Talk and lying versus doing: The electricity crisis in Texas is produced by state regulatory failure

In 2019, Texas ran an advertising campaign in California, aimed at businesses upset by summer electricity blackouts, claiming they offered more reliable electricity sources. 

Texas is in the news this week, because extreme cold in the state has led to significant failures of the state-specific electricity generation and transmission system--75% of the state is powered through a state-exclusive grid not connected to the national electricity transmission system.

More than 40 people have died, at the peak more than 4 million households did not have electricity, and utility companies were forced to impose rolling blackouts to prevent the system from completely crashing ("Texas was "seconds and minutes" away from catastrophic monthslong blackouts, officials say," Texas Tribune). 

Photo: ABC13, Houston.

Water systems are failing both because of lack of electricity and frozen pipes. 

Residential and commercial property owners are experiencing many tens of thousands of dollars of building damage because of frozen and burst pipes.  All told the losses could total in the billions.

A failure of sustainable energy sources? At the outset, conservatives took the opportunity to blame the rolling blackouts on wind turbines, making out to be ridiculous sustainable energy policies and the proposed Green New Deal ("No, the Green New Deal Did Not Cause the Texas Power Outage," New York Magazine, "Texas shows that when you cannot govern, you lie. A lot," Washington Post).

Wind turbines function in extremely cold climates, such as Greenland, Manitoba and across the Northern United States, so long as they're weatherized.

Cold temperature weather map of the Continental United States, Tuesday February 16th, 2021.

New York Times.

No, a failure of conventional energy sources.  The reality is that the failures are primarily that of generating plants and systems using natural gas (and to some extent coal and nuclear energy).  This is because during winter, ERCOT, the electricity production and distribution coordinating authority for Texas, plans for reduced production of wind energy anyway.  More than 60% of the state's electricity in winter comes from natural gas, coal, and nuclear energy.

But ultimately the failure is due to a failure to be proactive and weatherize the Texas electricity system to be able to deal with extreme cold. The saddest thing that has come out is that similar problems, but much less worse, in 1989 and 2011 led to recommendations in studies of the electricity failures, by the Federal Energy Regulatory Commission to better weatherize their electricity production and delivery systems for extreme weather events ("The Texas grid got crushed because its operators didn’t see the need to prepare for cold weather," Post).

An extreme example of state regulatory failure. The Texas electricity failures are a regulatory failure, one that was easily preventable, had the right regulatory framework been developed ("The Texas Power Outage Started With Bad Policy," Texas Public Policy Institute).  

Not being under federal regulation wouldn't necessarily lead to any problems, if Texas had developed a strong regulatory framework to oversee electricity production.  But they failed to do so ("Don't blame Texas energy players for blackout, blame the electricity grid's irresponsible game," Houston Chronicle).

It's similar to what happened in Michigan with dam failures last summer ("Displacing a problem doesn't solve it: an example of how restrained regulation can cost millions of dollars | Flooding in Mid-Michigan from a dam break," 2020) or the lead poisoning of the Flint water system ("Don't use the local water: Parkersburg, WV and Flint, MI," 2016).

But failure to weatherize wasn't the only regulatory failure.  They built a regulatory framework that heightens rather than reduces risk.  It works when conditions are normal, but not when they aren't.  From the Houston Chronicle:

The state grants monopolies to companies to maintain the transmission lines. CenterPoint has the contract for the Houston area. 

Centerpoint is forbidden from owning generating assets or even batteries to store power along their wires. Electricity retailers manage customers and then buy, sell or trade electricity contracts. Some generators own retail operations, such as NRG Energy, which owns Reliant and other retail brands. 

The exceptions are rural cooperatives and municipally-owned utilities such as San Antonio’s CPS. They can do it all, powerplants, transmission and retail sales.

(1) In Texas, they set up a regulatory framework that prioritizes low electricity prices.  

(2) They prioritized low prices while also disincentivizing reliability.  They failed to require and incentivize weatherization for extreme cold or heat 

Kaiden Antoine, 3, stands by the stove, his family's only source of heat since their power has been out since yesterday, Tuesday, Feb. 16, 2021, at Cuney Homes in Houston. Jon Shapley, Houston Chronicle / Staff photographer.

This week, 185 Texas electricity generation plants shut down because of weather-related issues, this was about 40% of the state's generation capacity.

(3) Nor did they require firms to have standing power in reserve (buffer/redundancy).  As demand has increased, supply hasn't kept up, putting the system at risk.  

Although in this week's case, a buffer couldn't have made up for the loss of 1/3 or more of the overall power generation capacity of the system.

(4) Even worse, they created a wholesale market for electricity prices focused on one or two days in advance, rather than locking in pricing for longer periods.  This works well enough in normal operating conditions, but gyrates wildly in extranormal circumstances, which can drive utility firms or individual customers out of business.

Griddy.  For example, the firm Griddy, which charges people $10/mo. plus a charge per kilowatt hour based on the usually low wholesale prices, was charging more than $20 per kilowatt hour earlier this week, leading to daily charges for some customers of $1,000 or more, when normally the price would be about $30/month.  

I don't know how much Griddy is able to hedge prices with longer term supply contracts ("Texas freeze squeezes Macquarie-backed Griddy," Financial Review).  They say that 96.9% of the time they offer super cheap prices.  But that 3.1% of the time! can be a killer.  

I guess enough, because they haven't been forced into bankruptcy, which was what happened with the DC area firm Clean Currents, in 2014, when a single cold snap resulted in volatile wholesale prices, and they ceased operations  ("Cold and unhedged: How the polar vortex drove Clean Currents out of business ," Washington Business Journal).  From the article:

A majority of Clean Currents' on- and off-peak wind power purchases were hedged, Skulnik said, but enough were unhedged to sink the company as wholesale energy prices spiked. 

“It’s not like prices went up 20 percent, or even 50 percent,” he said. “We saw prices that went up 500 percent. We were hedged, but we were not hedged enough. We didn’t have the resources to cover the spot market prices we were being hit by.” 

 One of the region’s fastest growing companies as recently as two years ago, Clean Currents was a business that area governments were eager to host.

Even if Griddy hedges wholesale prices, they don't extend that protection to customers, pricing electricity to customers by the day and hour, based on the wholesale price ("Texas power retailer Griddy to customers in face of freeze: Please, leave us," Bloomberg). 

The Texas electricity system as a whole is set up like the Griddy business model.  Griddy customers are completely exposed, all the benefit from low prices, but also all the risk from high prices.

The same thing goes for customers in the Texas grid,  They benefit from low prices most of the time, at the expense of reliability, and occasionally experience extreme loss of power for multiple days, at great expense.  From the Houston Chronicle:

Electricity generators compete to meet the state’s power needs with the cheapest sources, whether coal, nuclear, wind, natural gas, or solar. ERCOT forecasts the expected demand weeks in advance, companies bid to provide the cheapest power, and ERCOT contracts for what it needs the day before. 

No prediction is perfect, though, so ERCOT builds in a reserve. The price paid to generators is based on the actual consumption, though, which means Texans do not pay for power they do not use. Other states pay generators to standby if needed, but not ERCOT. 

The typical price for ERCOT electricity is about $25 for a megawatt hour. But ERCOT can pay as much as $9,000 to get power providers to generate enough electricity to meet the state’s needs.

El Paso Electric Rio Grande generation plant, located in Sunland, New Mexico.

El Paso shows a different way.  By contrast, El Paso, being on the extreme western edge of Texas, is part of the Western transmission grid that the rest of Texas is not connected to.  

Plus, after the 2011 FERC recommendations, they began to more assiduously invest in winter weatherization ("Not being connected to rest of Texas helped El Paso in cold wave," El Paso Times).  From the article:

EPE spent $4.5 million to repair and better winterize its old Newman, Rio Grande and Copper power plants, EPE officials said. It also resulted in EPE’s Montana power plant and a Rio Grande plant generator, added after the 2011 freeze, to be designed to withstand below-freezing temperatures, Buraczyk said.

Unlike the rest of Texas, and granted their temperatures weren't quite as cold, El Paso Electric had no problems with providing electricity 

Climate change is making this worse, by making weather more extreme, not just during the summer months, but throughout the year, including winter.  Extreme can be more snow and cold, or less snow and cold.

Disconnected from the grid can make bad problems worse.  The Texas electricity failure this week was accentuated by its "go it alone" approach to electricity regulation and production.  Even though the loss in electricity production was a self-own, had they been connected to eastern and western grids they could have imported electricity from outside the state, making up for their regulatory failures.

But Texas isn't connected to the nationwide electricity grid.  

The state is so big it is a market unto itself, and by choosing to be disconnected from transmission interconnection systems that cross state lines, they are able to evade federal regulation.  But when for whatever reason they have need for a greater amount of electricity than they can generate, they have no ability to bring electricity in from outside the state.

Is the Texas power failure a result from a failure to "invest in infrastructure"?  Yes and no.  Yes, because the State of Texas built a regulatory framework for electricity generation and transmission that accentuated risky operation in times of extreme conditions.  And because elected officials don't focus much on long term investment in infrastructure.

No, because nothing forced them to develop a risky electricity system.  They had the means to develop a different kind of system, which would have only cost a little bit more, and it would have avoided the kinds of catastrophic risks and costs that have occurred this week.

They chose not to do so.  Even after twice being told that their system was at risk to extreme cold.  And knowing that climate change is leading to extreme weather events--rain, flooding, hurricanes, cold--that impact power systems.

Do I think Texas deserves "federal funds" to deal with the disaster?  No, I don't  It wasn't a "natural disaster."  It was a disaster created by a failure to act proactively ("Texas, the go-it-alone state, is rattled by the failure to keep the lights on," Post, "Texas electric grid is an easy fix, if lawmakers will admit their error," Houston Chronicle).  From the Chronicle article:

Most people know the lowest bidder does not always provide the most reliable product. 

Making sure a vendor can actually deliver the product also seems like common sense. 

ERCOT, the Texas electric grid manager, though, does neither of those things because Republican politicians who have controlled state regulations for two decades have failed to heed 13 years of dire warnings. Instead, they believed free-market advocates who argued financial incentives would encourage responsible planning. ... 

The solutions are easy and obvious. The present situation was first anticipated in a report in the Texas House Select Committee on Electric Generation Capacity and Environmental Effects Report published Jan. 12, 2009. ... 

Texas has the only American electricity grid with no rules for resiliency. Instead, the GOP majority argued that a system that pays higher prices when demand goes up would incentivize generators to make sure their systems work during extreme weather. ... 

Consumers need to watch closely as Texas authorities begin debating reforms. Lobbyists see an opportunity to gain subsidies for their industries. 

The reforms we need, though, are simple. 

First, connect to the rest of the country via the national grid and accept federal regulation so we can import electricity when we run out. 

Texas should also require generators to prove they are prepared for the weather events climate change will bring before they can offer their power to the wholesale market. That would reduce the risk of failure and force generators to weatherize. 

Power prices will rise, ever so slightly, but it will reduce the risk of another Texas Blackout. The Texas Blackouts prove them wrong. 

Now our political leaders are giving us misleading scapegoating, political gamesmanship and another front in the culture wars.

Why should they benefit, yet again--e.g., Texas cut funds for fighting wildfires, then asked for federal funding ("Texas wildfires: Is Rick Perry being hypocritical asking for federal aid?," Christian Science Monitor)-- from a failure to plan and operate according to best practice advice?

If the failures had their causes in federal inaction or failure, like the pandemic, the levee breaks in New Orleans, or the dam break and flooding in Midland, Michigan, and to some extent the lead in the water problem in Flint*, I'd say they had a justifiable case for federal disaster funding.