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Potential Policy Outcomes from Texas Power Outages

March 2, 2021
The power grid is now a top topic of conversation across the United States.

On Feb. 15, 2021, rolling blackouts occurred within the Electric Reliability Council of Texas (ERCOT), Midcontinent Independent System Operator (MISO), and the Southwest Power Pool (SPP) as an unprecedented winter storm covering most of the country shut down many electric generation resources. The electric supply was drastically reduced at the same time as record winter demand, necessitating rotational load shedding as a last-resort measure to avoid a total blackout of the power grid.

As a result of these outages, the power grid is now a top topic of conversation across the United States. The Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corp. (NERC) also recently announced that they would open a joint inquiry into the bulk-power system's operations during this extreme weather event. I'd venture to guess that most folks did not know about things like ERCOT before this winter storm, so it is also not surprising that there was so much misinformation. Typically, most non-energy people don't share my passion and interest in power delivery and it’s unfortunate that people had to suffer for us to get this kind of interest in the grid. For that reason, it's been both exciting and strange to hear from so many non-energy folks as of late.

There is a lot of uncertainty in a world where we cry "Black Swan" every few months, and a lot of accusations and blame are still flying around. However, I predict that the primary targets for policy reform will likely involve: (1) power generation mix, (2) the Electric Reliability Council of Texas, and (3) market design.

I have also heard a lot of interest in modernizing the grid. Despite the fact we have been expanding smart grid technology, people are fixated on the idea so much of the grid originated in the period after WWII.

Generation Mix

During this winter storm event, the interconnected grid worked, and it moved all of the available power. The failure was with the “Island of ERCOT” and in energy production concerning the natural gas supply, lack of weatherization in generation plants, a lack of wind, and snow on solar facilities. Generation resources across all fuel types shut down, but many politicians still framed the crisis to fit their political agendas. As a result, Texas has become the new frontline in the fossil fuels vs. renewable energy debate. It will be interesting to see if renewable generation continues to be attacked due these outages, despite the facts. That could also cause some complications with the Biden-Harris energy plan that primarily focuses on transitioning to a clean energy future.

Electric Reliability Council of Texas

ERCOT is unique for several reasons. It was intentionally designed to avoid federal regulation by FERC and NERC, and the only interconnections it has to the eastern grid are limited HVDC links (Oklaunion is 220 MWs and Welsh is 600 MWs). The HVDC links are a FERC loophole that allows ERCOT to be connected but not under FERC jurisdiction.

It's an open question if there will be changes in the regulation of ERCOT due to this power crisis. However, Rick Perry has reportedly told sources that "Texans would be without electricity for longer than three days to keep the federal government out of their business."

It's also true that more interconnections could better position ERCOT to share power with the rest of the nation's grid, assuming there are no other transmission congestion or constraints on those lines. However, in this case, it's unclear whether more interconnections would have helped prevent the outages in Texas. The extreme weather covered most of the country, and there likely wouldn't have been extra electricity to send to them since the surrounding RTOs also were having rolling blackouts. Another scenario could play out differently. Regardless, there seems to be a renewed interest in the federal regulation of ERCOT and an appetite for increased interconnection with the rest of the nation's grid.

Market Design

Another way Texas is different than the rest of the country is its deregulated market design. Texas deregulated its wholesale generation market in 1995. In 1999, the Texas legislature required the retail electric market to be opened to competition by 2002. In Texas, power producers are separate from utilities, and there are independent power marketers.

Under-regulated and vertically integrated market structures, utilities often own their generation plants and power lines. Most utilities also operate some spinning reserve power generation in the event of an emergency.

In a deregulated market like Texas, power generators have a financial incentive to produce only as much power as they can sell. In other words, power generators lose money if they make excess power.

Additionally, in the Texas market, customers can choose among several electricity providers. However, "electricity choice" becomes relatively meaningless when there is no power, and worse if the only supplier charges $9,000 per MWh.

On the other hand, other states with regulated RTOs (MISO and SPP) and vertically integrated utilities had rolling outages too.

A Fourth Option

At this point, it is difficult to predict which of these potential policy outcomes will move forward, and that likely depends on which of these narratives stick. It is also a real possibility that everyone has completely moved on six months from now, and no real changes are made like that experienced with the 2011 freeze. That would be a mistake, in my opinion, but it is a real possibility.

Balancing Resilience and Rates

This issue is complex, and investigators will most certainly have a lot to untangle. The key moving forward will be balancing reliability and spending. That is becoming especially difficult with extreme weather events that seem to be occurring more frequently.

David Roop, a transmission expert, told T&D World, “The Texas issue is compounded by the pressure that the natural gas industry continues to face in serving customers for heat while gas generation becomes more critical for electricity supply.”

“Our markets do not provide incentives to encourage resiliency investment by providing a return for these investments. Whether it is weather extremes, cyber protection, solar storms, or electromagnetic protection, they can all be addressed by this industry with some needed investments, but they require markets, customers, legislators, and regulators to support this movement” according to Roop.

If increased resilience is the desire of customers, they must ask regulators and policy makers to support investment for resilience for extreme events by implementing market and regulatory changes. However, customers must also understand that with this desire will come rate impacts.

Until next time, stay safe and healthy.

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