“A properly functioning market … simply needs clear price signals, enforceable property rights, and the freedom for buyers and sellers to contract with one another…. The Public Utility Commission of Texas effectively imposed a $26.3 billion monopoly tax on Texans by overriding the market signals the Legislature had said should govern the system.”
Recent reports on the collapse of Fermi’s stock price should get the attention of anyone watching Texas’ rapidly growing demand for electricity. Here was a company promising massive new generation—tied to the surge in AI and data centers—only to see its stock price collapse. While Fermi may still succeed, there is a broader lesson for the Texas electric grid.
Texas needs more power. Projects like Fermi show the private sector is trying to respond. But too often, these efforts look like they are being forced to work around the grid rather than through it.
That should not be the case. Texas built its post-2000 electricity market on a simple principle: prices and investment decisions should be driven by “customer choices and the normal forces of competition.” When that principle is followed, markets do what they are supposed to do. They attract capital. They reward reliability. They punish failure. And they deliver electricity at the lowest sustainable cost.
When that principle is ignored, the opposite happens. We have seen this play out repeatedly over the last 15 years. The state has layered subsidies, mandates, and regulatory interventions on top of what was once the most competitive electricity market in the country. Billions of dollars in federal, state, and local subsidies have led to the grid being infested with intermittent renewable generation that cannot be relied upon when it matters most. At the same time, the state has increasingly inserted itself into the operation of the grid; for example, regulators price-setting order during the 2021 Winter Storm Uri that replaced market prices with politically imposed prices for roughly 80 hours.
The result was exactly what economic theory—and common sense—would predict: prices divorced from reality and a massive transfer of wealth. The Public Utility Commission’s action effectively imposed a $26.3 billion monopoly tax on Texans by overriding the market signals the Legislature had said should govern the system.
The same dynamic is now showing up in more subtle ways. When developers like Fermi attempt to build large, dedicated generation resources tied to specific loads, they are responding to a real problem: uncertainty about whether the grid will deliver reliable, affordable power when needed. But instead of asking why these projects feel the need to operate on the margins of the grid, policymakers should be asking a more fundamental question.
Why isn’t the grid itself doing this job? A properly functioning market does not need workarounds. It does not require special deals or speculative hype to attract investment. It simply needs clear price signals, enforceable property rights, and the freedom for buyers and sellers to contract with one another. In other words, reliability is not produced by mandates, it is produced by economic liberty.
If generators are allowed to earn higher revenues when power is scarce, they will invest in capacity that performs under those conditions. If customers are allowed to see and respond to real-time prices, they will adjust their consumption in ways that reduce strain on the system. If both sides are free to enter into long-term contracts, they will hedge risk and finance new infrastructure without relying on subsidies or regulatory guarantees.
Yet instead of allowing scarcity pricing to function, Texas policymakers have repeatedly intervened—either directly, as in Uri, or indirectly through price caps, ancillary service mandates, and other administrative mechanisms. Instead of requiring each resource to bear its own costs, the system increasingly socializes those costs across all ratepayers. And instead of removing distortions, the state has allowed the allure—and political donations—of the Green New Scam to reshape the market in ways that undermine both reliability and affordability.
As the Legislature looks toward the 2027 session, it should resist the temptation to double down on these mistakes. Proposals for capacity markets, reliability credits, or additional subsidy schemes would only move Texas further away from the competitive model that made it successful in the first place.
The better path is straightforward. First, reaffirm and enforce the statutory requirement that prices be determined by customer choice and the normal forces of competition. That means prohibiting administrative price-setting in all forms—whether during emergencies, under the guise of reliability, or out of fear of hypothetical price gouging.
Second, eliminate out-of-market payments and cost socialization mechanisms that obscure true costs and distort investment decisions. This includes forcing consumers to pay for a massive expansion of the state’s transmission system—both for 345-kV and 765-kV lines—needed in large part because we must rely on renewable generation located far away from where the power is most needed.
Third, allow full contractual freedom between generators and customers. Large loads—whether data centers, industrial users, or others—should be able to secure the reliability they need through market arrangements.
Finally, begin the process of removing the distortions created by subsidies, particularly those that favor intermittent generation while shifting reliability burdens onto the rest of the system.
Conclusion
None of this guarantees that every private-sector venture will succeed. But failure in a market is a feature, not a bug. It reallocates capital to better uses and sends clearer signals about what works. The real danger is not that some projects will fail. It is that the grid itself will fail to provide what Texans actually need: abundant, reliable, and affordable electricity.
Texas already knows how to build that kind of system. It wrote its blueprint into law back in 1999, however imperfect. The question for 2027 is whether the state will return to the basics.
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Bill Peacock is an expert in federal and state regulation of electricity; the Texas power market; renewable energy; federal, state, and local energy subsidies; and the relationship between free markets, regulatory policy, and economic prosperity. This post originally appeared at his website, Excellent Thought.