Sunday, March 26, 2023

Who will pay the $29B bill for the 2021 Texas power disaster? That’s easy: the one group that bears no responsibility.

 


An article by Robert Walton in Utility Dive this past weekend brought me back to a topic I wrote around eight posts on almost exactly two years ago: the aftermath of the Valentine’s Day 2021 almost-total collapse of the Texas power grid and the huge unresolved question of financial liability (to say nothing of moral responsibility for the resulting deaths. The official number is 246, but there’s much evidence it could have been closer to 700-800).

Regarding the financial disaster, here and here are my two most relevant posts, although this one (previous to the other two) also provides context (I also wrote about the tense moment in a control room in Round Rock, Texas in the early morning of February 15, 2021, when the Texas grid came within four minutes and 37 seconds of a “total collapse”. This might have resulted in power outages in at least some parts of that grid lasting months).

Robert’s article was about the fact that, last Friday, an appeals court ruled that “Public Utility Commission of Texas exceeded its authority in February 2021 by setting electricity prices at $9,000/MWh for four days during Winter Storm Uri” (in case you didn’t know it, winter weather events now have names, although calling this a “storm” is a stretch, since I don’t think there was an inch of snow, rain, or anything else. Of course, it makes it seem less terrible if the reader drops this story in the “hurricanes and other acts of God” mental bucket, rather than the “needless financial and human catastrophe” bucket).

Here is a brief summary of the relevant points regarding the financial catastrophe. There’s more detail in the posts I linked, as well as the news articles linked in them:

1.      Extreme cold weather hit Texas on Sunday, Valentine’s Day 2021. Since many power generation facilities in Texas were never designed to face this type of weather, a lot of them shut down. These facilities were primarily natural gas plants, although wind farms and coal plants were also affected. The problems were compounded because a lot of the gas production and transmission facilities (the wellheads and pipelines) were similarly unprotected and were shut off. Therefore, some gas plants that could have continued to produce power also shut down, because they didn’t have any fuel.

2.      As a result of this, the Texas power grid was under severe strain going into the night of February 14-15, and barely avoided a disastrous collapse that might have led to months of outages. During the morning of the 15th, the Public Utilities Commission of Texas (PUCT), the agency that oversees the Texas grid, decided that the current market price of power, $1200 per megawatt/hour (MWH), clearly wasn’t adequate, since so many power production facilities were still down. Therefore, they decided that the only way to quickly get more power supply was to raise the price substantially above $1200. Hopefully (and that’s all this decision was based on – hope), this would induce more supply, which would gradually bring the market price down. For perspective, the normal wholesale market price in Texas is around $30/MWH.

3.      As I described in this post, PUCT decided on Monday, February 15 not to take any chances; they not only permitted the price to go up, but they pegged the market price at $9000 per MWH, meaning literally that no generator could sell for less than that price. Of course, this in itself didn’t increase supply much if at all, since supply was constrained by physical factors, not economic ones.

4.      The next day (Tuesday), the spot market price did start to decline, due to gradually improving weather and Herculean efforts to get more plants back online. However, the wholesale power price remained at $9,000/MWH because ERCOT, the grid operator for most of Texas, didn’t lower it until Friday. That was four days after the increase was imposed.

The ruling last Friday just applies to the 33 hours between the time on Thursday Feb. 18 when the market price returned to normal and the time on Friday when ERCOT finally removed the $9,000/MWH price peg. The excess charges during that time were about $16 billion. Vistra Energy, a large power producer based in Texas that got caught on the short end of this problem and estimates they lost $1.6 billion, had sued the PUCT. Of course, the ruling will be appealed, so this matter is nowhere near settled.

However, in addition to the $16 billion, there were $13 billion in excess power charges during the three days between when the PUCT pegged the price at $9,000 and the time on Thursday when the market price hit $30. If the PUCT had just allowed the price actually paid (referred to as the “settlement price”) to rise but hadn’t pegged it, it would have declined with the market price during that whole period. It seems there isn’t any real question that the PUCT would be legally on the hook for the $13 billion, but they should certainly be morally on the hook.

More importantly, it was ERCOT that decided to keep the PUCT’s price peg in effect for four days, when they could have removed it as the market price started to decline (which showed that the peg was excessive). Thus, ERCOT bears as much blame for the entire $29 billion as the PUCT, and perhaps more (of course, financial liability is a very different question. I have no idea if either the PUCT or ERCOT could be held financially liable for anything, although I assume Vistra’s lawsuit would have been thrown out if the PUCT couldn’t be sued).

The bottom line is that somebody was unjustly deprived of $29 billion during Valentine’s Day week 2021 in Texas. However, as described in my posts, there’s no one organization or group of organizations that you can point to as clearly responsible. This means that in the end, it’s almost certain that the people who end up paying the bill will be the taxpayers and ratepayers of Texas – the very people that clearly bear no responsibility at all for what happened.

Would you like to know who I blame for this?....I didn’t think so, but I’ll tell you anyway. Of course, I blame the PUCT and ERCOT, but I also blame the politicians and grid operators who had known for years that the Texas grid was unprepared for a severe cold weather incident, but did very little about it.

Even more, I blame the people in Texas who decided during the 1920s and 1930s - when the US power system, which had previously been just a collection of power “islands” but was now linking up into a real “grid” – that they didn’t want to join that trend. They made that decision because becoming part of the emerging national grid would have required Texas utilities and other entities to be regulated by the new Federal Power Commission (now the Federal Energy Regulatory Commission or FERC) and other federal agencies. I also blame the people who over the years have decided repeatedly to leave Texas’ isolation in place.

Had the Valentine’s Day weather event happened anywhere else in the US (or in North America in general other than the province of Quebec, which is similarly isolated from the overall grid), the power deficit in the affected area would have literally instantly (without any human intervention being needed) drawn in power from neighboring areas, which then might have drawn power from further-away areas, etc. There might have been localized outages in a wide area, but it’s unlikely there would have been such a huge outage anywhere).

However, two years after the incident, I know of no serious discussion about joining Texas (or more specifically ERCOT, which doesn’t cover parts of Eastern Texas and far Western Texas, including El Paso) to the rest of the US grid. Get ready for this to happen again!

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.

No comments:

Post a Comment