Dallas Morning News
August 1, 2021
As the postmortem of the blackouts that slammed the state back in February continues, it’s apparent that Texans narrowly averted a catastrophe that could have resulted in what biologists call a mass mortality event.
At about 2 a.m. on Feb. 15, the Texas grid came within four or five minutes of a systemwide failure that could have plunged nearly the entire state into a blackout at a time when temperatures were plunging, it was snowing sideways, and the roads were impassable. Recovering from such a failure and executing what’s known as a “black start” could have taken the Electric Reliability Council of Texas days or even weeks. Had that occurred, Winter Storm Uri would have killed thousands, even tens of thousands, of people.
As it was, the February snowpocalypse likely cost the state some $200 billion, according to estimates by economist Ray Perryman, and the final death toll, according to an analysis by BuzzFeed News, could be as high as 700.
The February blackouts should have been a neon-bright wake-up sign for the state’s politicians and regulators that the structure of the Texas energy grid is deeply flawed and that fundamental changes are needed. Alas, the Legislature and Gov. Greg Abbott have largely kicked the electric can down the road. That’s a mistake.
The electric grid is the Mother Network. Our most important networks, including food delivery and storage, communications and GPS, depend on the electric grid to deliver cheap, abundant and reliable flows of energy 24/7/365. A prolonged electricity outage due to extreme weather, or malicious actors, would have dire effects on Texas, and because the state provides much of the country’s food and fuel, it would also short-circuit much of the American economy.
I’ve been obsessing about ERCOT and the causes of the blackouts since February when my wife, Lorin, and I, who live in central Austin, were blacked out for about 45 hours. The government failed us, and there are three things government needs to do to assure that the state has reliable and affordable electricity.
Before going further, a caveat: The blackouts were the result of several interconnected factors and failures. Thus, there are no simple or quick solutions, particularly when it comes to a system as complex as the electric grid. That said, the blackouts were caused by flaws in the way the state’s electricity market was designed and how it has evolved since it was deregulated two decades ago. And that leads to my first point.
The blackouts were due to government failure of epic proportions. The most obvious example of government failure was the decision by the Public Utility Commission to set the clearing price of electricity in ERCOT at $9,000 per megawatt-hour — and to leave it at that extremely high level for several days despite the fact that it did not bring more generation into the market.
The result of that blunder: Texas electricity consumers were overcharged by roughly $26.3 billion. The burden of paying for those costs will fall most heavily on regular Texans, who will see surcharges on their utility bills for years to come to pay down the bonds the state is issuing to spread out the cost of those overcharges.
Second, deregulation wasn’t a boon for consumers. That conclusion is controversial, but studies have shown that Texans paid more for the electricity they used than they would have in a regulated market. A recent Wall Street Journal analysis estimates that Texans paid $28 billion more for home electricity in the 20 years of deregulation than they would have, if they had only been charged the average regulated rate for the rest of the country.
The deregulation of the Texas electricity sector opened up the utility sector — an industry that is at root, a power-plant-poles-and-wires business — to “retail electric providers.” In a flash, entrepreneurs could get into the electricity game, with no hard assets or knowledge of how the electric grid works required.
One hundred and forty years ago we had Thomas Edison. Deregulation gave us Griddy.
The deregulation of the electricity sector resulted in a market in which the buck doesn’t stop anywhere. Under the old regulated utility model, when big companies owned all of the components of the grid, there was accountability. After the blackouts, all we’ve seen is finger-pointing. That’s not a bug; it’s a feature of a market that’s so complex that no one understands how it really works. As Ed Hirs of the University of Houston has noted, “The 1,876 pages of regulations and rules contained in the ERCOT Nodal Protocols apparently mean nothing.”
Deregulation distorted the type of generation that was added to the ERCOT grid. Over the past two decades, the generation capacity added to the grid wasn’t built for reliability or resilience, it was built to collect subsidies.
Since 2006, about $66 billion was spent building wind and solar capacity in Texas. Over that same time period, according to a recent report by Bill Peacock of The Energy Alliance, Big Wind and Big Solar collected roughly $22 billion in subsidies of one kind or another, including state tax breaks and federal tax credits. But when the ERCOT grid was on the brink of collapse on Feb. 15, that $66 billion was worth next to nothing. There was no solar production, and of the 31,000 megawatts of wind capacity installed in ERCOT, only about 5,400 megawatts, or roughly 17% of that capacity, was available when the grid operator was shedding load to prevent the state’s grid from going dark.
The $66 billion spent on wind and solar resulted in big changes in the state’s generation capacity. Between 2006 and 2020, the amount of electricity generated with wind went up by about 20% and coal-fired generation fell by about the same amount. Meanwhile, thanks to booming population growth and increased electricity demand in the Permian Basin, electricity use was soaring.
Over that same time, according to the Energy Information Administration, electricity use in Texas jumped by about 67 terawatt-hours per year, far more than any other state in the country. (For comparison, North Dakota, which had the second-largest demand growth over that time frame, saw electricity use rise by about 10 terawatt-hours per year.)
The surge in electricity demand put more strain on the ERCOT grid, which was not maintaining enough reserve generation capacity, that is, standby generation that can be utilized during peak times. Making matters worse, no new dispatchable capacity is being built. Instead, ERCOT is adding more weather-dependent generation. About 24,000 megawatts of solar and 11,000 megawatts of wind capacity are slated to be added to the ERCOT grid between now and 2023. Thus, over the next two years, the amount of renewable capacity in Texas will nearly double.
So what must happen to assure reliability and resilience?
First and foremost, the state must step up its oversight and regulation of the energy sector. The electric grid and natural gas grids have merged. The February blackouts proved, again, that the electric and gas grids are deeply intertwined and interdependent.
Since 2001, when Enron went bankrupt, the amount of natural gas consumed by the U.S. electric sector has more than doubled. Despite that fact, the two grids are not being regulated to assure that they are singing from the same hymnal. During the February blackouts, some gas infrastructure froze. Some gas processing plants and pipelines had their electricity cut off. That, in turn, reduced the amount of fuel available to produce power when electricity was needed the most.
In the wake of the 2011 winter storm, the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation issued a report that warned about the “interdependency of the electric and natural gas industries” and urged “regulatory and industry bodies to explore solutions to the many interdependency problems which are likely to remain of concern in the future.” It’s well past time for state regulators to heed that warning.
Second, the lavish federal tax incentives for wind and solar energy production — the production tax credit and the investment tax credit — should be eliminated immediately. Between 2010 and 2029, those tax credits will cost the federal treasury about $140 billion.
Designed to stimulate nascent industries, the production tax credits and income tax credits have become blatant examples of the crony corporatism that is undermining the integrity of the electric grid. The subsidies reward weather-dependent generation at the cost of dispatchable generation. In 2015, Congress agreed on a five-year phaseout of the PTC. After that deal was struck, Sen. Charles Grassley, an Iowa Republican and alleged deficit hawk, said “As the father of the first wind-energy tax credit in 1992, I can say that the tax credit was never meant to be permanent.”
But the PTC keeps getting extended, including yet another extension granted last month by the Internal Revenue Service. For years, Big Wind and Big Solar have claimed that they can produce the cheapest electricity. It’s time for them to prove it.
Third, the Texas Legislature will have to pass measures that incentivize companies to build and maintain plants that can be dispatched during times of peak demand. Those incentives should include provisions for on-site fuel storage at power plants. This was one of the recommendations put forward by ERCOT in its 60-item “Roadmap to Improving Grid Reliability” report that was released on July 13.
During the February disaster, the most reliable power plants were the ones that had on-site fuel: the coal and nuclear plants. Thus, the state should give incentives for fuel storage near power plants. For instance, diesel fuel can be stored easily and relatively cheaply. That fuel could be used in turbines or quick-start reciprocating engines like the ones made by outfits like Caterpillar, Cummins and Wärtsilä.
In summary, the mistake made by Texas regulators was to treat electricity as a commodity. That’s wrong. Electricity isn’t like sneakers or hot dogs. Electricity is a critical service. The grid is the backbone of modern society, a complex and delicate machine that connects all of our homes and businesses to each other. Without reliable power, modern society falls apart.
The February blackouts were the result of a government failure to properly manage our most important network. If Texas’ elected officials don’t fix the problems in ERCOT, more blackouts, and even cost burdens for low- and middle-income Texans, are certain.
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