I generally agree that externalities are a common cause of problems from free markets, perhaps the most common.
But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market.
In this case, it probably would make sense for there to be a penalty that providers had to pay if they failed to deliver service after it was committed.
My understanding is that the people who put the market together expected that the huge rate increase which would accompany an unusual storm or other peak demand event was expected to be sufficient incentive for providers to harden their equipment so that it would be able to cash in on those peak rates.
This event showed that the incentive is not enough for events that are extremely rare. It also showed that a lot of the supply infrastructure to the gas plants failed, and hardening that infrastructure is really up to the producers who aren’t directly part of the energy market.
So regulation to increase preparedness standards for gas plants supply infrastructure might make sense. But it may be possible to accomplish the same thing more efficiently via fines and penalties for market participants who go off-line during severe weather.
My point is simply: the market itself isn’t really the problem, it’s creating the right set of incentives and regulations around that market.
One last thought: living in Austin and having lived through this whole ordeal (still living it), I can’t say that I would necessarily want to pay twice as much for energy every single month to avoid one crappy week per decade. I’m thinking that I could probably get myself a backup heat and power source, and do some winterization on my own house that would be more valuable to me than paying twice as much for “the grid” to be upgraded to handle events of this rarity. I admit, we don’t know if these will become significantly more frequent due to changing climate, and that makes the decision more difficult, but I don’t see it as flat out wrong that a significant natural disaster damaged the power system, nor do I think having an “invulnerable power grid” is necessarily a realistic or achievable goal.