Thursday, February 18, 2021

The Valentine's Day (Electricity) Massacre

Let's start by noting that on February 8, the guys at Space City Weather were raising the possibility for potential winter weather in Houston early in the week of February 15. By February 10, they were sounding the alarms. And that was just for Houston. So the idea that the state was caught completely off-guard is disingenuous at best. Why have millions in Texas been without power for multiple days now, trapped in the grip of the coldest weather in decades, 10 years after a similar power crisis? [cracks knuckles]

There are three electric grids in the lower 48 states: the Eastern Interconnection, the Western Interconnection, and then there's Texas. Texas' electricity is managed by ERCOT - the Electric Reliability Council of Texas. ERCOT is technically a non-profit organization that controls 40,000 miles of electricity transmission lines to over 22 million Texans in 75% of the state. Some of the Panhandle isn't serviced by ERCOT, neither is El Paso, or the far East Texas border. 

ERCOT does not generate electricity or manage the state's electrical grid. ERCOT simply schedules power and "ensures the reliability of the electrical network." They didn't do much of either this week. It started on Sunday night, February 14, around 11pm. As temperatures across the state plummeted, energy generating units started switching off thanks to the fact that most did not winterize their units. Essentially, the systems used to generate power literally froze up. With demand for electricity high (people were cold), the supply plummeted. To counter this gap, ERCOT "asked transmission providers to turn off large industrial users that had previously agreed to be shut down. But the situation deteriorated quickly," according to WFAA. At the order of "state power regulators," CenterPoint Energy - which delivers electricity and natural gas to homes - were told to begin rolling blackouts for the Houston area. By 1:30am on Monday, February 15, ERCOT had implemented these rolling outages, and then couldn't get them actually rolling. If you lost power, you were basically screwed, because ERCOT couldn't manage them. By 8am on Monday, February 15 Houston mayor Sylvester Turner was telling Houston residents that there were system-wide power outages across the state. The majority of the power that was knocked offline wasn't wind power (while most West Texas wind turbines did freeze up, that doesn't seem to be a problem with the three wind turbines in Antarctica, or the ones in the Alps), the issue was with oil and natural gas, both of which are "regulated" by the Railroad Commission of Texas. An emergency order from the Railroad Commission on the night of Friday, February 12 called for the management of shortages of natural gas, whose pipelines had frozen thanks, in part, to a lack of winterization protection.

To clarify: Power plants generate electricity from oil, coal, natural gas, nuclear, wind, solar, and any other forms of energy. ERCOT "manages the flow" of that electricity within its network, while energy companies like CenterPoint maintain the method of delivery (i.e., power lines and poles). They're separate entities. Then you have Reliant, which markets and sells that electricity to you, the consumer, though Reliant is not responsible for the generation of power, nor the delivery of power. This is a result of 1999's Senate Bill 7, which we'll get to in a bit. 

How much power does it take to generate electricity for a house? At one point over half of the state's energy generators were offline, an estimated 45 gigawatts (or 45,000 megawatts). One megawatt of electricity can power 500 homes. So if 45,000 megawatts are offline, that removes enough electricity to power 22.5 million homes. 

Enter the Federal Energy Regulatory Commission. FERC was established in 1977 to replace the Federal Power Commission, which was established in the 1920s to regulate hydropower dams. FDR expanded FERC's power in the 1930s under the Federal Power Act to dismantle utility monopolies during the Great Depression and to set "just and reasonable" wholesale electricity prices, regulate pricing and order refunds for overcharges by utility companies across state lines. Today FERC regulates the United States' natural gas industry, hydroelectric projects, oil pipelines, and wholesale rates. But Texas isn't part of that, and that goes back to FDR. The Federal Power Commission was clear that it brought oversight to "interstate" commerce of electricity. If Texas had its own grid, they could avoid federal oversight. Richard D. Cudahy wrote in 1995, "freedom from federal regulation was a cherished goal - more so because Texas had no regulation until the 1970s." ERCOT - formed in 1970 - doesn't have to abide by federal regulations because it's not interstate commerce, so it takes its orders from the Texas State Legislature and the Governor so as not to follow federal guidelines and regulations. 

Texas has the only deregulated power market in the entire United States, meaning that it's your basic laissez-faire economic market, trading on supply-and-demand. If you're a power company, the only thing that matters to ERCOT is how cheaply you can provide it, and how much ERCOT can charge to sell it. And if you - the energy company - are running a narrow profit margin, there's not much money left over to invest in your infrastructure like, oh I don't know, winterizing your pipelines. This actually works both ways: when it's freezing cold, Texas can't import energy from one of the other two electric grids in the United States. When it's hot in the summer and things are moving along just fine for energy production, Texas can't really export its surplus energy to help out, say, California. And because Texas' power market is deregulated, supply is based on free market pricing, exactly the thing that the FDR's Federal Power Commission was created to stop.

On December 23, 1989 a cold wave consumed the central part of the United States that dropped temperatures to -42 in at Scottsbluff, Nebraska, -21 in Springfield, Illinois and sent almost all of Texas into the single-digits. Busted pipes caused $25 million of damage in Dallas alone. North and South Carolina got a foot of snow. ERCOT implemented rolling power outages for the first time during this  storm. The Public Utility Commission of Texas issued a report in the months following the 1989 storm that recommended "all utilities should ensure that they incorporate the lessons learned during December of 1989 into the design of new facilities" and "ensure that procedures are implemented to correct defective freeze protection equipment prior to the onset of cold weather." These recommendations were not mandatory, and were allowed to lapse as time passed.

Ten years after the 1989 winter storm, the Texas State Legislature passed Senate Bill 7. It broke up most of the state's public utilities. Where previously a city would rely on a municipal utility or an investor-owned one (a co-op if you were in a more rural area) to manage the power plant, power lines, and the customer service side, deregulation meant each of these aspects were given to the lowest bidder. In theory, it's competition that brings down prices (the way I describe this to my students is, "when McDonald's introduced their Dollar Menu, you had a whole bunch of other fast food chains come up with a value menu to retain/attract customers.") In Houston, it was Houston Lighting & Power. After SB 7 it was the Wild West. Then-Texas Governor George W. Bush:

Competition in the electric industry will benefit Texans by reducing rates and offering consumers more choices.

The deregulation was phased in over a number of years, with a price floor set so the existing (former) monopolies couldn't just smash the crap out the startup retail energy providers (REPs), but the full deregulation of the energy industry in Texas was complete by 2007. As a reminder, Texas has had three governors since Ann Richards: George W. Bush, Rick Perry, and Greg Abbott. 

In early February 2011 a similar weather event to 1989 occurred, sending snow and ice all the way to Brownsville, crippling traffic in the Metroplex right before the Super Bowl was scheduled to be played there. The meteorologist in charge of the National Weather Service office in Fort Worth said, "Our temperatures rarely stay this cold for this long." Pat McDonald, an NWS forecaster for Austin and San Antonio, said, "We get about one event like this every ten years."

Six months after that February 2011 storm, FERC and the North American Electric Reliability Corporation issued a report that noted many of the power stations that failed in 1989 failed in 2011 and said, in part:

Generators and natural gas producers suffered severe losses of capacity despite having received accurate forecasts of the storm. Entities in both categories report having winterization procedures in place. However, the poor performance of many of these generating units and wells suggests that these procedures were either inadequate or were not adequately followed. 

Following the 2011 storm, the Public Utility Commission of Texas was given the power by the state legislature to require energy generators to report on their "abnormal weather preparations" and to file an emergency plan. Was that actually done? No one seems to know. 

Despite proudly announcing back in November that they were in control of enough energy to last the winter, ERCOT noted of the Valentine's Day Electricity Massacre: "This event was well beyond the design-parameters for a typical or even extreme Texas winter that you would plan for. They began as rotating outages but they're (now) controlled outages and they are lasting longer than what would normally happen because of the magnitude." 

This is despite ERCOT saying on Thursday, February 11 that their system was ready for what the storm was about to bring. On Tuesday, February 16 ERCOT said that the problem (inconveniently, if you're a Texas politician appearing on a popular cable news network) stemmed mostly from the freezing of natural gas pipelines, not from freezing wind turbines. ERCOT estimated that 80% of their grid capacity could be generated by natural gas, coal, and some nuclear sources. Only 7% of what ERCOT forecasted for winter was to come from wind or another renewable energy source. 

Ed Hirs, an energy fellow in the University of Houston's Economics Department, said: "The ERCOT grid has collapsed in exactly the same manner as the old Soviet Union. It limped along on underinvestment and neglect until it finally broke under predictable circumstances."