bill 7. After that storm, the Texas State Legislature debated whether to require State electricity providers to “winterize” they could not legally require them to. And, when the electricity providers ran the numbers, they decided that preparing for a “once in a decade” storm would be cost-prohibitive.
And that’s the difference between Industry and Government. Industry is required to examine each decision as to whether it will make them more or less competitive against their peers. They make those decisions because if they don’t, they go out of business. Government has no competition and therefore can take on additional costs to protect its citizens. However, those additional costs and fringe use cases make it more cumbersome to innovate in the future.
It’s a similar conversation that’s happening in the United States regarding healthcare. Industry has run it forever. And while they provide a variety of options for US citizens to choose from, way more than the government ever could, they have to make tough choices. Like choosing the deny coverage to people with preexisting conditions. The government wouldn’t have to make that choice, because of lack of competition; however, that lack of competition would result in fewer choices and greater regulation.
I put together a quick table to dive a little deeper into the differences.
| Industry | Government | |
| Goals: | Increase profitability | Support constituent needs |
| Service Options: | Indefinite, driven by profit | Fewer, driven by constituent needs |
| Customer Service: | Typically Quicker and Friendlier | Typically Slower |
| Service Coverage: | Optional | Total Population Required |
| Regulations: | Limited to None | More |
Ultimately, the choice isn’t right or wrong. It’s not black or white. Using the government to provide services has its advantages, just as turning to industry to support a solution does. But before you deregulate an industry, State, Local, and Federal Agencies – and their constituents – need to be clear on the control they are giving up.