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What's Going on With Texas Electricity? And What's Next?

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Texas has been making headlines all week. And not in a good way. An arctic blast of air hit Texas like a cowboy being thrown off a bucking bronco. And then getting trampled and kicked in the head, just for good measure. 

At one point during the crisis 30,000 MW of power (out of a capacity of 82,000 MW) went down, just as power demand was surging. Wind, solar, natural gas, coal and nuclear-powered plants were all impacted.

ERCOT, the Electricity Reliability Council of Texas, immediately required the delivery companies (Oncor and Centerpoint being the largest) to shed load. What should have been rolling blackouts became 3 days with no power or heat for some. Delivery companies and generators struggled to get power back online.

As an ERCOT representatives stated on a February 16 media call, “If we’d let that stay imbalanced it would have been catastrophic for the entire grid.” Picture 29 million people in Texas without power, instead of 4.2 million Texans.

ERCOT has shouldered much of the blame. They're everyone's favorite punching bag right now. Why didn’t they require the power generation assets to be winterized? But it turns out it's a lot more complicated than you would think. 

First you need to understand the Texas power grid. While the rest of the country participates in the Eastern Interconnection or the Western Interconnection, the Texas power grid, or Texas Interconnection is... not connected. (Note: El Paso is part of the Western Interconnect; The Woodlands, Huntsville, Beaumont are part of the Eastern Interconnect). When weather hits, those within the Eastern and Western Interconnects have access to a number of power plants to call on.

Not so for Texas. The Texas Interconnect operates as an island. What's in Texas stays in Texas. And what power is outside of Texas can't get here. 

Why is Texas not part of the interconnects? Historically, Texas legislators and regulators didn't want the federal government, FERC, involved in operations. By being its own interconnect, those within the state government make the rules, not the federal government.

Who in Texas makes rules governing power?

At the beginning of that line is the legislators. The question of requiring winterization for natural gas, power and water assets has been in front of the Texas legislature before. As recently as 2015, Texas legislators failed to pass HB2571, which would have required winterization plans for all of these utilities.

Another player in all of this? The Public Utility Commission of Texas. The PUCT is a board whose members are appointed by the governor. The PUCT oversees delivery companies and retail electricity providers. They also direct the actions of ERCOT.

ERCOT is often called the “traffic cop” of Texas electricity. They monitor the grid, inspect power plants, publish forecasts and make sure that the grid stays intact. They also balance payments within the market, acting as a financial intermediary between buyers and sellers of power.

A fourth player? The Texas Railroad Commission, made up of commissioners elected to 6-year terms. The TRRC oversees the natural gas pipelines in Texas. Much of the power generation that went offline was from gas power plants. They couldn’t get the supply then needed, when they needed it.  

But when it all comes down to it, generation assets in Texas aren’t winterized because of money.

Prior to deregulation, generation assets were owned by utility companies. These utilities had a guaranteed rate of return. They could recoup infrastructure investments by passing the costs to their rate payers. Post-deregulation, these generation assets are owned by private companies, most traded on the stock market. If they aren’t required to winterize their power plants in Texas, there’s no financial incentive to do so.

In other areas of the country, such as the PJM or MISO markets, electricity is more expensive than it is in Texas. That's partly because of capacity markets. In a capacity market, power plant operators receive a payment just for being available to generate power. That’s in addition to being paid for the power they generate. These are revenues that generators in the north use to invest in capital projects, like winterization.

Some fixes that have been floated for the Texas market include:

  • Interconnecting Texas to other electrical grids for emergency power and greater liquidity in the markets
  • Requiring winterization investment in for generation assets
  • Establishing a capacity market for power in Texas, as exists in other areas of the country. A capacity market pays power plants just for existing, even if they aren’t needed.

All of these things cost money. That will result in increased transmission costs, higher delivery fees, higher wholesale electricity costs and in the end, higher consumer electricity costs in Texas.

rebecca bridges's picture

Thank rebecca for the Post!

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Matt Chester's picture
Matt Chester on Feb 22, 2021

ERCOT has shouldered much of the blame. They're everyone's favorite punching bag right now. Why didn’t they require the power generation assets to be winterized? But it turns out it's a lot more complicated than you would think. 

Well said-- I think week 1 of the fallout focused on a lot of the easy punching bags, or even entities some stakeholders wanted to be the punching bag. But it's not like this situation hasn't happened and wasn't discussed, it was just perhaps never at this scale before. But as we move into the coming weeks, it will be compelling to see that conversation evolve. 

rebecca bridges's picture
rebecca bridges on Feb 22, 2021

Absolutely they are the scapegoat. And the media has bought into it instead of really digging into the issue. I'd like to know more about why rolling blackouts weren't rolling. The Texas Attorney General wants to know more too. Over the weekend, he issued requests for info from all 4 TDUs, and 6 generation companies, in addition to ERCOT.  

Michael Keller's picture
Michael Keller on Feb 22, 2021

The cost of electricity in Texas is not low. In point of fact, it is on the high side.

Capacity payments do not provide a proper incentive when the market is artificially skewed by the forced use of unreliable and heavily subsidized power (green energy). Further, the consumer is not properly served by the distorted market because costs are higher and reliability is lower. Texas (and California for that matter) provide graphic examples of the problem.

Fundamentally, generation reserve margins must be based on reliable capacity, not capability. Green energy cannot be counted as capacity. Further, green energy cannot be used as a weapon to drive reliable generation(coal and nuclear) into financial oblivion. 

Texas poured too much money into wind energy and neglected the fundamentals: balanced resources and reasonably priced energy.

 

Richard Brooks's picture
Richard Brooks on Feb 24, 2021

Thanks for this posting Rebecca, you raise some excellent points. Let's hope the lessons learned in Texas last week will motivate the decision makers to realize that having consumers spend $5.00 per month on a capacity market to ensure reliability is well worth it when the counterfactual is an electricity bill of $17,000 for 3 days of electricity under the current scarcity pricing rule structure. One point I want to make regarding capacity markets, regards this statement: "A capacity market pays power plants just for existing, even if they aren’t needed. "

In my view a properly functioning capacity market is supposed to incentivize generators to do what is necessary, including weatherizing, onsite fuel storage and other activities, required to be available when needed, for reliability. They receive "capacity payments" for their commitment/investments, which also comes with performance penalties, if a unit fails to meet it's "bought and paid for" capacity commitment to be available. The capacity payments to generators must be sufficient to cover the costs for weatherization and other activities, that will ensure their availability, when called upon to serve, by ERCOT.

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