How Market Manipulators Engineered a Multi-Decade Assault on Consumers and Public Safety

The Texas electricity market represents one of the most comprehensive regulatory failures in American history, where systematic market manipulation by a concentrated oligopoly has extracted $28 billion in excess charges from consumers while deliberately undermining grid reliability. This consolidated research reveals how deregulation transformed regional monopolies into a statewide oligopoly that has captured regulatory agencies, corrupted political processes, and prioritized profits over public safety with deadly consequences.

Deregulated but Still Complex & Oligarch Friendly

The Texas electricity market operates through a uniquely complex structure designed to facilitate competition but ultimately exploited by a small number of dominant corporations [ERCOT, 2019]. The system divides electricity service into four distinct components: generation (producing electricity), transmission (high-voltage power lines moving electricity across long distances), distribution (lower-voltage lines delivering power to homes and businesses), and retail (companies selling electricity directly to consumers) [ERCOT, 2019]. The Electric Reliability Council of Texas (ERCOT) serves as the independent system operator, managing the flow of electrical power to 24 million customers across 90% of the state without owning any generation or transmission assets [FERC, 2023].

ERCOT Governance and Industry Capture

ERCOT is governed by a 12-member Board of Directors consisting of eight independent members (supposedly unaffiliated with the power industry) and four ex officio members: the ERCOT CEO, the Public Counsel of the Office of Public Utility Counsel, the PUCT Chair, and a PUCT Commissioner [ERCOT, 2025]. However, the definition of "independent" is problematic. Current board member Bill Mohl, appointed in July 2025, has over 40 years in the energy industry with leadership positions at Entergy Corporation and other power companies [ERCOT, 2025].

The supposedly independent board members are selected by an ERCOT Board Selection Committee and must have "executive-level experience in finance, business, engineering, trading, risk management, law" - qualifications that inevitably draw from the very industries ERCOT regulates [ERCOT, 2025]. This creates a structural conflict where board members may be formally unaffiliated but professionally aligned with industry interests through career backgrounds, networks, and post-service opportunities.

From Regional Monopolies to Statewide Oligopoly

This deregulated framework was created through Senate Bill 7 in 1999, championed by then-Governor George W. Bush and Enron CEO Ken Lay, who promoted the legislation as a means to "bring competition to the U.S. retail market for electricity, one of the last great monopolies" [Origins, 2021]. The legislation required nearly 60% of Texas consumers to purchase electricity from retail providers rather than traditional utilities, while forcing incumbent utilities to divest their power generation assets [WSJ, 2021].

Before deregulation in 1999-2002, Texas did not have a power oligopoly. Instead, the state operated under a system of regional monopolies where individual vertically integrated utilities controlled all aspects of electricity service within their specific territories [Science Direct, 2003; Acacia Energy, 2022]. The major companies included Houston Lighting & Power (HL&P) serving Houston, TXU serving Dallas-Fort Worth, Central Power and Light serving South Texas, West Texas Utilities, and Texas-New Mexico Power [Texas Monthly, 2021].

The current power oligopoly emerged directly as a result of deregulation. When Senate Bill 7 required utilities to "unbundle" their operations, the old monopolies didn't disappear—they reconstituted themselves into the dominant players in the new competitive market. Houston Lighting & Power split into NRG Energy (generation), CenterPoint Energy (transmission/distribution), and Reliant (retail), while TXU split into Luminant (generation), Oncor (transmission/distribution), and TXU (retail) [Texas Monthly, 2021].

The market has become dominated by what can be accurately termed a concentrated oligopoly of major corporations including NRG, Vistra, Luminant, CenterPoint Energy, and Oncor Electric Delivery [Power for Tomorrow, 2022]. These companies, along with their subsidiaries, control approximately 75-80% of the residential retail market, creating what the Department of Justice would classify as a "highly concentrated" market structure [Power for Tomorrow, 2022]. Multiple reputable academic sources confirm this oligopoly structure: a UC Berkeley study found that firms can "more than double markups" when market size is reduced [Berkeley, 2018], while an Oberlin College analysis noted that "the three largest firms have market shares of 20%, 15%, and 10%" [Oberlin, 2019].

The Fifteen-Year Reign of Market Manipulation

Over fifteen years of systematic market manipulation occurred with the knowledge and tacit approval of Texas regulators, who were captured by industry influence and revolving-door relationships [NPR, 2012]. The Public Utility Commission of Texas (PUCT), established to "protect customers, foster competition, and promote high quality infrastructure," instead became a vehicle for legitimizing corporate abuse [PUCT, 2025]. Consumer complaints were largely ineffective because the deregulated structure made it difficult to assign responsibility, with companies pointing fingers at each other and at ERCOT while regulators claimed limited authority over market participants [Texas Standard, 2021].

The customers bearing the brunt of this abuse included not only residential homeowners but also small businesses, schools, hospitals, and municipal governments forced to participate in the deregulated market. Notably, powerful industrial customers and large corporations were often able to negotiate favorable long-term contracts or bilateral arrangements that shielded them from the worst price volatility, leaving ordinary Texans to absorb the costs of market manipulation [Science Direct, 2003].

The Hockey Stick Bidding Scam Explained

"Hockey stick bidding" represents one of the most pernicious manipulation tactics employed by dominant generators to extract excessive profits from Texas consumers [ERCOT, 2004]. Under this strategy, power generators submit bid curves that offer most of their electricity at reasonable prices (the "blade" of the hockey stick) but price the final few megawatts at astronomical rates - often $990 to $9,000 per megawatt-hour (the "stick") [Oren, 2004].

How Marginal Pricing Enables Market-Wide Manipulation

The Texas electricity market operates under a "uniform marginal pricing" system where all generators receive the same clearing price, set by the most expensive generator needed to meet demand [Yale Journal, 2024]. This "pay-as-clear" pricing means that "all electricity producers are paid the same price for their electricity, provided their bid comes under the final clearing price" [Emissions EUETS, 2023].

The process works by stacking generator bid curves in merit order from lowest to highest cost. The price bid by the marginal generator—the most expensive plant needed to balance supply and demand—becomes the clearing price that all generators receive [Squeaky Energy, 2023]. This system means that even if 99% of electricity is produced by low-cost generators, a single high-priced bid can set the market price for all electricity if that bid is needed to meet demand. As one analysis explains, "even one hockey stick offer can drive market prices to extremely high levels when nearly all offers are struck" [Oren, 2004].

During the February 2003 ice storm, one generator's single megawatt bid at $990 per hour set the clearing price for all electricity purchased during several critical hours, costing consumers at least $17 million in unnecessary charges when the market would have cleared at $300-500 per megawatt-hour without this manipulative bid [Oren, 2004]. The Public Utility Commission's own Market Oversight Division found this practice "materially contributed to price spikes that were completely out-of-line with any rational basis for cost" [Texas Commercial Energy, 2003].

Evidence of Coordination vs. Independent Discovery

The research reveals mixed evidence on whether dominant generators coordinated their hockey-stick bidding strategies. While there is no direct proof of explicit coordination, several factors suggest something beyond independent discovery. Multiple generators simultaneously adopted similar hockey-stick strategies during the same time periods, particularly during the February 2003 ice storm [Houston Chronicle, 2019]. Texas Commercial Energy's federal lawsuit alleged that the hockey-stick bidding was "cooperative in nature," meaning "generators can work together to inflate the price paid for electricity" [M Research, 2009].

The University of Alberta's analysis of electricity market collusion notes that "evidence from ERCOT and electricity markets elsewhere indicates that such bids are often cooperative in nature" [University of Alberta, 2023]. The study explains that coordination in electricity markets can involve "asymmetric strategies" where "firms alternating roles" and that "optimal collusion is most sustainable using strategies in which firms rotate roles, alternating between setting the collusive market price or offering at low prices."

The False Promises of Deregulation's Advocates

When Texas deregulation was promoted in 1999, advocates made sweeping promises that competition would deliver "better service at lower prices" for consumers [The Week, 2021]. Enron CEO Ken Lay, one of deregulation's most prominent champions, testified that he had "yet to see any system in the world, within the regulated system, that over time does a better job of setting prices and allocating supplies than a competitive market" [PBS Frontline, 2001].

State Senator David Sibley, the Republican architect of deregulation, promised that "if the price of a can of beans goes up 10 cents, people shop somewhere else. If the price of electricity goes up, people for the first time will have a choice" [KUT, 2021]. These advocates earned millions through deregulation: Ken Lay built Enron into a $100 billion company, while Governor Rick Perry received over $227,000 from Enron, including a $25,000 check delivered the day after he appointed a former Enron executive to head the Texas Public Utility Commission [The Nation, 2015].

Studies have consistently demonstrated that deregulation failed catastrophically to deliver on its promises. Texas consumers in deregulated areas paid $28 billion more for electricity from 2004 through 2019 than they would have under regulated utilities - with deregulated rates averaging 13% higher than the national average while regulated Texas utilities averaged 8% lower than the national rate [WSJ, 2021].

Industry Political Spending and Regulatory Capture

The power industry systematically corrupted Texas regulatory agencies through revolving-door employment practices that converted regulators into industry advocates [CBS Texas, 2016]. Former Railroad Commission Chairman Barry Smitherman became a lobbyist for energy companies within four months of leaving office, while former chiefs of staff found even more lucrative positions - Amy Maxwell earned up to $585,000 in 2015, and Chris Hose made up to $750,000 lobbying for energy companies [CBS Texas, 2016].

Massive Political Spending Campaign

The dominant generators deploy massive financial resources to influence Texas politics. After the 2021 legislative session that ostensibly addressed Winter Storm Uri failures, five major power companies (Calpine, CenterPoint, NRG Energy, Oncor, and Vistra) collectively donated $497,000 to state officials from June 21-30, 2021 - more than double the $207,000 they gave during the same period in 2019 [Texas Tribune, 2021].

The utility industry's broader political influence is staggering. Over 70 investor-owned utility companies contributed more than $87 million from 2008-2024 to the Republican Governors Association, Democratic Governors Association, and similar organizations [Energy and Policy Institute, 2025]. At the federal level, oil and gas industry donations to Texas Republicans are booming, with Representative August Pfluger receiving $573,721 in the 2024 cycle - more than any federal candidate including Biden or Trump [Texas Tribune, 2024].

This pattern extended throughout the regulatory apparatus, with the Texas Railroad Commission and the Texas Commission on Environmental Quality becoming feeders for industry employment [NPR StateImpact, 2012]. Companies specifically recruited former regulators for their "direct connections" to Texas environmental agencies, creating a system where regulators knew their career advancement depended on maintaining favorable relationships with the industries they supposedly oversaw [NPR StateImpact, 2012].

Willful Negligence in the Face of Repeated Warnings

Power companies systematically ignored valid warnings about infrastructure vulnerabilities, particularly regarding winter weather preparation. Following a similar winter storm in February 2011, the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation issued a comprehensive 357-page report warning that Texas power plants would fail in sufficiently cold conditions [Texas Tribune, 2021]. The report explicitly stated that "more thorough preparation for cold weather could have prevented the outages" and that generators "did not adequately anticipate the full impact of the extended cold weather" [FERC, 2011].

Companies chose to ignore these warnings because winterization investments would reduce short-term profits, and the deregulated market provided no enforceable requirements for infrastructure hardening [Texas Tribune, 2021]. ERCOT official Dan Woodfin acknowledged that preparation for extreme cold was "not mandatory, it's a voluntary guideline," with "no regulation at this point" requiring companies to protect against foreseeable weather events [Texas Tribune, 2021].

Internal communications revealed that companies viewed infrastructure investment as an unnecessary expense that would hurt their competitive position, demonstrating conscious indifference to public safety. The Texas Tribune article from February 21, 2021, cites a CenterPoint spokeswoman discussing remarks made by executive Mike McGoldrick in 2014, where he joked about the company's lack of winter preparation [Texas Tribune, 2021]. The article also quotes University of Houston energy expert Ed Hirs explaining that power generators have incentives to "push ERCOT into a tight situation where price goes up dramatically" because "they are giving generators incentive to withdraw service" to increase prices [Texas Tribune, 2021].

Staggering Financial Impact on Customers: $28 Billion and Counting

The $28 billion in excess charges paid by Texas consumers since 2004 represents approximately $1,750 per household in deregulated areas, or roughly $175 per year in unnecessary costs [WSJ, 2021]. When calculated per unit of energy consumption, deregulated Texas consumers paid an average of 13% more than the national rate while regulated Texas utilities charged 8% less than the national average - a spread of over 20% attributable directly to deregulation's failures [WSJ, 2021].

During Winter Storm Uri alone, wholesale electricity prices surged to the maximum cap of $9,000 per megawatt-hour for multiple days, compared to typical prices of $35 per megawatt-hour [Fox San Antonio, 2021]. The Public Utility Commission later admitted that maintaining these extreme prices for 32 hours beyond when additional generation came online resulted in $16 billion in overcharges [Texas Tribune, 2023].

Texas electricity prices now average $117 per megawatt-hour wholesale, significantly higher than other states, with a 208% increase over the past three years that correlates directly with the market manipulation and infrastructure failures created by the dominant generators' business model [Texas Policy Research, 2024]. The state that once promised the lowest electricity prices in America through deregulation now leads the nation in high electricity costs, providing definitive proof of the policy's catastrophic failure.

Bankruptcy Trap: Small Companies Systematically Destroyed

Small utilities and power marketers were driven into bankruptcy because they lacked the market power and financial reserves to weather the extreme price volatility engineered by dominant generators [CNN, 2021]. These companies were forced to purchase electricity on wholesale markets at prices manipulated upward by hockey-stick bidding and other schemes, while being unable to pass these costs immediately to consumers due to regulatory restrictions and competitive pressures [KUT, 2021].

The Texas Commercial Energy Case Study

Companies like Texas Commercial Energy, which was generating $200 million in annual revenue before the February 2003 manipulation events, filed for bankruptcy after being hit with $15 million in fraudulent charges during a single market manipulation episode [Texas Commercial Energy, 2003].

The TCE bankruptcy reveals the cash flow vulnerability created by deregulated market structures. TCE was purchasing almost its entire electricity supply from ERCOT's "balancing energy" spot market rather than securing long-term fixed-price contracts [ABI Journal, 2004]. The company "lacked the financial resources at that time to hedge adequately its power supply costs against price fluctuations in the market."

The $15 million charge represented an immediate cash obligation that exceeded TCE's available liquidity despite substantial annual revenue. Most of TCE's $200 million in revenue was already committed to operational costs, debt service, and existing contractual obligations, leaving minimal free cash flow to absorb sudden market spikes. The regulatory structure prohibited TCE from immediately passing these costs to customers, while credit facilities likely contained covenants triggered by unexpected losses, potentially accelerating other debt obligations and creating a liquidity death spiral.

Asymmetric Competitive Pressures

Texas legislators prohibited automatic pass-through of wholesale price spikes to protect consumers from extreme volatility [PUCT, 2003]. The Public Utility Commission was "concerned that, if business and industrial customers are forced to curtail or shut down their operations and lay off workers because of high electric bills," it would undermine economic development [PUCT, 2003].

Competitive pressures existed because retailers had vastly different business models and financial capabilities. Companies with hedged positions, long-term supply contracts, or sufficient capital reserves could absorb temporary losses, while smaller retailers like TCE and Griddy faced immediate insolvency [ABI Journal, 2004]. The competitors that didn't face the same pressures included vertically integrated companies, those with diversified portfolios across multiple markets, and large corporations with sufficient cash reserves to weather price spikes.

The risks of relying on wholesale markets were well understood by industry participants, but small companies had no alternative sources for purchasing electricity and could not afford the long-term contracts that protected larger players [DLA Piper, 2021].

The Human Toll of Oligarchy: Catastrophic Bills and Frozen Families

Individual families faced electric bills ranging from $6,000 to $9,000 for the duration of Winter Storm Uri, which lasted approximately four to five days in February 2021 [CNN, 2021]. DeAndre Upshaw was billed nearly $7,000, while Katrina Tanner received a $6,225 charge automatically deducted from her bank account [CNN, 2021]. These bills represented charges for just a few days of electricity usage during the crisis, when wholesale prices hit the $9,000 per megawatt-hour cap.

The storm resulted in at least 246 confirmed deaths across 77 counties, with causes including hypothermia, exacerbation of pre-existing medical conditions, carbon monoxide poisoning from unsafe heating attempts, medical equipment failure, fires, falls, and motor vehicle accidents [Texas Lawbook, 2025]. Property damages alone were estimated at $195 billion, while the overall economic cost to Texas reached tens of billions of dollars as manufacturing, commerce, and essential services shut down during the extended blackouts [Winter Storm Consequences, 2021].

The $195 billion in property damage was primarily caused by power blackouts themselves, not efforts to avoid electrical expenses [Texas Comptroller, 2021]. The damage included: frozen and burst pipes in homes and businesses without heating, structural damage from prolonged freezing, spoiled food and medications, and damage to vehicles and infrastructure from ice accumulation [Wyly Law Firm, 2025]. However, some additional damage resulted from dangerous heating alternatives used by people during outages, including carbon monoxide poisoning from improper generator use, fires from makeshift heating sources, and falls on icy surfaces while seeking warmth or supplies [PRS Purpose, 2021].

Legal Accountability: Four Years, Zero Trials, Minimal Justice

Four years after Winter Storm Uri, not a single jury trial has been completed for the more than 30,000 individuals and small businesses who filed wrongful death, personal injury, and property damage lawsuits [Texas Lawbook, 2025]. The Texas Supreme Court has systematically shielded power companies from accountability, ruling in June 2025 that utility companies cannot be held liable unless plaintiffs prove the companies acted with "conscious indifference" while still complying with ERCOT guidelines - a virtually impossible legal standard [KERA News, 2025].

The Impossible Legal Standard

The "conscious indifference" standard requires proving both objective and subjective elements that create an extremely high burden of proof [Newman Injury Law, 2025]. Objectively, plaintiffs must show the act involved "an extreme degree of risk," while subjectively they must prove the defendant had "actual awareness of the risk" and proceeded anyway with conscious indifference to safety [Texas Lawbook, 2025].

This standard is particularly difficult in the utility context because companies can claim they were following ERCOT guidelines and had no alternative actions available. The Texas Supreme Court ruled that plaintiffs must show utilities "could have acted differently while still complying with ERCOT guidelines" and "chose not to do so, demonstrating conscious indifference" [KERA News, 2025]. This creates a nearly impossible burden when utilities can point to regulatory compliance as justification for their actions.

The court granted ERCOT sovereign immunity in a 5-4 decision, meaning the grid operator cannot be sued in civil court and claims must instead be pursued through administrative hearings before the Public Utility Commission - which lacks authority to award monetary damages [Courthouse News, 2023]. Chief Justice Nathan Hecht, appointed by Republican governors, wrote that ERCOT deserved immunity because "any damages payments would nevertheless come from the state and the public" [Courthouse News, 2023].

All current Texas Supreme Court justices were appointed by Republican governors, with Governor Abbott alone appointing six of the nine justices [Bloomberg Tax, 2025]. These appointees have consistently ruled in favor of business interests and state government immunity. Abbott has made over 200 judicial appointments during his tenure, fundamentally reshaping the Texas judiciary to reflect conservative, pro-business ideology [Bloomberg Tax, 2025].

Consumers who paid excessive bills during Winter Storm Uri have never been compensated, despite multiple court findings that ERCOT improperly maintained maximum pricing for 32 hours after the crisis had passed [Texas Tribune, 2023]. The Texas Legislature passed laws allowing companies to securitize their storm-related debt - essentially forcing ratepayers to pay off the very companies that caused the crisis through decades of additional charges on their monthly bills [KUT, 2021].

The Persistence of Reform Obstruction

Texas power market reform remains deliberately slow because dominant generators continue to deploy massive lobbying resources to prevent meaningful change [Yahoo News, 2024]. The industry maintains that any significant reforms would harm the competitive market and increase costs for consumers, despite overwhelming evidence that the current system is extracting billions in excess profits [Yahoo News, 2024].

When the Public Utility Commission attempted to implement a Performance Credit Mechanism to improve grid reliability, companies successfully lobbied the Legislature to cap the program at $1 billion - rendering it essentially useless according to ERCOT's own analysis [Yahoo News, 2024]. The commission abandoned the program in December 2024, citing the industry-imposed financial limits that made it ineffective [Yahoo News, 2024].

Reform is deliberately slow because the power titans maintain extensive political influence through campaign contributions and lobbying from the same companies that benefit from the current system's failures, while Governor Abbott's extensive judicial appointments have created courts that consistently rule in favor of business interests [Bloomberg Tax, 2025].

International Comparisons: Texas as a Cautionary Tale

Other developed nations achieve superior reliability and lower costs through government oversight and integrated planning, making Texas's market-driven approach an international outlier. Countries with regulated or hybrid systems consistently deliver electricity at lower costs with higher reliability, while Texas continues to experience blackouts and price volatility that would be unacceptable in other advanced economies [Commonwealth Fund, 2017].

The Texas model has become a case study in regulatory failure, demonstrating how corporate capture and ideological commitment to deregulation can create systems that prioritize profits over public welfare. No other major industrialized economy relies so heavily on unregulated electricity markets or tolerates such extreme price volatility for essential services.

Conclusion: Deregulation's Inevitable Failures

The Texas electricity market demonstrates a pattern common in deregulated markets where companies with limited financial resources become victims of manipulation by larger players [Texas Tribune, 2024]. This pattern appears across multiple crises: the Asian Financial Crisis of 1997, Nordic financial crisis of the early 1990s, and U.S. subprime mortgage crisis all demonstrated similar dynamics where deregulation led to market concentration and victimization of smaller participants [ADB Working Paper, 2010].

However, successful deregulated markets exist where this hasn't occurred. Pennsylvania's electricity deregulation has maintained genuine competition with over 70 retail providers, while Illinois has seen benefits through strong regulatory oversight that prevents market manipulation [Public Sector Consultants, 2014]. The key factors preventing concentration include: strong antitrust enforcement, adequate capital requirements, transparent pricing mechanisms, and robust regulatory oversight with enforcement power.

Rather than creating true competition, Texas deregulation allowed the former monopolists to leverage their existing assets, expertise, and financial resources to dominate the new "competitive" market. The transformation from regional monopolies to a statewide oligopoly represents a concentration of market power, not its dispersion. Where Texas once had multiple separate monopolies serving different regions, deregulation created a system where a few major players could compete statewide, ultimately leading to the concentrated market structure that systematically exploits consumers today.

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