A frigid storm knocked out electricity across the state just as Texans needed heat the most, revealing the weakness of our grid. The Dallas Morning News Opinion section will explore ideas and policies for strengthening electric reliability in an occasional series called Keeping the Lights On. Find the full series here.
No Texan must be reminded of the suffering in the last 10 days, brought on by the epic and lasting failure of our electric power grid.
We still don’t know the root cause of the failures or why they lasted so long. Many point to likely culprits, with the failure to winterize plants and equipment being the No. 1 suspect. That was a critical failure leading to a similar event in 2011, and the investment necessary to winterize our system largely hasn’t happened.
Based on my 35 years of experience in the oil and gas industry, both as an engineer and an attorney, I don’t think weatherization is the only suspect. I suspect financial forces.
The Texas Legislature is conducting hearings this week to fully understand what happened. As a trial attorney who litigates with energy companies, I am experienced at getting information that people don’t want to give and getting them to answer hard questions. Here are the questions I’d like to have answered.
We know that providing electricity to all of Texas is a challenge. The power has to be available when you flip the light switch, but it can’t be stored at scale because we don’t have batteries that are capable of doing that yet. So, when you flip that switch, the power flows only if it is being distributed by your power company at the same time you’re needing it.
Last week, electricity demand went through the roof as supply fell, meeting only half the demand. In particular, generation plants running on natural gas seem to have lacked an adequate supply of fuel or were operationally impaired because they failed to winterize. Available estimates suggest that two-thirds of the capacity knocked off line was attributable to those using natural gas as a fuel.
One thing I learned as a novice engineer was how to specify appropriate oil and gas pipeline equipment for the expected range of operating conditions. This is what engineers do. While it is entirely possible that some power plants were not operationally prepared for this event, any engineer at those plants could have told you whether they were or weren’t months ago. Somewhere in each of those generation companies is likely a document laying out possible operational failures based on extended frigid temperatures, the impacts of such failures, and the likelihood that they would occur.
Why didn’t the Public Utility Commission and the Electric Reliability Council of Texas gather that information from each of the generators and sum the answers to figure out how big the capacity hole would be? And after doing that math, why didn’t anyone communicate the answers to the distribution companies and the public?
Reports are circulating that oil and gas wells and pipelines failed as a result of the cold weather too, limiting available supplies of natural gas. This is a possibility, but again, it is one that could have been quantified well in advance. And given the fact that the Permian Basin is subject to excessive cold periods and wells there are designed for it, this failure seems less probable than an equipment failure at a generation plant in South Texas.
When I ran for the Railroad Commission of Texas (our state’s oil and gas regulator), I campaigned hard on the fact that we flare (intentionally light on fire) enough natural gas to power every home in Texas continuously. It is simply wasted energy. I advocated building electric microgeneration sites in the Permian to turn natural gas into usable electricity right there in the Oil Patch. I lost the race, and the Railroad Commission has yet to do anything meaningful about the problem, but that wasted gas would have more than plugged any supply shortage.
Is it possible that generation plants did not lock in sufficient supplies of natural gas to meet the demand, leaving them short of necessary raw materials to generate electricity just as we needed it most?
Natural gas is sold under long-term contracts or on the spot market, and each purchase specifies a date and place of delivery as well as the quality and quantity of gas to be supplied. Now, it is possible that a segment of supply might go down as a result of operational challenges like a frozen pipeline or stuck valve, but gas traders trade supply from one point to another all the time around the U.S. to get around such difficulties and fulfill their contracts. And unlike the power grid, the natural gas supply isn’t isolated to just Texas, and natural gas can be stored. Oklahoma is rich with natural gas and used to the cold. Natural gas storage in Texas has increased over the past several years because of the abundance of natural gas.
We should scrutinize whether supply was actually missing, or whether it was just not procured in time. A key piece of evidence supporting the latter theory was Gov. Greg Abbott’s order late in the unfolding catastrophe to suspend natural gas deliveries going out of Texas to other markets, like Mexico. That gas was available for contract, so why didn’t the generators bid for it and lock in that supply for themselves?
Is it because the owners of natural gas electric generation plants made financial decisions that were right for them, but disastrous on a systemwide basis?
Abbott and others love to talk about free market principles. At base, the free market supplies only as much of a good or service as the public demands, and it sets the price of those goods or services accordingly. What the free market fails to do well is respond to a catastrophe like this one — when demand hits the roof and supply hits the floor. Prices get tremendously out of whack and the financial decisions of a few can wreck the entire system.
On Feb. 16, five days into the crisis, regulators executed critical price maneuvers that allowed the system to recover. Our ERCOT system has a limit on the price per megawatt hour of electricity that an electricity provider is allowed to bid to purchase it. This is designed to avoid price speculation that ultimately gets passed along to retail customers. However, in this case, the ceiling wasn’t raised in time to allow the providers to buy power at a price that would motivate some generators to produce electricity.
That is because at the same time the generators’ resale price to the grid was limited by ERCOT rules, their cost of buying natural gas in the spot market had spiked by some 60 times. It’s pretty hard to make a profit under those circumstances, when the cost of manufacturing the electricity was many times more than the price the generator would get for selling it. Any power company facing this circumstance, acting alone without oversight, would stop producing electricity, because it couldn’t bear the loss.
Was this at base a financial and regulatory failure, not an operational one?
We don’t know the answers to all of the questions above – yet. The inquiries and hearings that are supposed to take place in Austin hopefully will help us get some answers.
But if my suspicions prove true, what of it? Many would point to the fact that in 2011, our coal-fired power plants failed in a similar fashion (but with less extensive impact) under a cold snap. Most of us remember that the Super Bowl was compromised at AT&T Stadium, but perhaps not much else about the situation. Reforms were suggested but nothing really changed.
Maybe this time is different. Maybe enough people lost their lives or their livelihoods or their property that our elected representatives will take real notice. Maybe for once, we Texans will embrace the idea that we are better together than standing alone, and our institutions need to be there for all of us when it counts.
Chrysta Castañeda is a Dallas attorney specializing in oil and gas litigation matters. She was the 2020 Democratic nominee for the Texas Railroad Commission. She wrote this column for The Dallas Morning News.
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