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.
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