Monday Study – Keeping The Lights On In Texas

Never Again: How To Prevent Another Major Texas Electricity Failure

Pat Wood III (PUCT Chairman 1995-2001, FERC Chairman 2001-2005), Robert W. Gee (PUCT Chairman/Commissioner, 1991-1997), Judy Walsh (PUCT Commissioner 1995-2001), Brett Perlman (PUCT Commissioner 1999-2003), Becky Klein (PUCT Commissioner/Chairman 2001-2004), Alison Silverstein (PUCT advisor 1995-2001, FERC advisor 2001-2004), June 3, 2021 (The Cynthia and George Mitchell Foundation)

The historic weather system that hit the South Central United States in February 2021 led to the deaths of nearly 200 Texans[1] and caused over $100 billion in damages to Texans’ homes and property.[2] Its impacts on power, natural gas, water, and transportation infrastructure were profound, leading the power grid operator, Electric Reliability Council of Texas (ERCOT), to order all local utilities to immediately decrease power demand early on February 15. This grid reliability order led to cuts in electric service to over four million premises, leaving millions of Texans out of power and in miserable conditions for up to four days.

The Texas Legislature has sent to Governor Abbott new statutes to address some of the problems that contributed to this disaster. But beyond these new laws, Texas has more work ahead to protect customers and ensure that our energy infrastructure works adequately. The February outages were triggered by an extreme weather event but were exacerbated by underlying problems that affected the entire energy system from the production of natural gas to the delivery of electricity to the customer.

These problems extend beyond the Electric Reliability Council of Texas (ERCOT) and the Public Utility Commission of Texas (PUCT) to include parts of the energy system regulated by the Texas Railroad Commission, the Texas Reliability Entity, and the North American Electric Reliability Corporation, all of which bear some responsibility for the reliability of our energy system. If Texas is to mitigate future energy system disasters and restore our state’s reputation, we must do more than just tighten governance on ERCOT and the PUCT, weatherize power plants, patch the electric market, and reform some utility and retail practices.

As past PUCT Commissioners, the authors helped to design and implement many elements of ERCOT’s electric system and market structure between 1995 and 2004. The mission of the PUCT is to protect customers, foster competition, and promote high-quality infrastructure. Until this February, the Texas electricity system had largely achieved that goal. We created a strong, competitive, reliable electricity system whose overall performance for more than 20 years lowered electric bills for all customer classes, created innovative options for electricity customers, attracted an unprecedented level of new natural gas and renewable generation, and kept the lights on as our state population grew by 40%.

While the February 2021 event was clearly unprecedented, prior outages should have provided a wake-up call to policymakers and regulators to address reliability issues. The events of February 2021 resulted from several policy failures as well as from operational and planning failures across our state’s electric, natural gas and water systems. We must address the causes of this winter’s weather challenge and prepare to deal with emerging economic, technology and extreme weather realities.

Texas is the world’s ninth-largest economy. We owe it to our families and fellow citizens to learn from this event, plan for the future, and do the right thing for the good of Texas. We offer the following observations and 20 recommendations, which are organized based on the outage’s contributing factors. Some of these require further legislative action; others can and should be implemented by the PUCT under existing authorities.

click to enlarge

Problem 1¬—Almost half of ERCOT’s gas, coal and nuclear plants failed to produce when needed

ERCOT’s publicly released data[3] and other analyses indicate that almost 9 GW (8%) of ERCOT’s generation fleet was already out for maintenance on February 14 and another 22 GW (21%) of ERCOT’s total generation fleet failed before 1am on February 15, when ERCOT was forced to initiate customer load-shedding. Natural gas generators represented the greatest loss of production (26 GW, including units out for maintenance). Most of those plants failed due to insufficient preparation for the intense winter storm and/or because fuel became unavailable (whether on-site, like coal plants, or due to lack of natural gas availability or delivery capability). Forty-six percent of ERCOT’s total thermal generation capacity was unavailable or failed during the outage.[4] SB3, the new reliability statute, requires the PUCT to adopt power plant winterization standards, informed by adverse weather forecasts, with compliance requirements and penalties for non-performance. This is a good start, particularly given that a recent analysis from the Federal Reserve Bank of Dallas suggests that the weatherization of Texas gas and wind power plants would be cost-effective.[5] The PUCT and ERCOT will have to ensure that these standards are appropriately rigorous and receive adequate enforcement.

SB3 directs the PUCT to examine ancillary services and incentives for dispatchable generation such as natural gas plants, and modify the design, procurement, and cost allocation of ancillary services to assure that appropriate services are available for weather emergencies. ERCOT and the PUCT are also directed to look at whether dual-fuel capability, fuel storage and different fuel procurement supply policies are appropriate solutions for extreme weather performance. The statute even calls for operation under drought conditions. These measures are a good start to assure that gas-fired power plants retain reliable fuel access.

Recommendation 1-1—Mandatory weatherization to minimum standards for natural gas production and pipelines, with meaningful enforcement…

click to enlarge

Problem 2—Electric demand skyrocketed 20% over forecast

In February, Texas and its neighboring states experienced a multi-day run of Arctic temperatures and winds that drove ERCOT electricity demand for heating to unprecedented levels. As much as 35 GW (over 40%) of the total Texas electric demand was for heating. Much of Texas’ housing stock has little or no insulation and relies only on electric resistance heaters rather than gas heat, but at such low temperatures, uninsulated homes cannot be heated effectively. This drove ERCOT’s winter electricity demand to unprecedented levels; had ERCOT not called rolling outages early in the morning on February 15th, we were on the way to an all-time system peak later that day. Between leaky buildings, lack of electricity and poor public communications, over 100 Texans died of hypothermia or carbon monoxide poisoning during the February blackout.

Texas must fix this by improving the energy efficiency of our buildings. Over half of Texas homes were built before the state adopted building energy codes with insulation requirements in 2001. And over 60% of Texas homes are heated with electricity rather than gas. If these homes had energy-efficient building shells and heaters before February 14, that could have reduced electricity demand by at least 15 GW—enough to drop peak demand down to 62 GW and offset the loss of most of the generators that failed on February 14 and 15. Estimates developed for the U.S. Department of Energy indicate that Texas could use cost-effective energy efficiency measures to reduce 2030 residential electricity use by 18.5% and total electricity sales by 17%.[6]

Recommendation 2-1—Update Texas building energy codes and require them to be automatically updated as international building codes are updated…Recommendation 2-2—Raise TDU energy efficiency program goals to increase both annual kWh savings and peak reduction…Recommendation 2-3—Increase energy efficiency retrofits for low-income and multi-family housing across Texas…Recommendation 2-4—Increase demand response for grid emergencies…

click to enlarge

Problem 3—Distribution utilities didn’t rotate outages, leaving two-thirds of Texans without electricity for up to 70 hours

SB3 requires the PUCT and utilities to update criteria and recognition of critical residential customers and critical facilities. It also requires the utilities to conduct annual load-shed exercises. These are valuable first steps. But if Texas identifies more critical customers yet cannot manage distribution outages more effectively, this measure may not help us better manage future outages.

Texas’ electric utilities had to cut service to millions of customers because the critical facilities (those they knew of) are located on large circuits serving large numbers of customers and high electric loads on every circuit. Once those circuits were protected, there was no electricity left to serve the remaining circuits that don’t serve critical facilities, so all the remaining circuits were cut. Although utilities aim to rotate small-scale outages across many circuits, in February there were so many circuits out relative to the available generation that there was no way for the utilities to rotate the outage burden among circuits and customers. Thus, many customers on circuits without critical facilities stayed out of power for several days in a row. The lack of outage rotation in February was the most customer-impacting part of this disaster—many homes reached freezing temperatures during multi-day outages, causing many deaths from hypothermia and carbon monoxide poisoning, and millions of frozen pipes and damaged property and possessions.

This outage management process must be overhauled. It is easier to manage outages and rotate outages fairly if circuits containing critical facilities are smaller and require less power, and if non-critical circuits are smaller so that outage burdens can be shared. Dividing the grid into smaller operational segments will enable the utilities to conduct smaller, more granular and targeted outages affecting fewer customers.

Texas customers have funded major utility investments in smart meters and other smart grid infrastructure. But the utilities have not yet leveraged these investments for better outage management. Extreme weather conditions are a perfect opportunity to deliver that functionality. Until it is clear that meter functionality and control capability can be used dependably for surgical outage management, other solutions are needed…

Recommendation 3-1—Require TDUs to modify distribution circuits for more granular outage management…Recommendation 3-2—Require large industrial and commercial customers to be able to reduce load remotely…Recommendation 3-3—Require all critical facilities to have two days’ worth of backup power

click to enlarge

Problem 4—Poor demand and supply forecasting and planning by ERCOT…Recommendation 4-1—ERCOT should improve demand forecasting capabilities…Recommendation 4-2—ERCOT should broaden its use of scenario analysis with more aggressive worst-case outcomes…Recommendation 4-3—Acknowledge changing extreme weather threats…

Problem 5—Power market operation was ineffective…Recommendation 5-1—Evaluate whether ERCOT needs different winter versus summer planning, operations and protocols…Recommendation 5-2—Reassess requirements and compensation for black-start capacity and test and drill twice/year…Recommendation 5-3—Do not add an out-of-market “generation capacity reserve” scheme…

Problem 6—Inadequate or inappropriate governance…Recommendation 6-1—Strengthen Texas’ Public Utility Commission…Recommendation 6-2—Give ERCOT an independent, expert Board of Directors…Recommendation 6-3—Establish active reliability compliance oversight…Recommendation 6-4—Study the potential benefits and costs of adding additional high-voltage transmission between ERCOT and its neighboring interconnections…

Problem 7—We don’t have full information on the contributing causes of the blackout and the sequence of events and actions by ERCOT, power plants, fuel suppliers, regulators, and customers before and during the event…Recommendation 7-1—Release all Texas investigative findings to the public…Recommendation 7-2—Routinely collect data on all grid and fuel supply failures and make it public…

click to enlarge

Conclusions

SB3 and other new statutes adopted by the Texas Legislature have provided a swift and focused response to the February disaster, but there is more work to be done to address all of the causes of the February 2021 Arctic outage and prepare for the challenges ahead.

This paper offers a broad set of recommendations; with multiple investigations under way, we hope to learn more to refine these and other solutions in the future. Although the Legislature has taken initial action, many of the recommendations above can be implemented by the PUCT, RRC and ERCOT under existing statutory authorities, as indicated in the table below.

Tweet