What’s next for Texas grid after winter wipeout?
Texas power producers will likely have to make sure their power plants, wind turbines and natural gas pipelines are ready for next winter, but is the state standing by to assist?
As Texas gets back on its feet after February’s wave of power outages, it appears the state’s priorities for the immediate future will focus on winterizing equipment that was knocked offline amid an unusual, but not unprecedented, cold wave. Any major changes to the state’s business-friendly market philosophy or to the grid itself may have to wait, if they are addressed at all.
Gov. Greg Abbott said in a televised address Wednesday night that the first step will be ensuring that power plants of all types would be able to stand up to ice-cold conditions as well as they function in the legendary Texas heat. “I have made it a legislative priority to mandate and to fund the winterization of the Texas power infrastructure,” Abbott said. “This will protect our power grid from future winter weather events.”
Baby Steps
Winterizing equipment may not be particularly challenging; however, it is routine in colder climates. On the other hand, it costs money and was therefore considered a bit of a capital luxury in a state far more accustomed to temperatures over 100 degrees than below freezing.
Abbott did not lay out any specific steps or dollar amounts for the undertaking. And since the state is onboard and ready to help with the expenses, there is unlikely to be much protest from the energy industry.
The idea of Texas as a shining example of a largely deregulated and highly successful power market was dinged further by a post-storm Wall Street Journal analysis of how much consumers were actually paying for power. The report that cited federal Energy Information Administration data, concluded that Texas customers using deregulated power providers paid 13 percent above the national average from 2004 to 2019.
In addition, Texans getting their electricity from a traditional regulated utility paid 8 percent less than the national average. The difference, the Journal reported, was $28 billion in additional costs for consumers.
Under the Texas deregulation plan, 60 percent of retail customers were required to get their power from a retail provider. And while the goal was to increase competition, consolidation of the industry over the years has actually sharply reduced the number of those providers in the stare.
Abbott also pledged to take steps to assist consumers who, according to their flexible rate plans, learned some harsh lessons about exposure to energy commodity markets when their utility bills suddenly soared into the thousands of dollars. “We have ordered that Texans will not have their power shut off because of unpaid bills until the legislature has time to act on this,” he said.
Getting residents off the hook won’t be that easy since their retail power supplier had to pony up as natural gas supplies tripped offline and wind turbines froze due to the bitter cold. Bloomberg noted this week that these companies spent more than $50 billion on electricity during the crisis compared to a little over $4 billion in the previous period. Reuters said the next-day price for power at ERCOT’s North Hub hit $1,489.75 per megawatt hour compared to an annual average of $26 in 2020.
As Abbott said, it will be up to the legislature to decide what level of relief its citizens receive and how much of the additional costs, if any, will be passed on to ratepayers.
A package that relieves consumers and helps generators winterize their equipment will probably be a fairly easy task for lawmakers to accomplish, and it could even present an opportunity to declare the crisis over and that the grid is now ready to stand up to the next black swan winter storm.
ERCOT or Not
The Electric Reliability Council of Texas (ERCOT) oversees the state’s transmission grid and had the misfortune of being in the position of ordering the first of the controlled rolling outages, which spiraled out of control and nearly crashed the entire grid, a grim situation that reportedly would have taken weeks to reverse. And it was ERCOT that has taken the brunt of the wrath coming out of Austin and quickly saw five of its board directors resign.
The utility industry was quick to point out that the buck for ensuring adequate generation on any given day stopped with ERCOT. “Most electricity providers in Texas are transmission and distribution companies that do not generate electricity,” said Edison Electric Institute President Tom Kuhn. “The shortage of generation capacity is not something electric companies, electric cooperatives, and public power utilities can directly address.”
ERCOT has conceded that its pre-storm preparations went awry when dozens of power plants and more than 52 gigawatts of power started tripping offline as gas flows dwindled at the same time demand for electricity and gas heat spiked. And ERCOT’s unique grid design made it difficult, if not impossible, to tap into power supplies from other states.
A number of state and national politicians used the outages as an opportunity to lobby for an increased role for natural gas and coal in the state’s energy mix. State Rep. Jared Patterson used the occasion to urge an end to federal subsidies for wind energy on the grounds it unfairly tipped the scales away from fossil fuels that are considered more reliable. “I understand that wind is not the sole cause of this issue, but it is one of the fundamental reasons that our market does not have sufficient generation capacity,” Patterson said.
The state will likely find some tweaks to ERCOT’s operations, but the big question will be if the changes go further. Some critics have insisted the ERCOT’s current buying-and-selling market design is fatally flawed and will require a significant overhaul. “The solution’s going to be to restructure the entire electricity market for Texas,” Ed Hirs, an energy fellow at the University of Houston, told KPRC-TV in Houston. “This has been a fool’s errand since it was passed into law 20 years ago; and it just totally needs to be revamped.”
Some energy analysts have said that Texas could benefit from beefed-up reliability rules and even a capacity market could help ERCOT firm up power supplies and reserves. Proponents of the current market, particularly among the major consumers in the industrial sector, say the rewards from working without a net have paid off in the form of a leaner, competitive utility industry that has blessed the state with consistently low rates. Moreover, any new regulations that could change that favorable dynamic would not be welcome.
“I don’t think we need a capacity market in Texas,” former FERC Chairman Jon Wellinghoff told S&P Global. “This was an extreme event climate-wise, and we have to understand that those events are going to happen more often now.”
Taking a stab at winterization along with providing some form of relief for consumers will take some of the sting out of the February outages, and could justify kicking any major changes to ERCOT and the Texas market down the road as the sizzling summer approaches.
