On Feb. 15, grid operators across the country shed electric service amid a remarkably potent cold snap. Electricity use exceeded generation in three of the seven organized electricity markets in the United States, including the Southwest Power Pool (SPP), the Midcontinent Independent System Operator (MISO) and the Electric Reliability Council of Texas (ERCOT). Per protocol, these grid operators initiated controlled service interruptions in order to avoid a far more damaging uncontrolled system collapse. The outages eclipsed four million customer accounts in Texas, with other states ranging from Oregon to Louisiana to Virginia having over 100,000 customer accounts without power.

Although the situation is rapidly evolving, immediate recommendations include:

It may sound tone deaf to recite economic principles during a crisis, but it is the lack of economic thought driving reliability policy that leads to a more uniform allocation of resources, rather than ensuring those in greatest need are best served. When differences in consumer preferences vary by orders of magnitude—as “value of lost load” studies for the ERCOT indicate—it screams for a market process to achieve supply-demand balance; however, current protocol treats nearly all demand the same.

On the planning side, policymakers may want to revisit incentives for supplier risk management. On the operations side, it would behoove policymakers to reduce barriers to customers’ ability to express their preferences for electric reliability. Hopefully blackouts become a thing of the past, and not because we force consumers to overpay for black swan readiness, but because markets are empowered to manage scarce resources efficiently and fairly.

Image credit: Oleksandr_Delyk

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