Texas must change to avoid widespread power outages. Here’s how that might look
In 2000 and 2001, California experienced the Enron blackouts. Demand far outstripped supply in high-demand summer months, and Enron, using sophisticated arbitrage techniques, manipulated the market and contributed to price spikes and outages. When the lights were back on, the state’s residents recalled the governor, replacing Gray Davis with Arnold Schwarzenegger, and the lawmakers tightened regulations on what had been a market with little regulatory oversight.
Ed Hirs, a University of Houston economics professor and energy fellow who has become a go-to source regarding this week’s outages, likens what Texas is going through to its California moment. “People have to step back and look at the full system,” he said.
Just like with California, a state many Texans are begrudging to even acknowledge, Hirs and others say the answers for Texas should be more regulation. Although Texas’ energy system is referred to as deregulated, Hirs says it’s actually “just regulated differently” than everywhere else. The Legislature can make all kinds of adjustments, from mandating winterization techniques to adopting control measures for the state’s open electricity market. The question is whether the blackout crisis has provided enough fuel for legislators to build mandates common across the rest of the country.
“There has to be political will to follow through, and that’s difficult in Texas,” said Brandon Rottinghaus, a University of Houston political science professor and author of “Inside Texas Politics.” “That pretty much has to come from the governor.”
So will Texas see big changes? And how might they look? Here’s a primer on what we might see — and what experts and lawmakers say we should see — in the coming months to avert another disaster.
Winterizing as a start
On Thursday afternoon, Abbott made winterization of the power system an emergency item, fast-tracking the process for passing potential legislation in this year’s legislative session. Because Abbott wields considerable power over Texas’ majority Republican delegation, it will almost certainly act in some fashion. To what extent is unknown. In 2011, after blackouts in the wake of a major winter storm, the Legislature passed a law requiring generators to file reports with the Electric Reliability Council of Texas, which would then turn the reports in to the state’s Public Utility Commision. It did not create any standards for winterization or give the PUC the ability to sanction power generators.
Rottinghaus expects more significant changes this time. In 2011, he said, Gov. Rick Perry emphasized hot button topics like abortion and voter ID over winterization. “That took a lot of the steam out,” Rottinghaus said. “Because the events that led to that discussion weren’t so pronounced as they are now, it didn’t get the same attention. Those reports and that effort got fundamentally buried by other partisan conflicts that were happening at the same time. This won’t be like that. This is much more potent because so many Texans were affected for so long.”
But lawmakers will still debate the costs and the benefits of introducing winterization regulations. “The question is, do you winterize for an event that may never occur or do you winterize for the typical winter event? I mean, we’re going to look at all of that,” said Sen. Kelly Hancock, R-North Richland Hills. “They go through winterization just like homeowners winterize their homes, and yet it still wasn’t sufficient based on the length and severity of the cold.”
There’s also a question of what portions of infrastructure will be winterized and how to monitor its components. Generators were only a portion of the problem. About 40% of Texas’ power supply is natural gas, and gas wells and pipelines failed in the weather, too. Without a steady supply of natural gas pumping through the ground, the power plants, even if they were not iced over, would have faced difficulties producing electricity.
Whereas the PUC oversees ERCOT and the power generators, the Railroad Commission manages wells and pipelines. And the oil and gas industry, one of Texas’ biggest employers and political contributors, hasn’t taken well to regulations in the past. In 2019, for instance, a bill backed by many Republicans and Democrats that would have altered the eminent domain process for pipelines ultimately did not pass even after it was watered down. (The opposition to the bill was led by Republican Rep. Tom Craddick of Midland, whose family business holds oil and gas leases and whose daughter has an elected position on the Railroad Commission).
“If the industry were to oppose measures to make natural gas more reliable in times of extreme cold weather I think they’re going to have a hard time making that case to the Legislature in light of what’s happened this week,” said Rep. Chris Turner, D-Grand Prairie. “And I would encourage them not to try to make that case. I would encourage them to work constructively with us to come up with solutions so this doesn’t ever happen again.”
Building more energy supply
In the Texas market, which was designed in 1999, economic competition governs the day. ERCOT, the grid manager, essentially buys electricity from power generators at the lowest price in a bidding process, and then dispatches it to the companies who provide power to people’s homes. The system has led to relatively inexpensive power for Texans — the average retail price for 2019 was the seventh-lowest in the U.S. — but it also incentivizes scarcity: the higher the demand and the lower the supply means the greatest opportunity for generators.
On a regular day, electricity sells for around $25 per megawatt hour, hardly enough for most generators to turn a profit. “That’s why we’ve had generators leave the grid,” Hirs said. “It just inexorably led us to a point where the demand was going to be run up against the supply.”
The generators rely on high-demand periods, usually on hot summer days, to cover their investments. When demand increases, the rate per megawatt hour can soar into the thousands of dollars, all the way up to an ERCOT-set cap of $9,000. High-demand periods are far rarer in the winter, so many generators don’t even bother producing power, leaving Texas with even fewer electricity options when frigid weather hits.
In these emergency situations, other power systems depend on reserves — essentially having something like 20,000 megawatts at the ready, Hirs says, “like a waiting taxi.” Reserves in Texas are not mandated. On their own, generators will typically not store energy beyond enough for two to three days, according Joshua Partheepan, a professor of systems engineering at West Texas A&M who studies power sources. “They don’t have financial incentives,” he said. “Building storage takes millions.”
One potential solution is a capacity market, which makes power generators build mandatory reserve levels of energy based on future predicted energy needs. In 2013, the state’s Public Utility Commission proposed a capacity market, but it failed to gain traction after challenges by the Republican majority and special interests representing energy companies, who claimed consumer prices would skyrocket. (“This is the beginning of the end of the world’s most competitive electricity market,” said Bill Peacock of the Texas Public Policy Foundation). Rather than regulate a reserve market, ERCOT continued to set an optional target level for reserves. ERCOT raised what was then a $4,500 energy rate cap year by year, eventually to $9,000, believing the chance to turn a big profit would be an incentive for generators to have energy on hand during high-demand periods like Texas saw this week.
Capacity markets are common throughout the United States. California has a capacity market, as does the PJM, an organization that coordinates the movement of electricity through 13 states in the eastern U.S. They do lead to higher prices, but PJM describes its energy reserves structure as similar to an insurance plan: “for a small additional cost (payment to resources which perform well), consumers will have greater protection from power interruptions and price spikes during weather extremes.”
To get generators to provide reserve power, you must pay them to do it, either through credits or by increasing the sales price of energy. Texas lawmakers may decide it’s worth the cost after this disaster.
Greater oversight of ERCOT
In addition to managing sales on the energy market, ERCOT, in its own words, acts similarly to air traffic control, managing how energy flows to the various companies that then distribute it to our homes.
On the night of Feb. 14, when demand increased and supply fell sharply because of winterization issues, ERCOT made the decision to cause the blackouts. It gave directives to transmission companies like Oncor, which then made choices about where to cut the power. Sometimes, the power went out in hospitals and other critical places. Partheepan recommends Texas create a plan that outlines areas of the state most vulnerable to the impacts of a power outage so they can be avoided.
Rep. Turner also wants to examine the entire communications process behind the blackouts, from preparations in advance to communication with the public after they happened. The frigid weather was forecast days in advance, he notes, and ERCOT should have had a better idea of how well the system could handle the demand. “Why were the outages so much greater than expected?... And the fact that everyone seems surprised when all this generation was lost Sunday night is kind of unfathomable to me and I want to understand why,” Turner said. “Is it just bad info, poor planning, a lack of knowledge, a lack of communication from the generators to ERCOT? We’ve got to figure that out.”
Turner added, “Who is ultimately responsible for making sure the lights stay on in Texas? I think that’s a fundamental question we have to answer. The governor’s push to put all the blame on ERCOT... rings hollow to me because it cannot be that a quasi-public entity like ERCOT is ultimately responsible.”
Abbott has called for an investigation into ERCOT. But as governor, he appoints the Public Utility Commission leaders who oversee ERCOT. And while it will be up to the legislators to propose legislation that can tackle some of the regulatory issues, it’s Abbott who wields the most control over the Republican majority, placing him at the heart of any reforms that may happen.
“I can’t imagine anybody under more pressure right now than the governor,” Hirs said.
Staff writer Eleanor Dearman contributed reporting to this story.
This story was originally published February 19, 2021 at 4:50 PM.
