A major winter weather system characterized by extreme cold spread across much of the central United States, disrupting energy systems and causing serious health and safety issues, particularly in Texas. As the storm blew in, the cold weather increased energy demand as consumers and businesses turned up the heat and stayed inside to avoid the weather. It also affected energy supply, causing intense and widespread energy market disruptions. Since this is not the first time an arctic blast has plunged Texas into darkness, it has left many people wondering: why did this happen and could energy producers and regulators have done more to prepare for this cold spell?
- The major winter weather system that moved through Texas in February disrupted electricity deliveries to consumers by the Electric Reliability Council of Texas (ERCOT) across the state. This was due to wind generation falling 32%, coal generation dropping 13%, and natural gas generation decreasing by 25% over a 6-hour period on Feb. 14th. A blackout ensued with 71 GW of electricity demanded from the grid as only about 51 GW could be supplied.
- ERCOT manages about 90% of the state’s electric load and operates as an independent grid from the rest of the U.S. Due to the typically temperate climate throughout Texas, many of the various power generation methods for the grid’s baseload capacity were not winterized. During peak demand, short-cycle gas turbine engines called “peakers” are the most cost efficient method for creating intermittent power.
- During the freeze, the spot price of natural gas skyrocketed while producing wells were shut-in to prevent damage. As people started increasing their natural gas consumption to heat homes, the “peakers” began losing natural gas to make up electricity demanded on the grid, which was further exacerbated by even less natural gas supply as equipment at power plants, midstream compressor stations, and other industrial assets froze. ERCOT had to implement rolling blackouts to maintain grid integrity and keep the system running.
- Texas produces and consumes more electricity than any other state, and its power grid is not subject to Federal oversight. Typically, power to the grid is sourced from about 51% natural gas, 25% wind, 13% coal, 5% nuclear, 4% solar, and 2% hydro/biomass fired units. Unlike other states, ERCOT uses scarcity pricing based on demand to ensure reliability instead of having a capacity market auctioned to energy producers in advance of actual electricity needs.
- Texas has deregulated its power generation market meaning that companies purchase power from ERCOT and build their own transmission and distribution lines to provide consumers with power. The system typically gives consumers more options for electricity providers, but they must also have a better understanding of the pricing rates. Price spikes can occur, typically for short periods of time, during peak demand usage.
- During the winter storm, the Public Utility Commission of Texas triggered an emergency provision for ERCOT to maintain a $9,000/mWH electricity price for the week of Feb. 15th. The intent is to incentivize consumers to conserve energy, but many did not know the peak pricing was in effect until after the freeze ended.
- The Texas power grid was estimated to be 4 minutes and 37 seconds away from complete collapse, which would have resulted in a statewide blackout. Had this occurred, it likely would have taken months to repair the grid and restore power to all consumers.
- Texas Governor Greg Abbott directed Texas natural gas providers to keep the gas typically exported within the state until Feb. 21st and utilize it for stabilizing the power grid. The export ban only lasted a few days, and purchasers outside of Texas had deliveries renewed once stability had been restored. Abbott has also called for legislation to fund the winterization of the power system and is requesting disaster assistance for those severely impacted by complications following the storm.
Last month, Texas spiraled into a frenzy as a burst of Arctic air swept southward across the Great Plains. On Monday February 15th, all 254 of Texas’s counties were under a winter storm warning at the same time. As the storm progressed, wind turbines froze in place, natural gas wells froze solid, refineries shut down, and more than 2 million barrels of crude oil production was shut in. As the amount of power supplied to the grid fell rapidly, demand was simultaneously skyrocketing as consumers and businesses turned up the heat and stayed inside to avoid the weather. Millions in Texas were left without power and heat as a result of an electric grid that had not taken winterization measures. But many of the Texans who managed to keep the lights on during the winter storm are getting sky-high electric bills, the product of a deregulated sector that allows power companies to charge variable rates.
A major winter weather system characterized by extreme cold spread across much of the central United States, disrupting energy systems and causing serious health and safety issues, particularly in Texas. At the same time that the cold weather increased energy demand as consumers and businesses turned up the heat and stayed inside to avoid the weather, it also affected energy supply, causing intense and widespread energy market disruptions. Notably, electricity deliveries were disrupted in the parts of Texas served by the Electric Reliability Council of Texas (ERCOT) as a result of various issues related to plant operations and on Sunday night, February 14th, power plants in Texas started flicking offline . Wind generation fell 32% between 9 p.m. Sunday and 3 a.m. Monday local time, according to U.S. Energy Information Administration figures while coal dropped 13% and natural gas generation, the cornerstone of the Texas grid, plummeted 25% over that six-hour period . The blackout, which affected a few million residents at its peak, is among the largest in US history. By the time the sun rose over Texas around 7 a.m., energy demand on the state’s primary electric grid had surged to about 71 gigawatts but Texas power plants were only able to muster up roughly 51 GW of electricity, leaving millions without power and shivering in the cold . Plain and simple, the Texas system was simply not prepared for the cold, despite having experienced freezing temperatures in 2011 that saw gas wellheads lock up and coal plants seize up. The result was an immense gap between the energy the state demanded and what could be supplied.
Texas Electric Grid
The Electric Reliability Council of Texas (ERCOT) who manages the flow of electric power to more than 26 million Texas customers representing about 90% of the state’s electric load, was unprepared for the cold conditions and the surge in demand for power as people tried to heat their homes. ERCOT operates as an independent grid from the rest of the U.S., which consists of interconnects East, West, and Texas as seen in Figure 2 below . The grid operates a wide range of power generation: nuclear, natural gas, wind, hydro, solar, biomass, geothermal, and other local means which is broken up into baseload and peak shavers. Each region of the U.S. has power generation capacity broken up in this way. Baseload is an asset that runs constantly and will only go off-line for planned maintenance or extraordinary failure . Nuclear, coal, and natural gas (or “thermal” assets), as well as hydro dams, make up the lion’s share of baseload in the United States . Over the last decade, the whole U.S. grid has been retiring key baseload assets (mainly coal) and replacing them with either outright natural gas capacity or with renewable power with a backup natural gas turbine. In warmer climates (like California), some renewable power is using a battery backup structure, but current technology and weather remains prohibitive for broader deployment .
In Texas, the need for winterizing assets has always been an afterthought. Other parts of the country that deal with colder temperatures have solutions for a lot of these issues. For example, natural gas power generation can have heat tracers on pipes, valves, and various connections or insulation around key equipment . But, insulation would be near impossible to implement in Texas due to the heat so other retrofits would be required. Wind turbines can be outfitted with insulated turbines, oil and fluid heaters, resin covered blades to limit ice buildup, and other high-grade components to protect the asset . The only problem is, it costs money. Money energy suppliers in Texas deemed unnecessary due to their temperate climate. So how can these energy providers ensure backups at times of crisis? That is where short-cycle gas turbines, which can turn on in 2-3 hours come into play. These assets are called peakers, or peak shaving, and can come online quickly to fill a growing electricity need during peak hours or surging demand, such as heat waves or cold spells . Any asset, such as coal, can be used at peak conditions, but there are limitations: it is costly and timely to maintain because it can take 24–48 hours to bring certain assets online and coal for example can freeze together if not rotated . All of these restrictions make natural gas turbines the preferred and cost-effective method during peak demand.
During the storm, natural gas demand spiked in Texas and all around the region, drying up excess capacity and sending prices of spot natural gas up hundreds of dollars. The freeze-offs at the wellheads of producing wells caused shutdowns in new natural gas production which also limited the available gas across the region. While nuclear and coal maintained steady activity as wind started to fade, natural gas quickly picked up the slack as seen in Figure 1. But remember, it was cold and everyone in Texas was starting to turn up the heat to keep warm which quickly pulled natural gas out of the system. Many in Texas also rely on electricity to heat their homes so as the temperature dropped, demand rose for electricity as well and natural gas power plants were turning on in rapid fashion to stabilize the grid as power demand accelerated. The issue is, there are rules on who gets distributed natural gas first—residential, industrial with firm contracts, then industrial with interruptible contracts . So, as peakers began losing their natural gas supply as pipelines looked to protect pressure and keep residential customers supplied, equipment exposed to the elements started to fail. Equipment at power plants, midstream compressor stations, and other industrial assets started to freeze over and created a cascading drop in available natural gas and furthermore electricity . In order to maintain grid integrity, ERCOT began rolling blackouts to cut power in a controlled fashion and keep the system up and running.
But why was the grid all of the sudden so strained? Texas produces and consumes more electricity than any other state. It is also the only state in the continental United States that runs a stand-alone electricity grid, which was designed to keep the state’s energy system independent and isolated from other markets. The grid, operated by the ERCOT, is not subject to Federal oversight and is largely dependent on its own resources to produce power by way of natural gas (51%), Wind (24.8%), Coal (13.4%), Nuclear (4.9%), Solar (3.8%), and Hydro biomass-fired units (1.9%) . The problem? It means during critical weather events, like the storm experienced in mid-February, most of Texas cannot connect to other grids, which are connected and draw from each other when needed. Unlike other U.S. electric grid operators, ERCOT does not have a capacity market – payments made to operators to ensure power needs in coming years – to handle events like the freeze. Instead, regulators use scarcity pricing to ensure reliability, but that can cause real-time prices to soar due to shortages . Capacity market auctions determine, three years in advance, what price generators will receive to make their output available to grid operators . Interestingly enough, generators get paid whether they produce power or not.
Deregulated Power Sector
Along with 16 other states, Texas has deregulated its power generation market but still has a wholesale and a retail component, like the markets for many other goods. In the wholesale power market, companies that generate electricity compete with one another to provide power on a market run by the Electric Reliability Council of Texas . In the retail market, other companies buy power wholesale from ERCOT, add transmission and distribution charges to the wholesale generation cost, and resell that electricity to households and businesses . These re-sellers include Texas’ five electric utilities, which offer fixed and regulated prices in the areas of the state that they serve. Hundreds of others, known as retail providers in the Texas system, are unregulated and can offer electricity to consumers at any terms and at any price. The system is designed so that when there’s a shortage of electricity, the price will go up, and power companies will have an incentive to generate more electricity. The issue becomes, when consumers choose a provider, they may not understand what they are signing up for. In particular, some plans bill customers at fixed rates, while others charge varying rates that reflect wholesale market conditions. Even with the best communications from retailers, the prospect of lower electric rates may lead some consumers to discount the possibility of high or volatile bills . ERCOT’s wholesale prices will occasionally spike to very high levels, and customers who get their power through market-based contracts have to pay those high prices. But price spikes don’t normally last for very long – typically for a few hours and mostly during the summer . But, they can have some benefit, since they give electric retailers opportunities to inform customers about the value of energy conservation.
When cold weather arrived in Texas, prices on the ERCOT market rose to $9,000 per megawatt-hour – the maximum price allowable by the Public Utility Commission of Texas – for a few hours before falling . But, by February 15th, the commission triggered an emergency provision, ordering ERCOT to maintain its $9,000-per-megawatt-hour maximum all week . This mechanism is meant to send a price signal when demand is high, giving customers an incentive to conserve energy. If it works, demand will fall, along with prices, and the grid will stay in balance. But scarcity is not the same thing as the near-complete collapse of the Texas grid resulting from freezing weather and fuel shortages. It is also important to note the move was not meant as a play to line the pockets of utility providers, but instead to incentivize them to do anything possible to provide electricity while encouraging consumers to conserve as much energy as possible. The problem was, many did not realize the extremity of their utility bill until the storm was over. Texas’ uniquely volatile and competitive electricity market’s variable rates work great when the weather is good, but not when disaster strikes.
Texans who managed to keep the lights on during the winter storm were thankful in the moment but are now getting sky-high electric bills. This is mainly a product of a deregulated industry that allows power companies to charge variable rates. Measures that were originally intended to give logical signals to the electricity market and encourage conservation during very hot spells were not up to the task of managing this cold-weather crisis. One of the most popular wholesale plans in the state is offered by the company Griddy and as the storm moved in, the company took the extraordinary step of urging its customers to switch to a different electricity provider . But it was too late for many residents as switching electricity companies can take days, and in the meantime the price of electricity increased dramatically. The average price for electricity in Texas in the winter is about $120 per kilowatt-hour, according to the U.S. Energy Information Administration. But as the grid sputtered while the storm raged on, Texas utility regulators allowed that price to rise to $9,000 per megawatt-hour, nearly 100 times higher than typical rates, for nearly four days .
A large household in Texas with a lot of electric heating might have used 0.5 megawatt-hours of electricity during this very cold week. Under normal ERCOT winter prices, that household would have paid around $60 for electricity . But because the ERCOT price was kept at $9,000 per megawatt-hour for so long, this household would have paid $4,500 in electric bills for that week alone if it had signed up for a market-based contract with an unregulated retail supplier . Christopher Connelly of NPR station KERA in Dallas noted “Many retail energy providers move customers automatically onto variable-rate plans after their fixed-rate contract term expires. If your 12-month, fixed-rate contract ends and you don’t go shop for a new fixed-rate plan, you may find yourself moved onto a variable rate plan” . So, even if individuals thought they signed up for a fixed-rate contract, they still might have been hit with an atrociously high February power bill if their contract expired without warning.
As bad as the situation was, it could have been significantly worse. In fact, the Texas power grid was “4 minutes 37 seconds away from a total collapse” meaning a statewide blackout, ERCOT officials said at an emergency board meeting after the storm had passed . The quick decision that grid operators made in the early hours of Monday (February 15th) to begin what was intended to be rolling blackouts, but lasted days for millions of Texans, occurred because operators were seeing warning signs that massive amounts of energy supply was dropping off the grid . A catastrophic failure that could have left Texans in the dark for months, was inevitable if actions were not taken quickly. If demand for power overwhelms the supply of power generation available on the grid, failures begin to occur. Equipment catching fire, substations blowing, and power lines going down are all possible failures if demand overwhelmed supply. If the grid had gone totally offline, the physical damage to power infrastructure from overwhelming the grid would have taken months to repair, said Bernadette Johnson, senior vice president of power and renewables at Enverus . As chaotic as it was, the whole grid could have gone down. While ERCOT has taken a lot of heat, it could have been significantly worse if it weren’t for the quick decisions of the grid operators. If that had occurred, even as power generators recovered from the cold, ERCOT would have been unable to quickly reconnect them back to the grid. “It has to balance constantly,” Johnson noted. “Once a grid goes down, it’s hard to bring it back online. If you bring on too many customers, then you have another outage” . Praising his people for doing the right thing, Bill Magness, president of ERCOT, announced that “the operators who took those actions to prevent a catastrophic blackout and much worse damage to our system was, I would say, the most difficult decision that had to be made throughout this whole event” . But was that really the case?
The quick steps taken by grid operators to induce rolling blackouts certainly saved the entirety of the grid from months of blackouts. But was that truly the most difficult decision of the storm? And how was power restored so quickly across the state as the storm continued? Luckily the answer to both of those can be attributed to the actions taken by Texas Governor Greg Abbott. Governor Abbott directed Texas natural gas providers not to ship their product outside the state until Sunday (February 21st) and asked the state energy regulator to enforce his export ban . The logic behind the decision was to keep the energy needed to pull the state out of crisis in the state instead of being shipped outside their borders. Texas produces more natural gas and oil than any other U.S. state, and accounts for roughly one-quarter of U.S. natural gas production, about 27.8 billion cubic feet per day . But, Texas only consumes part of that, shipping the rest to other states or via pipeline to Mexico. Even though Texas produces more natural gas than any other state, they are not used to dealing with frigid temperatures which caused natural gas output to slump. In early February, Texas operators were producing about 24 billion cubic feet per day, but on Monday, Texas production plummeted to a fraction of that: producing somewhere between 12 billion and 17 billion cubic feet per day . In a time of crisis, Governor Abbott chose to keep gas in Texas’ borders to support an energy thirsty grid at the expense of other buyers. The ban prompted a quick response from officials in Mexico, which relies on imports via pipeline from Texas. “We are doing our diplomatic work so that the ban does not go ahead,” Mexico’s president Andres Manuel Lopez Obrador said. “We understand that they are in an emergency situation, but I do not think that closing borders is the solution” . Luckily the gubernatorial order was quick lived as the influx of natural gas to in-state power generators struggling with a severe feedstock shortage helped solve the crisis in a matter of days. But the road to recovery facing Texans is a long uphill battle and starts with customers’ bank accounts.
Texas Attorney General Ken Paxton is suing Griddy, one of the most popular wholesale providers in the state, saying the electricity provider passed along massive increases during winter storms, leaving some customers to face thousands of dollars in power bills. Paxton’s lawsuit says Griddy deceived customers when it promised low “wholesale” energy prices. One woman, who lives in Houston, said Griddy charged $4,677 to her credit card for one week of electricity in an 800-square-foot apartment . This customer, along with countless others, say they were blindsided by the surge pricing, particularly when Griddy automatically charged their checking accounts or credit cards. While the company urged people to switch to another provider, as the state’s electrical grid faltered, energy companies offering more stable pricing said new customers would have to wait at least a week before starting the process of applying for a new account. While only one of the many lawsuits in the works, the state’s lawsuit accuses Griddy of downplaying the risk of fluctuating energy prices and cites a Better Business Bureau alert from 2019 which said Griddy should not promise “wholesale” prices to consumers because it doesn’t directly own or control a facility that primarily sells to retailers .
Governor Abbott is also taking matters into his own hands to help those most impacted by the storm and ensuring it will not occur again in the future by asking the Legislature to mandate the winterization of Texas’ power system and for the Legislature to ensure the necessary funding for winterization. In addition, the Governor announced he is requesting a Major Disaster Declaration which includes Individual Assistance, Public Assistance, and the Hazard Mitigation Grant Program from the White House . This declaration will allow eligible Texans to apply for assistance to help address broken pipes and related property damage as well as astronomical energy bills. This is in addition to his previous request for a Federal Emergency Declaration from the White House which was granted a week prior. For now, the state is working to distribute food, water, generators, and additional supplies to Texas communities who are not yet able to return to their normal way of life.
The issue remains, this is not the first time Texas has been hit by an arctic burst that all but shut down the entire state. In 2011, around the Super Bowl, cold weather swept through the state, plunging millions of people into darkness. At that time, natural gas generation experienced difficulties and had ERCOT not reduced load through the rolling blackouts implemented during that storm, it would have resulted in widespread blackouts throughout the entire region, a Federal report on the storm warned . But even after upgrades were made after the 2011 winter storm, many Texas power generators have still not made all the investments necessary to prevent these sorts of disruptions happening to the equipment. That’s left many people wondering: Why didn’t energy producers and regulators do more to prepare for this cold spell? It appears the answer is unfortunate but simple: funding. As energy sources in Texas, as well as the rest of the United States, compete to be the lowest cost producer both monetarily and environmentally, corners are often cut. Since winter cold snaps are a rarity in Texas, providers avoided winterization to increase efficiency of their equipment during the hot summer months. The fact remains that energy providers across the board from fossil fuels to renewables were ill-equipped to handle the arctic storm. Luckily for those in Texas, fossil fuels were able to partially fill a gap as demand surged and avoid total catastrophe. The state of Texas has long been a supporter of oil and gas as they realize it is the meat and potatoes of energy generation in the state and can be brought online rather quickly. The state is still pursuing clean energy sources but realizes they are supplemental to the energy the state needs.
Moving forward, additional state legislation may help more investment into winterizing the power grid, which will hopefully prevent or reduce the chance of repeating history. It is possible to “winterize” natural gas power plants, natural gas production and wind turbines, experts say, which prevents such major interruptions in other states with more regular extreme winter weather . Additional information or training could also be made readily available to consumers so they better understand how their electricity providers source energy, what options are available, and define how fixed vs. variable pricing can impact the bottom line. More blanket regulation is not necessarily always the best solution and while Texas was not prepared for this cold snap, hopefully the state can come to a compromise for preventing future grid issues while continuing to provide consumers a variety of options to best fit their needs.
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