A winter storm caused traffic delays and widespread power outages in Texas, including Austin, as storms brought historic cold temperatures to parts of the U.S.
Grid officials are blaming power outages affecting millions of customers served by the Electric Reliability Council Of Texas Inc., Midcontinent ISO and Southwest Power Pool on "unprecedented" extreme cold temperatures. But policymakers began warning power plant operators in southern states a decade ago to step up efforts to winterize generating units after a similar cold snap knocked out power for millions of people.
With atmospheric scientists citing climate change in explaining an "Arctic outbreak" afflicting the U.S. South, thermal generators and natural gas pipeline operators located in summer-peaking systems may be required to do more in the future to keep facilities from freezing up in situations where winter demand surges.
With Texas Gov. Greg Abbott calling the massive grid outage in that state "unacceptable," however, interviews with industry experts on Feb. 16 revealed split views on whether ERCOT should implement new reforms to its famed "energy-only" market known for scarcity pricing that can spike up to $9,000/MWh.
In February 2011, a severe storm affecting millions of energy customers from Texas to Arizona caused rolling blackouts and natural gas curtailments. Through an investigative taskforce, the Federal Energy and Regulatory Commission and North American Electric Reliability Corp. concluded that power generators had inadequate winterization procedures in place or failed to follow such strategies to ensure reliable power supplies.
The task force determined that the power outages could have been prevented and suggested states implement mandatory winterization programs. "The conditions experienced in early February could reoccur in the Southwest or even in the South, with similar results, if generators are not prepared for extreme winter weather," FERC staff warned.
Former FERC Commissioner Marc Spitzer said at the time that the storm should be a "wake-up call" for the sector, with other officials stressing the need for the industry to act to ensure operations are better prepared for future storms.
Years later, however, generators appeared to be caught flat-footed again when another cold snap hit the south-central U.S. in January 2018. A total of 183 individual units experienced either an outage, reduction in generating capacity, or failure to start over a five-day period featuring subzero temperatures.
A subsequent joint staff report found that more than one-third of the affected generation owners and operators did not have a winterization plan. The report also noted that thermal generators in the Southwest are more susceptible to extreme winter weather because, unlike their counterparts in the Northeast, their ancillary equipment typically is not housed within insulated buildings.
However, gas-fired generators unable to perform during the January 2018 event largely escaped penalties due to "force majeure" contract provisions that cover weather-related disruptions to pipeline capacity — provisions that are still effective today.
2021 price spike
As of approximately 10 a.m. ET on Feb. 16, ERCOT was reporting the loss of more than 31 GW of thermal generating capacity, equivalent to about 40% of total thermal generating capacity across the entire state. At the same time, wholesale power prices were not budging from ERCOT's $9,000/MWh offer cap.
Dan Woodfin, ERCOT's senior director of system operations, told reporters a day earlier that the massive loss in thermal generating capacity was primarily due to low natural gas supplies as suppliers prioritized the fuel for home heating needs.
But ERCOT's energy-only market also does not incentivize generators to make prudent investments aimed at weathering rare cold snaps, noted Thomas Popik, chairman and president of the Foundation for Resilient Societies, a nonprofit focused on the reliability of the bulk power system.
"The only way you can recoup your investment in prudent weatherization is if there's an extreme weather event that causes prices to spike," Popik said. "This may be one of the last times generators in Texas can charge extraordinary amounts for electricity during an energy emergency, because of the public backlash that will most certainly result from high utility bills."
But Judah Rose, a managing director at consulting firm ICF International, said ERCOT may need to lift its $9,000/MWh market cap when Texas is short of generation, adding that "some careful consideration should be given to whether that number is closer to $20,000/MWh."
"ERCOT is the most, if you will, advanced in the application of markets, but at the same time it has to be done in a manner that's consistent with the costs to society of the blackouts," he said.
But former FERC regulators warned against sweeping changes to Texas' market structure.
ERCOT's current woes have "nothing to do with the market structure in Texas," former FERC Chairman Jon Wellinghoff said. "I don't think we need a capacity market in Texas. This was an extreme event climate-wise. We have to understand that those events are going to happen more often now."
Another former FERC Chair, Norman Bay, also urged caution.
"It is important not to jump to conclusions before the examination is completed," Bay said. "It is likely the case that, as with the 2011 cold weather event, numerous factors contributed to the outages, possibly including inadequate planning and preparation, insufficient weatherization, generator derates caused by frozen water lines and valves, and decreased gas production because of freeze-offs combined with soaring gas demand for space heating and power generation."
State and federal response
The issue now has the full attention of state and federal officials.
On Feb. 16, Abbott declared ERCOT "reform" an emergency item for the state's current legislative session, calling the grid operator "anything but reliable over the past 48 hours." In doing so, Abbott urged state lawmakers "to investigate ERCOT and ensure Texans never again experience power outages on the scale they have seen over the past several days."
FERC Chairman Richard Glick also announced a formal inquiry into the matter. "In the days ahead, FERC and NERC will formally begin the inquiry, which will work with other federal agencies, states, regional entities and utilities to identify problems with the performance of the bulk-power system and, where appropriate, solutions for addressing those issues," FERC said in a statement.
In FERC and NERC's report on the 2011 winter storms, NERC staff said they intended to start creating mandatory reliability standards that would require plant owners and operators to "develop, maintain, and implement plans to winterize plants and units prior to extreme cold weather, in order to maximize generator output and availability."
Industry groups fought against mandatory cold weather standards, arguing they could improve winterization processes on their own and did not want to juggle more regulations, recalled Earl Shockley, a former NERC senior director who served on the task force that compiled the joint 2011 report. In addition, weatherization practices often vary by region, with plants in Texas less likely to be insulated against extremely cold weather than those in the Northeast and Midwest.
But a potential increase in extreme winter weather events tied to climate change could force states and grid operators to reevaluate.
"A standard is definitely a solution that should be on the table," Shockley said.
Abbott also suggested that power generators' response following the cold-related grid outages in 2011 have fallen short in relation to the current extreme weather event.
"I think after what happened in 2011, an assessment was not made to gauge for this type of event, because the last time we had this type of weather was more than 100 years ago," Abbott told ABC13, a local news affiliate.
ERCOT officials on Feb. 16 were unable to provide specifics for outages directly tied to weatherization, telling reporters that the grid operator's winterization efforts since 2011 have proven effective up until now.
John Moura, NERC's director of reliability assessment and technical committees, said NERC began drafting a mandatory cold weather standard in March 2020. Along with addressing winterization practices, the standard is aimed at ensuring generators communicate potential energy limitations, particularly as their resource mixes change to incorporate more renewable resources or gas-fired plants whose fuel cannot be stored on-site.
"Significant changes are happening on the grid. They're happening very fast, and if markets … can't ensure we have a resource mix that can perform under a variety of extreme conditions … then we need more tools," Moura said in a Feb. 16 interview. "More either market mechanisms [or] new market models to make sure that we can reliably integrate more wind and solar."
However, some of NERC's prior recommendations have not suited the Texas energy market, according to Devin Hartman, director of energy and environmental policy at the R Street Institute, a free-market think tank. Texas requires a "market process that provides the proper financial incentives to suppliers to handle this type of risk," he said.
"The big question, I think, in this case, is just 'how much of an outlier event is this?'" Hartman said. "Because the ERCOT model is based on market participants who make investment decisions based on a set of probabilities, expectations about the future. ... The role of standards should be differentiated based on the regulatory framework that occurs at the state level."