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By: Cameron Kinvig, Practical Guidance
Extreme winter weather and poor statewide energy policies recently caused an enormous public health and safety crisis in Texas. This article analyzes what went wrong with Texas' energy infrastructure during Winter Storm Uri, including failures in natural gas generation, production, transportation, and storage; the failure of power producers to properly winterize natural gas, renewable, coal, and nuclear power generation equipment; and the integration failure that almost caused the complete collapse of the Texas power grid. These problems proved vast and dangerous during the recent winter storm, but they are solvable with responsible statewide regulation and oversight.
Beginning in early February, experts predicted that a set of winter storms would descend on Texas on or around February 12, bringing polar weather much colder than usually experienced in the state. Snow was predicted, and weather experts said Texans should expect sub-freezing temperatures for at least a week. People did what they usually do—stocked up on bread, milk, and eggs. Energy companies also did what they usually do to prepare for a winter storm in Texas—very little.
The first of the two storms that eventually hit the state—dubbed Winter Storm Uri—brought temperatures down to 100-year lows in some places. The storm brought significant snow and wind. A population used to temperate weather in February was faced with wind chills that reached -30 degrees Fahrenheit. Demand for both electricity and natural gas soared beyond what the Electric Reliability Council of Texas (ERCOT)—the state-controlled entity which manages Texas’ electric grid—forecast for an emergency winter storm.
By Monday, February 15, approximately 4.5 million Texas households were without power. Most of those were also without heat. Household and apartment water pipes had frozen and burst, causing an estimated $295 billion in damage. One hundred twenty-five people ultimately died. And the entire state was under a declared state of emergency.
As the week wore on, temperatures did not increase, and an additional winter storm brought more snow, ice, and misery. Water utilities began to feel the strain. Hundreds of water mains throughout the state froze and burst, and water treatment facilities began to cease operations due to frozen equipment. By Wednesday, February 17, it was estimated that over 50% of Texans did not have access to reliably clean water, with a large portion of that number having no access to running water at all. In short, it was the worst winter disaster ever faced by the state.
Politicians at the highest levels have begun investigating the situation. But, at its core, the explanation of what went wrong needs little forensic analysis and is relatively simple to understand. That’s because this has happened before—most recently in 2011. And unless the state’s energy policies change, it will undoubtedly happen again.
In the months and weeks leading up to the storms in question, ERCOT and others assured Texas legislators that the state’s electric grid was stable enough to withstand a severe winter storm. However, when Winter Storm Uri began on the evening of February 12, and temperatures plummeted to all-time lows, it immediately became clear that Texas’ energy infrastructure was far from stable.
Almost immediately, electricity generation capacity began to fall dramatically. Efforts to increase electricity generation were not successful, as more capacity fell out of the system than could be added. The entire electric grid became overloaded and unstable, as consumer demand for electricity and natural gas to heat homes far outstripped supplies of either. ERCOT was forced to ration electricity to keep the grid from incurring permanent damage, which could take weeks or months to fix. ERCOT’s senior leadership noted later that the Texas power grid was approximately five minutes away from a catastrophic failure that would have caused a statewide blackout when the decision was made to cut power to large portions of the state.
ERCOT has no ability to pick which businesses or communities will or will not receive electricity. It merely tells regional utility providers how much capacity they must remove from their local systems and leaves it to the utility providers to pick how rolling brownouts are allocated among consumers. It later became clear that these regional utility providers were not always able to allocate rolling brownouts equally, meaning as the weekend passed and the situation got worse, brownouts become permanent blackouts for many Texas residents. Many households experienced 96 hours or more without any electricity in sub-freezing weather and were forced to leave their homes to find warmth and shelter.
By Tuesday, February 16, approximately 46,000 megawatts of electricity generating capacity—or close to 50% of total winter generating capacity—would go offline. With temperatures hovering well below freezing for days, and electricity generating capacity so low, what started as an inconvenience turned into a public safety emergency.
Problems with Natural Gas Production and Storage
The low temperatures which accompanied Winter Storm Uri immediately began to cause widespread havoc with natural gas production and transportation. Natural gas—which often emerges from the ground with water vapor mixed in—began to freeze inside wellheads, natural gas pipelines, and in valves at natural gas processing plants. This occurrence—known as freeze-off—halved statewide natural gas production almost instantly and made transportation impossible. Other pipelines were unable to move processed natural gas to power plants because their pumps began to freeze. Adding insult to injury, some wells and pipelines that remained operational had their power turned off as part of the statewide rolling brownouts.
While natural gas-based electricity producers throughout the United States often utilize underground storage facilities near each plant to store excess natural gas, electricity generators in Texas rarely do this. With natural gas production so prevalent in Texas, it is less expensive for a power producer to transport natural gas directly from a treatment plant or well than it is to store natural gas and retrieve it when needed. It would have been extremely helpful for power plants to have some minimum volume of stored gas available for emergency generation, but there are no state or federal regulations requiring this. Because most power generators had no access to natural gas storage, when pipelines and wells froze, they simply had no fuel to use for power generation.
Problems with Wind Generation
Winter Storm Uri also affected wind and solar electricity generation efforts. Roughly half of the wind turbines in the state went offline because their blades accumulated too much snow and ice to move. As wind energy accounts for roughly 25% of the electricity produced in the state, this was a meaningful generation reduction.
Unlike wind facilities located in cold-weather climates, wind-generating facilities in Texas are not built to withstand extreme weather conditions. However, the technology exists to rectify and winterize these generating assets. It is simply not mandated at the state level at the current time.
Problems with Coal and Nuclear Plants
Coal-fired electricity generation makes up roughly 18% of the power produced in Texas at any given time. Nuclear power constitutes roughly 11% of the total. While coal-fired and nuclear power plants ran into fewer problems as a result of Winter Storm Uri, their winterization failures did cut production of what is considered base-load power to the Texas grid.
Both coal and nuclear plants operate by using heat to turn large amounts of water into steam, which in turn powers electricity-generating turbines. This water is drawn into the power plant’s boiler system via large feedwater pumps. These pumps are susceptible to cold weather and may freeze unless properly winterized, which is exactly what happened when Winter Storm Uri hit. Many of these plants are located in South Texas, and their equipment was simply not designed to withstand extremely cold weather.
Similar power plants in other states handle this by upgrading pumps to be freeze-resistant, and by installing anti-freeze technology in feedwater ponds. Unfortunately, Texas does not mandate any such measures, leaving these plants with design deficiencies susceptible to recurring winterization failures.
Problems with ERCOT and the Public Utility Commission
According to testimony given at public hearings, it now appears that ERCOT computer systems helped cause the same problems its leadership was trying to solve. As ERCOT employees sought to stabilize the electric grid by bringing dormant electric generation capacity online, ERCOT’s rate-setting computer misinterpreted this reserve generating capacity as excess and began shutting down natural gas plants that were more expensive to operate. So, despite ERCOT’s best efforts, electricity generation capacity in the state continued to fall as the storm grew worse.
This situation caused regulators at the Texas Public Utility Commission (PUC) to make a pricing decision that would ultimately cost Texas residents billions of dollars. After a six-minute phone conference, the PUC decided that the drop in power generation must be caused by the Texas electricity market setting wholesale energy prices too low. To spur additional electricity generation, it temporarily suspended the independent Texas electricity marketplace and raised power prices to the statutory maximum of $9,000 per megawatt hour. To put this into perspective, the average wholesale cost of a megawatt hour of electricity in Texas is approximately $26.00, so the PUC rate-setting move caused a rate increase of close to 35,000% over normal power prices. This translated into some individual household electric bills exceeding $1,000 per day.
The PUC’s pricing move did not work as intended. By then, power plants that were shut down could not generate electricity due to lack of fuel or frozen infrastructure, and others continued to be shuttered due to the ERCOT computer glitch. No additional power was generated as a result of higher prices. Instead of helping resolve the power crisis, the PUC pricing move cost Texans with variable-rate electric plans billions of dollars in additional charges for sporadic power. Notably, the PUC did not revert to market-based pricing until Friday, February 19.
ERCOT (Electric Reliability Council of Texas) Real-time Price, LCG Consulting Energyonline, http://www.energyonline.com/Data/GenericData.aspx?DataId=4 (last visited February 26, 2021)
Problems with the Grid in General
The 90% of the Texas electric grid controlled by ERCOT is largely independent of electric grids serving the remainder of the country and has been so since 1930. Texas does have a minimal connection with the East Coast electric grid and with the grid serving northern Mexico, but no connection with the West Coast electric grid at all.
The Texas grid is largely self-reliant to minimize exposure to brownouts facing California residents in the summer and residents of Eastern states in the winter. This self-reliance also stems from a desire to self-regulate, rather than subject the state’s utilities to regulation from the Federal Energy Regulatory Commission (FERC) and its delegate, the North American Electric Reliability Corporation (NERC). This lack of interconnectivity became a major problem once Winter Storm Uri hit Texas, because Texas could not draw power from unaffected states, and was left to solve for its own power deficiencies. While power from the East Coast grid was largely unavailable during Winter Storm Uri due to winter weather issues, the West Coast grid could have provided emergency power to Texas, had it been connected. This lack of interconnectivity should be rethought carefully by the Texas legislature. The foremost concern should be Texans’ safety, rather than grid or regulatory independence.
While the Texas power crisis is now over, the effects of that crisis are just beginning to be felt. Your clients should expect legislative and regulatory investigations, additional regulation at both the state and possibly federal levels, significant litigation, and possible criminal charges stemming from the Texas power crisis. A detailed discussion of each is included below.
Legislative and Regulatory Investigations
Legislative investigations into the Texas power crisis have already begun. The first public hearings were conducted by Texas House and Senate committees on February 25, 2021. The CEOs of power generation companies and ERCOT were called to testify, and the investigations will continue for an extended period. While there is certainly enough blame to go around, it is certain that ERCOT, PUC, and electricity generation providers will face significant scrutiny, additional regulation, and major oversight changes.
Additional Federal and State Regulation
As early as February 19, FERC chair Richard Glick called on Congress to allow FERC to regulate ERCOT and the Texas utility marketplace. By February 22, both FERC and NERC announced they would begin investigations into ERCOT’s conduct during the Texas power crisis. The results of those investigations may end the independence currently enjoyed by ERCOT and the Texas utility marketplace. Using the interstate commerce clause and Texas’ minimal connections to the East Coast power grid as a justification, Congress may decide to regulate Texas’ utility marketplace in the future. You should prepare your clients for this possibility.
Additionally, the Texas legislature is sure to place restrictions on some or all of these entities to ensure this does not happen again and in an effort to stave off federal regulation. If your clients include Texas electricity generators, you should tell them to expect additional regulation. They should work through you and/or lobbyists to help shape the coming regulations, rather than take a wait and see approach.
The Texas power crisis has spurred significant litigation against all parties involved. Multiple class-action suits have already been filed against ERCOT, alleging it knew or should have known that the Texas electricity grid could not handle a winter storm of Uri’s magnitude, yet did nothing to prepare. Individual electricity providers have also been sued, with allegations that their allocation of days-long blackouts caused pain, suffering, and in some instances, death by hypothermia. Other utility providers—mainly those that offer variable-rate pricing tied to wholesale electricity rates—have been sued for over $1 billion for alleged price gouging by consumers that are facing utility bills approaching $10,000 each. Significant insurance litigation is likely on the horizon, as it is estimated that only a fraction of the total damage caused by the storm will ultimately be covered by insurance.
With an estimated $295 billion in damage statewide to fight over, and a major loss of life directly caused by power outages, significant litigation will continue for years to come. Utility providers, pump and other equipment manufacturers, natural gas producers, and pipeline operators all share some of the blame associated with damage from Winter Storm Uri. If you represent any of these entities, you should prepare your clients for possible class-action litigation that may seek billions of dollars in damages. You should also prepare your clients for denial of coverage by insurance companies that otherwise would have a duty to defend.
Possible Criminal Liability
The Travis County District Attorney’s office announced on February 23 that it opened a criminal investigation into whether any state entity, leader, or regulatory authority should face criminal charges because of the Texas power crisis. In addition, it, along with other county district attorneys’ offices, are investigating market manipulation, price gouging, and other financial crimes that may have occurred. If you have utility industry, power generation, or natural gas production clients, you should brief them on the possibility they may become involved in or be the target of a criminal investigation, as well as the possibility that any actions they took during the crisis may lead to criminal liability.
While Winter Storm Uri has caused billions of dollars in freeze damage to residential and commercial plumbing, already spurred class-action lawsuits against ERCOT and public utility companies, and led to an unacceptable loss of life, the problems encountered by Texas’ electricity grid can be solved. Here are some ideas that have worked in cold-weather climates, and which should be adopted via mandatory regulation in Texas:
It is estimated that the cost of fully winterizing Texas power producers and the utility grid in general will be between $5 and $20 billion. Some estimate that consumers would only see an increase of approximately $10 per month on their utility bills if these costs were passed through to consumers. Many of these winterization steps were suggested by the FERC after a 2011 winter storm caused power outages for more than three million Texans. While ERCOT utilized some of the FERC guidance as part of its winterization best-practices suggestions to Texas utility providers, none became mandatory through state regulation. Ten years later, it is apparent that many of these best practices have largely been ignored, to the detriment of Texas residents and businesses. It is time for state authorities to use their regulatory powers to change things, protect Texas residents, and protect the integrity of the Texas power grid. With climate change causing increasingly harsh winters, the time to act is now.
Cameron Kinvig is a Content Manager for Practical Guidance, focusing on Energy & Utilities. Prior to developing content for Practical Guidance, Cameron was General Counsel and Chief Financial Officer for X-Subsea, a multi-national oil and gas services company focused on offshore dredging and excavation. Cameron also spent many years at Hunton Andrews Kurth, where he focused on energy law, corporate law, and real estate.
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