Heard any good Ercot (or PUCT) jokes lately?

Last Saturday, the Wall Street Journal published an article that would seem to be more likely to appear in that other august publication, The Onion. It was titled “As Texas Went Dark, the State Paid Natural-Gas Companies to Go Offline”.

Of course, it would have been much better for the citizens of Texas if the article had appeared in The Onion, but unfortunately that wasn’t the case. This is something that actually happened, although the headline was wrong in saying that “the State” made these payments.

In fact, it was the Electric Reliability Council of Texas (Ercot) that bears most of the blame for this sordid event (on the other hand, they deserve praise for averting what could have been a much more serious crisis, due to the actions they took during what must have been an incredibly tense nine-minute period early in the morning on Monday February 15, which I described in this post. But on the other other hand – I believe I’ve run out of hands! – they deserve lots of blame for maintaining the $9,000/mwh electricity price after the Texas Public Utility Commission decided that the current $1,200/mwh market price wasn’t quite high enough for them later that same day. Ercot maintained that price through Friday, even though the market price went down to its normal level of about $25/mwh by Thursday. That sordid story is described in this post).

How did this happen? If you’re familiar with the power industry, you probably know about “demand response”. This is the name for programs that incent power users to curtail their use of power during periods of high demand or constrained supply. This particular Ercot program paid industrial users to shut down operations.

You can probably see the problem already: At the height of the crisis on May 15, Ercot activated their demand response program, believing this to be a lesser evil that would avert a greater evil: mandatory power shutoffs (with no compensation, of course).

I don’t need to tell you that the DR program didn’t work, and mandatory shutoffs happened anyway. In fact, ultimately four million Texans went without power, many for days. But in theory, this was the right thing to do, even though it ultimately didn’t fix the problem of a shortage of power relative to demand (which had spiked because most Texans heat with electricity). However, it’s likely that the activation of the program made the total problem much worse, since some of the participants in the DR program were natural gas producers and gas distribution (pipeline) companies. And a lot of power plants in Texas run on natural gas.

Moreover, a lot of gas production – e.g. in the Permian Basin – was already shut down because the wellheads froze. And even if a wellhead wasn’t frozen, it’s possible that the pipeline carrying its gas to power plants and other users was frozen, because in Texas – unlike in colder climes – water vapor isn’t usually removed from the gas before it’s put into the pipeline (maybe that will change now). But now the activation of demand response reduced gas supply and distribution capacity even more, since the companies in the program curtailed operations.

Of course, these gas companies could have resumed production at any time (and certainly, given that the price of natural gas had spiked during the crisis, along with the power price, they certainly should have been tempted to do that). However, the rules of the program meant they would be penalized if they did that.

Of course, if somebody had been thinking at the Texas PUC during this crisis (a pretty tall order, it seems. PUCT regulated the program, although Ercot was in charge of implementing it), they might have thought that maybe – just maybe! - it would be a good idea to suspend these penalties for gas companies. This would allow them to provide gas to their customers, including gas-fired power plants. And that could allow the plants to reopen and help end the crisis more quickly than it ultimately did.

And here I have some good news: PUCT did actually do that! The WSJ says they “…issued a memorandum that said if a facility resumed normal operations ‘because it was providing a critical service or product …enforcement discretion will be exercised.’”

But I also have some bad news: The PUCT didn’t issue that memorandum until Friday, four days after the DR program was activated. And at 9 AM on Friday, “the blackout officially ended and Ercot allowed participants to resume their use of electricity.”

Oh well, it’s the thought that counts.

Any opinions expressed in this blog post are strictly mine and are not necessarily shared by any of the clients of Tom Alrich LLC. If you would like to comment on what you have read here, I would love to hear from you. Please email me at tom@tomalrich.com.