How Texas Turned a Grid Failure Into a Public Bailout
•February 19, 2026
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Why It Matters
Understanding this case shows how regulatory choices can distort risk allocation in competitive energy markets, undermining incentives for reliability and burdening the public with avoidable costs. As climate‑driven extremes become more common, the episode underscores the need for transparent, market‑based responses rather than ad‑hoc political fixes.
How Texas Turned a Grid Failure into a Public Bailout
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When Winter Storm Uri struck Texas five years ago this month, hundreds of people died and more than 4.5 million lost power, some for as long as four days.
Nearly half of ERCOT’s installed capacity was offline, including every type of power plant. ERCOT ordered rolling blackouts to prevent grid collapse, the largest manually controlled load-shedding event in U.S. history.
This catastrophe was not a failure of the ERCOT electricity market. The deadly power outages resulted from a grid emergency created by frozen equipment and fuel shortages.
But government leaders and electricity regulators compounded that operational emergency into a financial crisis when they reneged on their promises to Texans, shifting costs and risk away from corporate energy companies and onto the public. These regulatory interventions overrode the state’s competitive market design.
The post-2021 regulatory response vividly shows how policy decisions can shift the cost of extreme events from corporate participants to the public. While ERCOT’s market design had been structured to allocate risk efficiently, interventions during and after the crisis altered those allocations.
Some players in the natural gas and electricity industries won big; Texas consumers generally lost.
As state leaders repeatedly emphasized in the early 2000s, the competitive market’s strength lay in its ability to allocate risk efficiently. Participants who could supply energy during high-demand periods would benefit from scarcity prices, while those who failed to hedge against spikes would absorb losses. This risk allocation was considered essential to maintain investment incentives, ensure sufficient generation capacity, preserve the integrity of the competitive market, and protect customers.
In other words, the system allows extreme events to create financial consequences for participants. Those consequences were part of the market’s design, not a failure.
But when Winter Storm Uri hit, regulators and policymakers overrode that principle.
During the storm, demand dropped in the ERCOT market due to load shedding, despite power still being critically needed across the state. Prices fell below the $9,000-per-megawatt-hour cap. The PUCT found this outcome “inconsistent with the fundamental design of the ERCOT market” and instructed ERCOT to count unserved firm load in its scarcity price calculations, manually increasing wholesale energy prices to $9,000 for the duration of the emergency. This was intended to signal the true scarcity and increase incentives for generators to run.
However, analysis by ERCOT and others found that by the time widespread load shedding ended, all available generation that could come online was already operating. Maximum prices did not incentivize additional generation, because there was no additional generation to respond to higher prices.
After the emergency passed, regulators had a 30-day window for what’s known as resettlement, a mechanism to correct market errors before they become final. A contentious debate ensued. Some argued ERCOT should recalculate energy prices to reflect the actual supply-demand balance, allowing consumers and small market participants to avoid billions in unnecessary costs.
This repricing could have reduced consumer costs, but it risked destabilizing a market still recovering from physical disruptions. Ultimately, state leaders rejected it, leaving Texans to pick up a tab that was billions of dollars too high.
The decision had a significant impact on where the burden and benefits would fall.
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