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S&P podcast: The mess with Texas

A February winter storm that crippled the Texas power grid, left millions of residents without light and heat, and drove natural gas prices to record highs has helped to clarify threats to the system's reliability and resilience, electricity infrastructure experts told S&P Global Market Intelligence's Energy Evolution podcast.

The Electric Reliability Council Of Texas Inc. is an independent system operator that manages the deregulated electric market for most of Texas. It uses a unique pricing mechanism to ensure reliability by letting prices run high during periods of high demand. But as an arctic blast gripped the state, power generators were forced offline by frozen infrastructure and supply shortfalls. Gas-fired plants were the biggest source of outages, followed by wind, coal, solar and nuclear generation.

"People were demanding a lot of natural gas for heating their homes at the same time as the power plants were demanding a lot of natural gas, at the same time as the extreme weather was making it more difficult to move gas around the state," said Emily Grubert, a professor at Georgia Tech who studies large infrastructure systems with a focus on social priorities and energy and water systems in the U.S. "So those interconnections, I think, were really laid bare by this event in a way that is not new, and not something completely unknown, but is potentially a little bit more obvious to people."

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The weeks following the blackouts have seen the departure of top officials at the Public Utility Commission of Texas and ERCOT, retail electric providers and cooperatives tipping into Chapter 11 bankruptcy protections, and warnings from gas utilities about significant financial exposure from the storm. Policymakers are still assessing the damage, and the Federal Energy Regulatory Commission plans to look into potential market manipulation.

The experts who spoke to S&P Global Market Intelligence pointed to ERCOT's isolated grid as a built-in vulnerability that was highlighted by the cold snap.

"In California, for example, they can import about 10 gigawatts of electricity from a system [of] about 60 gigawatts of total demand: They can import almost 20% of the energy needs," said Keith Everhart, an energy analyst at the International Energy Agency focused on the power sector. "In Texas, it's about one gigawatt from a system of 75 gigawatts."

As a debate over whether to fix a mistake in power pricing heats up in Texas, a former administrator of the U.S. Energy Information Administration urged the U.S. to pay more attention to investment in electric grids as Democrats in Congress look to advance major infrastructure legislation.

"I think this will be remembered years from now as kind of a watershed," said the former administrator, Jay Hakes, who served under the Clinton administration. "When you say 'grid,' that's not something that's going to attract the attention of average citizens, or at least it hasn't been till now, but the grid is what sustains ... our modern life. It's kind of like what the interstate is to automobiles, so you know, expertise in that area needs to be valued, and we need to invest some money in it."