“This is the largest train wreck in the history of deregulated electricity.”

• Texas State Senator Brandon Creighton (R-Conroe), Thursday Feb. 25, 2021

Overview

Zpryme management and staff continue to mourn the loss of life and livelihoods caused by the recent weather event and its management by Texas state officials and industry players. As a longtime advocate and proponent of Smart City strategies designed to build local communities, Zpryme welcomes the examination of factors that contributed to the disaster. Scrutiny opens the possibility for restructuring this critical public service, to restore and strengthen communities across Texas, especially in marginalized communities and their citizens whom Zpryme believes deserve robust public service and protection from avoidable catastrophes like the one experienced in mid-February 2021.

Zpryme is proud to acknowledge a longstanding relationship with many individuals in the energy industry. We understand and believe that most of these companies and the individuals in management, in the office, and out in the field work tirelessly under highly demanding circumstances, especially during major natural disasters like the recent winter storm, to maintain utility services and ensure public safety. Thus, we believe, it is often not individuals but policies, procedures, and, as is under investigation, questionable financial decisions and activity, that fall short when the system is stressed beyond normal operating conditions.

Testimony this past week by Texas state energy regulatory officials, energy industry executives, natural gas producers, and other market participants before a joint session of the Texas House Energy Resources and State Affairs Committees, with a simultaneous session in the Senate Business and Commerce Committee, proved to be an excruciating exercise in public exposure for an arcane industry as well as a state regulatory apparatus accustomed to operating largely behind the scenes and out of public view.

Fallout from the outage event and subsequent legislative testimony, in fact, resulted in the forced resignation on Monday, March 1, 2021, of Public Utility Commissioner of Texas Chairwoman DeAnn T. Walker. And, CEO of ERCOT, Bill Magness, who waged valiant battle in testimony defending his agency and its actions under duress and regulatory constraints over a period of 15 hours before Texas House and Senate committees, was summarily “terminated” by his own Board of Directors at 8:30 pm on Wednesday, March 3, 2021.

Other immediate fallout includes the bankruptcy filing by the Brazos Electric Cooperative, which on the heels of the storm owes over $1 billion dollars to ERCOT, and a lawsuit filed against Gritty Energy by the Texas Attorney General. Investigators and regulators will obviously be looking at the fixed rate verses variable wholesale rate electricity cost model.

Legislators in the committee hearings gathered nearly 60 hours of, at times, frustrating and heated testimony. To their credit, most lawmakers as well as industry witnesses agreed that there was plenty of blame to go around and room for improvement by all.

And although further investigation and litigation is poised to further shed light on the inner chambers and working of Texas’ power industry – as well as the largely enforcement-free regulation of it – testimony at last week’s legislative hearings exposed major policy, logistical, and infrastructure flaws that, cumulatively, caused the catastrophic outcome resulting in dozens of deaths and billions in costs. According to Bill Magness, CEO of ERCOT, the storm took out roughly 48% of Texas’ power generation capacity.

Texas Power Outage of February 2021 – Legislative Root Cause Analysis in a nutshell

While navigating efforts by some witnesses to apparently obfuscate and keep responsibilities for the disaster vague, legislators were able to get to ferret out a generalized “root cause analysis,” a synopsis of which is herein offered to Zpryme’s readers:

After a week of icy weather, a bitterly cold, single-digit Arctic air mass swept into Texas on Sunday night-Monday morning, February 14-15, 2021, bringing with it blizzard conditions across much of the state. Demand for power and heating rose dramatically while at the same time natural gas processing plant infrastructure – valves, compressors, pipelines, instrumentation and equipment – were freezing up. This rendered the processing plants and pipelines unable to deliver gas to natural gas fueled power plants, which constitute nearly half of Texas power generation fleet.

Further complicating and undermining the ability to generate power at a critical moment of high demand, contracts to supply natural gas fuel to power generation plants dissolved under force majeure, or “act of god” clauses. The Arctic blast simply overwhelmed an unprepared energy infrastructure. At the same time, in spite of Texas Governor Abbott’s order, some natural gas continued to be exported out of state.

Meanwhile, as the storm gripped Texas, also freezing up were coal-fired power plants and wind turbines in West Texas, on which accumulated as much as 6-inches of ice on their blades. In short, operating energy reserves were plummeting.

As electricity demand spiked and capacity dropped, power fluctuations on transmission lines increased, generating a situation known in the industry as a frequency excursion. See ERCOT graphic below.

Fig. 1 – ERCOT frequency excursion graphic describing online grid events early Monday morning, February 15, 2021.

Frequency excursion refers to a drop in electric power cycles below 60 hertz (hz) per second – the flow of electricity through wires becomes erratic. Left uncontrolled beyond several minutes, this unstable condition leads inevitably to major equipment failure and total blackout of the grid. Recovery from a total blackout can take weeks or months, rather than hours or days.

As demand continued to rise and generation continued to drop, ERCOT declared an Energy Emergency Level 3 (EEA3) condition. ERCOT believed the only way to alleviate the frequency excursion and avoid total blackout of the system was to ask the Transmission and Distribution Utilities (TDUs) around the state to “shed load,” or cut power to circuits – meaning cutting power to millions of residential neighbors, business, and industrial sites. The technical demands and human stress on grid operators in ERCOT’s Taylor, Texas, control center in those early hours must have been tremendous.

Fig. 2 ERCOT Control Center in Taylor, Texas.

As the crisis progressed, circuits not shed were ones on the TDUs’ Critical Facilities Lists, circuits providing power to hospitals, law enforcement, fire stations, etc. However, apparently, according to testimony, that list had not been updated since the last several winter outage events. A number of natural gas processing plants, and even municipal power generation plants, were, at least temporarily, shed from the grid, further reducing electricity availability to the state and its communities.

In its effort to stabilize the failing grid, ERCOT initially hoped that “rolling brownouts” of 15-30 minutes duration would spread the loss of electricity evenly around the state. However, to ERCOT surprise, as stated in testimony, some TDUs reported back to ERCOT that they were unable to roll the outages. The requested quantity of load shed requested by ERCOT were apparently so high that TDUs didn’t have the capability to roll the outages while at the same time keeping critical circuits on. This resulted in the excruciatingly prolonged blackout conditions over areas of the state. The New York Times reported that some of these stalled blackouts hit minority and low-income communities particularly hard. Some of the fatalities were reported in these areas. It took ERCOT days, not hours, to stabilize its grid and bring back power to most residents.

Takeaways from the Texas Legislative Hearings into Power Outages

In its continuing role to accelerate the global energy transition toward a sustainable future by providing actionable information to industry and the public, Zpryme offers the following takeaways, links, and resources to assist individuals and businesses as they continue recovery efforts form this historic event.

Texas legislative hearings held on Thursday-Friday, February 25-26, 2021, graphically detailed the following set of vulnerabilities, as Zpryme interprets the witness testimony, that currently characterize the Texas energy and political landscape:

• Lack of state regulatory enforcement authority over industry as specified in legislative statute, specifically in relation to winterization of energy industry infrastructure.
• Low-to-non-existent industry response to implementation of the August 2011 FERC-NERC energy infrastructure winterization recommendations following February 2011 Texas winter storm and widespread outage event.
• Low-to-non-existent industry response to implementation of similar 2012 Texas Public Utility Commission (PUC) winterization recommendations.
• Possible natural gas and electricity price manipulation and market irregularities are being investigated by the Federal Energy Regulatory Commission (FERC), the Commodity Futures Trading Commission (CFTC) Also, the Texas Attorney General has issued Civil Investigative Demands (CIDs) to ERCOT and power companies. The price of natural gas skyrocketed, and, under PUC and ERCOT rules, the scarcity/ancillary price of a MW of electricity shot from around $20 to over $20,000.
• Inability of Texas’ transmission and distribution utilities (TDUs), due to high load shed requests and need to maintain critical circuits, to execute rolling brownouts prescribed by ERCOT, leaving millions stalled in sub-freezing blackout conditions, many without drinkable water, for hours and days.
• Questionable performance of Texas’ energy-only, deregulated market structure, including exorbitant scarcity and ancillary pricing mechanisms and signals designed to incentivize power generation at peak demand times, but which instead proved confusing and inadequate to allow ERCOT and power generators to manage and provide power during the prolonged sub-freezing weather event.
• Inadequate expansion of natural gas production and pipeline infrastructure to power plants to keep pace with Texas’ rapid population growth over the last 10 years.
• Lack of backup fuel at power plants, no resource adequacy (capacity) charge.
• Inadequacy of industry Emergency Operations Plans (EOPs).
• Lack of communication to convey a sense of urgency within and between government, industry, and the public. According to hearing testimony, TDUs, ERCOT, PUC and the RRC failed to warn the public about the magnitude of the impending disaster and to prescribe evasive action. Apparently, nobody in authority wants to yell ‘the sky is falling.’ Agencies don’t want to anger the public or the governor.

Bottom Line

Clearly, this tragic event should and will continue to be scrutinized by the appropriate authorities, agencies, and relevant news and public interest organizations. The immediate solution to this crisis is not rocket science. Most immediately it calls for the winterization of Texas’ energy infrastructure – from wellhead to light switch – to withstand not only its hot summers, but also the Arctic vortices that climate change appears to be generating with increasing regularity.

Zpryme remains committed to providing useful information on this event to the public and industry, and will continue to monitor developments as investigations and litigation progress in the coming weeks. Please check back with this blog for updates, or sign up for updates on the Zpryme website.

Resources

Texas residents and businesses seeking to file complaints or receive potential assistance with electric bills can file a grievance with the Texas Public Utilities Commission.

San Antonio residents seeking assistance with electric bills can apply for help with CPS Energy.

To view archives of the recent hearings, interested parties can go to these links:
House committee hearings
Senate committee hearings.