Public and private stakeholders are gearing up for the first round of Texas legislative hearings on the recent electric power outages and rolling blackouts caused by Winter Storm Uri of February 2021. Committee hearings are underway at the Texas Capitol in Austin this week in an attempt to ascertain which entity is responsible for 4.5 million Texans being left in the cold and dark when 46,000 megawatts of power were knocked off of, or were unable for a variety of reasons, to contribute power to the grid. Dozens of fatalities and $50 billion in costs are attributed to the weather event and its management by state officials and private companies. Zpryme estimates the total costs for this event will exceed $200B once all insurance, increased energy prices, fines, food waste, repairs, and litigation are accounted for.

Aside from the unusual near-zero-degree Arctic weather conditions, the cause of the prolonged outages can be linked to multiple contributing technological, regulatory, and policy-related factors. Initial assessments reveal the obvious, that historically severe cold weather dramatically increased demand for electric service and heating.

At the same time as demand rose, power generation and supply plummeted; frozen natural gas processing and distribution systems reduced the availability of natural gas pipelines to fuel electricity-producing power plants. As demand spiked, wholesale power prices rose from $25 per MWh to their cap of $9,000 per MWh.

The City of Denton, Texas, for example, which normally pays about $24 per MWh, saw electricity prices shoot to $2,400 per MWh, and paid ERCOT $207 million over a four-day period during the weather event, rivaling the cities annual electricity bill of $231 million.

Investors raked in millions in profit. High demand and reduced generation capacity forced ERCOT, in the early hours of Monday, February 15th, to call for utilities to shed load in order to maintain grid reliability, leaving millions without power, heating, and, in many cases, water. Bill Magness, CEO of ERCOT, Texas’ primary grid operator, stated at the height of the outages that the state grid was “seconds or minutes from total blackout,” a catastrophic situation that may have taken weeks or months to repair.

Subsequent investigation of the event is expected to delve into the more nuanced, subtle policy and regulatory framework conditions that allowed the event to spiral into the virtual disaster it became. One aspect that will no doubt receive attention is why, after a 2011 federal FERC/NERC study examined a previous episode of Texas power outages caused by severe winter weather, recommendations for weatherizing and hardening the Texas power generation, transmission and distribution system were not implemented. It may be that industry and government took the gamble that another such weather event wouldn’t occur anytime soon. If so, the recent event proved that an incorrect assessment, a decision likely to be scrutinized and possibly reversed. With a $100 million dollar gross negligence lawsuit already filed in Houston against ERCOT, an event of this scale is a political hot potato that will no doubt be tossed around for weeks if not months to come.

Stakeholders now in the spotlight include ERCOT, where several board members have already resigned. Other public entities involved include the Texas Public Utility Commission (PUC), the Texas Railroad Commission, and the Texas Legislature. Testimony to the committees is expected from these agencies and from managing executives of power generation, transmission and distribution, and supply companies.

During the upcoming Texas House Energy Resources and State Affairs joint committee hearing, to be held on Thursday, February 25, 2021, at 9:00am, Zpryme recommends legislators pursue the following questions:

  • Which existing industry best practices were or were not followed in the leadup and during the event? Did energy deregulation and wholesale pricing contribute to the event?
  • Were minority and low-income communities disproportionately effected by the energy and water outages?
  • What mechanism will finance weatherization of Texas’ energy infrastructure, including natural gas pipeline insulation, heat trace systems, and wind breaks?
  • Does the $9,000 per MWh price cap incentivize or delay energy production? Where is the line between incentivizing and price gouging? Should some of that money be redirected toward weatherization and infrastructure upgrades?
  • Which governmental, industry, or private entities were responsible for the outages, and what systemic process changes can be implemented to prevent a similar catastrophe?
  • What changes to Texas’ energy policy and regulation should be implemented?
  • Who should, or who will, bear the brunt of the costs incurred during and as a result of the event? How can consumers be protected from skyrocketing energy bills?
  • Should Texas reconsider a transition away from its current “energy-only” market model and to a “capacity market,” which would guarantee energy reserves?
  • Rather than blame renewables for the outages, should Texas consider incentivizing more distributed, onsite solar and battery backup systems to relieve demand on grid operations?
  • What standards, regulations, and requirements should be implemented to ensure an event of this magnitude does not occur again?

Here is a link to the House joint committee hearing notice. A related hearing of the Texas Senate Committee on Business and Commerce will take place at the same time. Here is a link to the Senate committee webpage.

Zpryme will be monitoring and reporting on developments from this and other expected hearings into the event. Check back on this column for updates.