Texas power market in turmoil after devastating blackouts

Source: By Edward Klump and Mike Lee, E&E News reporters • Posted: Thursday, February 25, 2021

Texas’ competitive power market is in disarray after last week’s harrowing outages and high prices as companies, state leaders and grid officials try to chart a path forward and avoid another disaster.

Bill Magness, CEO of the Electric Reliability Council of Texas, took criticism during a virtual board meeting yesterday and said the grid operator wants to provide an “explanation, not excuses.”

Magness outlined how cold weather and generation outages led to a call for controlled power cuts last week, ultimately leaving millions of Texans without power for hours or even days. Others with ERCOT sought to unpack complicated financial arrangements in the market that have raised alarms in the wake of a long stretch of high wholesale electricity prices.

There’s concern that numerous retail electric providers in the competitive market could fail to survive, potentially raising costs for consumers and further consolidating retail market share at Vistra Corp. and NRG Energy Inc.

Meanwhile, the Public Utility Commission of Texas announced yesterday it had opened an investigation into companies tied to unusually high bills as some customers reported potential costs of more than $5,000 or $10,000. The probe will focus on retailers whose plans feature pricing indexed to the wholesale electricity rate, which skyrocketed during last week’s crisis. One high-profile but relatively small power provider, Griddy, is facing litigation seeking class-action status and more than $1 billion, according to the Houston Chronicle.

State lawmakers will discuss last week’s outages, high customer bills and the future of ERCOT at hearings today.

“ERCOT may not own the power plants, wind farms, gas compressor stations, poles and wires, but it manages the flow of power in this state,” said Sally Talberg, the outgoing board chair. “And when there is an emergency and it is unavailable, it is life-threatening, particularly for the most vulnerable.”

Talberg is one of five board members who announced plans this week to resign at the end of yesterday’s meeting amid complaints of out-of-state leadership.

Texas Gov. Greg Abbott (R) ripped ERCOT during a televised address yesterday evening, saying it must be overhauled. He said ERCOT operators should have acted more quickly to stabilize the grid and prevent power generators from being knocked offline. The governor also said mandating and funding the winterization and stabilization of the state’s power infrastructure is a legislative priority.

“I am already working with the Legislature on reforms to add more power to the grid and to ensure that we never run out of power again,” Abbott said.

The ERCOT region features a competitive wholesale power market and some areas with retail electric choice, including Houston and Dallas.

Jackie Sargent, an ERCOT board member and the general manager of municipal utility Austin Energy, told Magness there should’ve been better communication about the weather concerns facing ERCOT’s region during a Feb. 9 board meeting. Sargent noted the complexity of trying to solve the market’s financial issues, and she said extreme weather planning must get better amid colder winters and hotter summers.

“We’re really going to have to take a deeper look at how we do those assessments and how we consider this extreme weather and take that into account going forward,” she said during yesterday’s meeting.

At the height of the storm, ERCOT saw 52,277 megawatts of generation offline. That meant nearly half the region’s installed capacity wasn’t available for part of the time that an extreme cold spell slammed Texas. ERCOT manages the flow of power over an area that covers about 90% of Texas’ electric load.

ERCOT asked for as much as 20,000 MW of load to go offline during the crisis, compared to a maximum of 4,000 MW during a 2011 cold event. Some utilities struggled to rotate outages last week, which worsened the impact of the disaster. Natural gas had the most generating capacity offline during a majority of the recent power crisis, ERCOT showed, though coal, nuclear and renewable resources also were affected.

Magness called last week’s event “devastating,” adding that the industry knows “power is essential to civilization.” Dozens of deaths in Texas were tied to the recent cold blast, and Magness said he regretted that the power situation wasn’t resolved in less time.

‘Mad Max’

The power outages revealed systemic failures across the state: Natural gas and water pipelines froze, cutting off supplies to power plants. The lack of power, in turn, forced more shutdowns in the gas system and in city water systems. And the inability to clear snow and ice from the roads made it difficult to fix any of those problems, according to panelists at an online discussion sponsored by the Advanced Power Alliance and Conservative Texans for Energy Innovation.

The state’s leaders and its power companies failed to learn from previous freezes, like the snowstorm in 2011 that also knocked out gas supplies and power plants, said Alison Silverstein, an energy consultant who spoke on the panel. Leaders also failed to imagine the impact of climate change on the system, including hotter summers and more extreme winter storms.

“We designed this entire grid for ‘Ozzie and Harriet’ weather; we are already facing ‘Mad Max,'” Silverstein said.

Fitch Ratings Inc. noted the financial implications of the crisis, saying in a release that it was putting Texas public power utilities and electric cooperatives on “Rating Watch Negative.” It cited the “potentially severe, but uncertain, financial impact of operating challenges, market dislocation and winter weather on the sector last week.”

And Bloomberg News quoted a disaster modeler at Enki Research recently as saying the Texas freeze and power outages last week could cost up to $90 billion in losses.

Pat Wood III, who served as chair of the Federal Energy Regulatory Commission and the Texas PUC under former President George W. Bush, is among those watching the situation. He’s a longtime proponent of competitive power markets. He also lost grid power for periods last week in Texas.

“Texas is moving to a lower carbon power system perhaps faster than anywhere else, so we have no choice but to get it right,” Wood told E&E News in a text message yesterday. “Let’s finish getting all the facts first and then fix it.”

The Wall Street Journal said this week that deregulated Texas residential customers had paid about $28 billion more over 16 years than if they were on electric rates of traditional utilities in the state. That echoed similar past findings from the Texas Coalition for Affordable Power, although market proponents have preached the importance of shopping around for electricity (Energywire, May 17, 2018).

Looking to lawmakers

Historically, the state’s Republican establishment has favored cheap power and low regulation of the electric system. Now, lawmakers will have to find a way to keep the benefits of Texas’ system — including relatively low prices for most customers and its ability to absorb renewable power — while also preparing it to handle future shocks, Daniel Cohan, a Rice University associate professor, said during the online discussion with Texas panelists yesterday.

“The buck stops with the state Legislature,” he said.

Andrew Barlow, a PUC spokesman, said the commission supports the governor’s decision to declare the ERCOT grid event an emergency item. He said the PUC is participating in the legislative inquiry.

“In the interest of available time and in deference to the Legislature, PUC testimony in those hearings will serve as the Commission’s response to queries related to the ongoing investigation of the ERCOT grid event,” Barlow said in a statement.

Michelle Beckley, a Democratic state representative from the Dallas suburbs, said the Legislature will have to look not only at ERCOT and regulators like the PUC, but at the power companies themselves. While the Republican-controlled Assembly has historically shied away from power grid regulation, its members may find themselves forced to act to maintain the state’s reputation as an attractive place to do business.

“If we don’t fix this — what business would want to come here?” Beckley asked.

Other states are watching Texas’ power crisis. While some have already enacted laws requiring grid-hardening measures like buried power lines, they’ll also have to do more planning for severe weather as the climate changes, Dan Shea, a senior policy specialist for the National Conference of State Legislatures’ energy program, wrote in an online post.

“Energy infrastructure, as it exists today, is not ready for this new normal,” he wrote.

In a blog post, President Mitchell Bernard of the Natural Resources Defense Council went after the traditionally conservative approach to government in Texas. He said the cold and harsh winter storm “shouldn’t have caused a humanitarian disaster and public health crisis” that affected power, heat and water.

And he said society functions best when market systems are augmented by good governance to make sure short-term corporate profits don’t come at the expense of public safety and health — or with personal financial ruin.

One reason for the disaster is that “conservatives who have long controlled the state government stripped out the responsible public oversight the people of Texas have a right to expect from their government,” said Bernard.