4 takeaways from Texas blackout crisis

Source: By Edward Klump and Mike Lee, E&E News reporters • Posted: Wednesday, February 24, 2021

Widespread furor over last week’s Texas power crisis showed no sign of subsiding yesterday as five grid directors announced plans to resign, financial troubles mounted and President Biden scheduled a Houston visit to mark the disaster.

Even with power back for most Texans, many are struggling to find available workers who have the supplies to fix broken pipes and repair water damage in the wake of subfreezing temperatures and lost electricity.

Concern and anger are rising over the disaster’s financial fallout, including power retailers that may struggle to stay afloat and that were able to charge huge sums for power, leading to bills in the thousands of dollars for some retail customers. Environmentalists criticized pollution created by the crisis, after refineries and other facilities were forced to flare gas during power shutdowns.

There also are demands to explain warnings issued before the storm — especially after Texas-based Vistra Corp. said it raised concerns with relevant entities in the state.

The Electric Reliability Council of Texas, the state’s main grid operator, said five board members — including Sally Talberg, the chair — will exit after today’s board meeting. All five appear to live outside of Texas, which has become a point of contention.

In a letter, Talberg and three other departing directors acknowledged the recent suffering of Texans and concerns about out-of-state ERCOT leadership. They said that Texas, with the right follow-through, could “lead the nation in investing in infrastructure and emergency preparedness to withstand the effects of severe weather events.”

Market debates and litigation have a long way to go, but a consensus is emerging that power plants need to be winterized much more effectively in Texas, even though costs to do so could fall back on Texas residents.

“This money is going to come out of my wallet as a taxpayer or my wallet as a consumer,” said Ed Hirs, an energy fellow at the University of Houston. “Anybody who thinks they can shuffle, prevaricate and dissemble and say it’s not coming down to the citizens of Texas is full of armadillo droppings.”

The fallout came after business leaders noted the problems in Texas. Tesla Inc. CEO Elon Musk tweeted during the crisis that ERCOT was “not earning that R” in its name, referring to the word “reliability” in the acronym. More than 4 million homes and businesses were out of power in Texas early last week.

Hirs has argued that ERCOT’s market needs to be restructured. In his view, generators currently can benefit from withholding capacity or not winterizing properly because a shortage of supply leads to higher prices for power producers.

It’s not clear whether there’s an appetite for a sweeping market overhaul, but pressure is on Texas leaders to take action. Lt. Gov. Dan Patrick (R) released a list of bills for the current legislative session yesterday — with ERCOT reform and power grid stability joining the state budget among the top priorities.

Consumer and environmental groups are mobilizing in an effort to submit written comments as state lawmakers prepare to meet tomorrow.

“The disaster that affected the electric heat and water of millions of Texans was entirely preventable and was caused by poor planning by state leaders and years of deregulation that left the security of our energy grid in the hands of private interests,” Robin Schneider, executive director of the Texas Campaign for the Environment, said in a statement.

She added: “The state knew what steps it needed to take to protect the power grid from severe winter storms as least as far back as 2011.”

Here are four issues to watch as fallout from the Texas grid crisis continues:

White House and governor actions

Gov. Greg Abbott (R), who has scheduled a statewide address for this evening, expressed anger at ERCOT in a statement yesterday and said the recent power crisis can’t be repeated. The governor appoints the three members of the Public Utility Commission of Texas, which plays a key role in overseeing the grid operator.

“ERCOT leadership made assurances that Texas’ power infrastructure was prepared for the winter storm, but those assurances proved to be devastatingly false,” Abbott said. “The lack of preparedness and transparency at ERCOT is unacceptable, and I welcome these resignations.”

Hirs said lawmakers and the governor are fighting for their political lives. The outages amount to a “black eye” for Texas commerce, he said. That’s in addition to the dozens of lives lost during the winter storm and power crisis.

As of yesterday, 5.8 million people in Texas remained without clean tap water, according to state officials. Reflecting the urgency, Abbott issued a release yesterday saying some 500 new plumber licensees would be available to help with repairs of pipes and other water infrastructure.

President Biden and first lady Jill Biden will travel Friday to Houston, where the president will meet with local leaders to discuss the storm, relief efforts and progress made, along with the “incredible resilience shown by the people of Houston and Texas,” press secretary Jen Psaki said.

Biden will also visit a COVID-19 health center where vaccines are being distributed. The storm slowed vaccine distribution, but officials said they expected to make up for lost time.

Psaki also noted that FEMA announced Monday that homeowners and renters in 31 additional Texas counties that suffered damage from the winter storm may now apply for individual disaster assistance. That’s in addition to the 77 counties previously approved for individual disaster assistance.

In the meantime, local officials are pushing for changes — though it’s not clear how much leverage they have.

Adrian Garcia, a Democratic commissioner in Harris County, proposed having the county examine the potential of leaving the ERCOT region. He outlined an agenda item for commissioners to discuss Friday. Houston is the seat of Harris County.

“I am concerned with the State’s leadership inability to keep promises they have made to their constituents during disasters,” Garcia said in a statement this week. “This agenda item is meant to explore how we in Harris County can take ownership of keeping residents safe, something the state has clearly shown it can’t be trusted to do itself.”

$9,000 per megawatt-hour?

Some Texas power companies are facing major financial challenges as they cope with the extra costs from last week’s historic storm.

Bloomberg New Energy Finance estimated that companies spent over $50 billion to buy power during the crisis last week, compared with about $4.2 billion in a prior period. It could take them — and their customers — years or decades to pay down the unexpected costs.

During the crisis, wholesale power in Texas jumped to $9,000 per megawatt-hour, while prices often are in the tens of dollars per megawatt-hour. Some ancillary services went even higher than the $9,000 figure.

CPS Energy, a municipally owned utility that supplies electricity in the San Antonio area, is still calculating how much it spent on fuel for its power plants during the freeze, CEO Paula Gold-Williams told reporters yesterday.

“We paid what the market needed to be paid so that our customers could have a chance of getting power,” she said. “We’re now in a financial tsunami.”

CPS will likely have to spread those price spikes out over several years, similar to the way it finances new power plants, Gold-Williams said. The utility is also talking to state and federal officials about ways to ease the burden.

On Monday, Canada-based Just Energy Group Inc. said it could see a loss of about $250 million related to the Texas storm. The company delayed its third-quarter financial statements until Friday, citing what it called artificially high prices during much of the crisis.

“Accordingly, the financial impact of the Weather Event on the Company, once known, could be materially adverse to the Company’s liquidity and its ability to continue as a going concern,” Just Energy said in a statement.

Atmos Energy Corp., which provides natural gas service to large parts of Texas, previously disclosed that it had racked up between $2.5 billion and $3.5 billion in costs during the cold snap that affected various states. It may ask Texas regulators for permission to pass certain costs on to ratepayers, according to a filing (Energywire, Feb. 22).

NRG Energy Inc., a major power producer and retailer in Texas, declined to answer questions yesterday related to its performance, the winter storm and potential costs of winterization.

“We will not be providing specific details on these issues in advance of the legislative hearing on Thursday,” NRG said in a statement. The company has pushed its earnings call to March 1 instead of this week.

Vistra, also a big power company in Texas, issued some rosy news yesterday — an 11% increase in its common dividend for 2021. Vistra had previously told E&E News that it sought to tell state entities of concerns as the cold weather approached. On Feb. 17, the company said it was providing substantial generation to Texas’ grid and noted its own preparations.

“In the days ahead of the winter weather event, Vistra was alarmed by the approaching unprecedented weather, the likely level of demand for electricity, and the apparent lack of power generation available to cover the demand,” Meranda Cohn, a Vistra spokeswoman, said in a recent statement.

Texas outages also came up yesterday during an opening statement from acting Chairman Rostin Behnam of the Commodity Futures Trading Commission.

“We are monitoring irregularities in the Texas energy markets following last week’s freeze, specifically where there is a federal nexus with CFTC regulated markets and listed products,” Behnam said. “We remain prepared to do whatever is necessary to protect the integrity of our markets.”

Insurance-related claims from the storm are expected to be in the billions of dollars, though exact numbers are still being compiled.

“We are still gauging claims numbers that continue to come in at a very steady clip,” Camille Garcia, director of communications with the Insurance Council of Texas, said via email. “While we are projecting 100s of thousands of claims, that will include, auto, home, renters and business policies and the variance of loss amounts for each is a relatively large range.”

Pollution and environmental justice

Texas’ oil refining, petrochemical and other industrial facilities released 3.5 million pounds of extra pollutants during the storm and the power outages, according to an analysis released yesterday by the Environmental Defense Fund.

Plants were forced to shut down and burn materials in flares due to lack of power and other problems, EDF said, citing reports that the facilities made to the Texas Commission on Environmental Quality.

In many cases, the emissions affected low-income, Black and Latino neighborhoods, which tend to be clustered around industrial sites. Many of them also lost power during the storm and have had to cope with repeated emissions events during hurricanes and other disasters (Energywire, Feb. 23).

“This is untenable, especially for communities of color and working-class neighborhoods,” Bakeyah Nelson, executive director of Air Alliance Houston, said in a statement. “These communities are unable to fully recover before the next man-made disaster due to a long history of environmental racism that has put them at greater risk of suffering the adverse impacts from disasters and with fewer resources to rebuild their lives.”

Millions of barrels of refining capacity was completely or partially shut down during the freeze, according to the investment bank Tudor, Pickering, Holt & Co.

Both Abbott and EPA have cited waived regulations on fuel standards during the crisis.

Electricity demand surge

Last week’s blackout crisis occurred after Texas added housing and electricity demand increased over the past decade, adding to the supply crunch.

According to a recent blog post from the Energy Institute at Haas at the University of California, Berkeley, Texas has led the United States in new home construction, including over 1.5 million new housing units built from 2010 to 2019. The post noted a move toward electric heating over time.

“Since 2010, 62% of homes built in Texas use electric heating,” said the post by Lucas Davis, a professor at the Haas School of Business.

It pointed to relatively low power prices as a major factor, while Texas also has a climate that it called conducive to electric heating.

“During a normal year, Texas households experience fewer than 2000 heating degree days compared to, for example, over 9000 in Minnesota, so electric heating with its lower capital and installation costs is a more economical option,” the post said.

Texas leaders have raised concerns over products in the competitive retail market that left customers exposed to the wholesale market and possibly thousands of dollars’ worth of costs amid wild swings.

Still, the Haas blog post said Texas has too many people on plans that are inflexible and don’t respond to market conditions.

It said so-called dynamic pricing alone probably would not have closed the gap between supply and demand in Texas last week, but it said customers could pay a lower price most of the year and higher prices when supply is tight.

“You had a feast or famine — with millions of consumers at an all-you-can-eat buffet — while millions of others faced tragic blackouts and, essentially, an infinite price,” it said.

Yesterday, the acting executive director of the U.S. Energy Association added in a letter that unreliability of energy — or the total lack of it — is an “existential crisis for us all.”

“Unintended consequences of the present crisis will continue to unfold. We must be ready to build a safe space to discuss, debate, and move forward with solutions in an open arena without prejudgment,” said Sheila Hollis.

Klump reported from Houston. Lee reported from Fort Worth, Texas. Reporter Lesley Clark contributed from Washington.