Why The Texas Power Grid Crashed Leaving 4 Million Without Electricity

The immediate question facing the Texas power sector is whether its participants are willing to pay for winterization measures that are common farther north, even for a once-in-a-decade spell of weather.

When it gets really cold, it can be hard to produce electricity, as customers in Texas and neighboring states are finding out. But it's not impossible. Operators in Alaska, Canada, Maine, Norway and Siberia do it all the time.

What has sent Texas reeling is not an engineering problem, nor is it the frozen wind turbines blamed by prominent Republicans. It is a financial structure for power generation that offers no incentives to power plant operators to prepare for winter. In the name of deregulation and free markets, critics say, Texas has created an electricity grid that puts an emphasis on cheap prices over reliable service.

It's a "Wild West market design based only on short-run prices," said a portfolio manager, Matt Breidert, at an analytics firm called EcoFin/Tortoise.

And yet the temporary train-wreck of that market Monday and Tuesday has seen the wholesale price of electricity in Houston go from $22 a megawatt-hour to about $9,000. Four million Texans have been without power.

One utility company, Griddy, which sells power at wholesale rates to retail customers without locking in a price in advance, told its patrons Tuesday to find another provider before they get socked with tremendous bills.

The widespread failure in Texas and to a lesser extent Oklahoma and Louisiana in the face of a winter cold snap shines a light on what some see as the derelict state of the United States' power infrastructure, similar to the chaos that struck California last summer.

Edward Hirs, an energy fellow at the University of Houston, said the disinvestment in electricity production reminds him of the last years of the Soviet Union, or of the oil sector today in Venezuela.

"They hate it when I say that," he said.

The immediate question facing the Texas power sector is whether its participants are willing to pay for winterization measures that are common farther north, even for a once-in-a-decade spell of weather.

Gov. Greg Abbott, a Republican, called Tuesday for re-forming the state's electric grid operator, the Electric Reliability Council of Texas (ERCOT).

"Far too many Texans are without power and heat for their homes," he said. "This is unacceptable." He said he would work with the legislature to find ways to "ensure that our state never experiences power outages like this again."

The Republican speaker of the Texas House, Dade Phelan, announced immediate hearings into "what went wrong."

Fossil fuel groups and their allies, including Sen. Ted Cruz, R-Texas, blamed the power failures on freezing wind turbines and warned against the supposed dangers of alternative power sources. Some turbines did freeze - though Greenland and other northern outposts are able to keep theirs going through the winter.

Wind accounts for 10% of the power in Texas, and the loss of power to the grid caused by shutdowns of thermal power plants, primarily those relying on natural gas, dwarfed the dent caused by frozen wind turbines by a factor of five or six.

As the cold hit, demand for electricity soared past the mark that ERCOT had figured would be the maximum needed. Although the world is awash in surplus natural gas, much of it from Texas wells, the state's power-generating operators were unable to turn that gas into electricity to meet that demand.

In single-digit temperatures, pipelines froze because there is some moisture in the gas. Pumps slowed. Diesel engines to power the pumps refused to start. One power plant after another went offline. One of the state's two nuclear plants went dark, hobbled by frozen equipment.

"At a time when the need is the greatest it's ever been, it's a strain on the system like we've never seen," said Tom Seng, director of the school of energy economics at the University of Tulsa.

Throughout the Southwest, he said, there has been a scramble for gas as sources have gone offline. Most surplus gas is stored underground, he said, and bringing it to the surface becomes more difficult in such prolonged low temperatures. March futures for natural gas are selling for $3 per million BTUs in Oklahoma, he said, but the spot price hit $600 over the weekend.

In Texas, production Tuesday fell 6 billion to 7 billion cubic feet per day from earlier in the month, Anne Swedberg Robba, head of American gas and power analytics for S&P Platts, wrote in an email. Nationally, production has dropped by about 14%.

"But this is not the first time we've had this issue in Texas," said Hirs, the energy fellow.

There was a severe cold spell in the Southwest in 2011, and frigid weather in 1983, 1989, 2003, 2006, 2008, and 2010. A study by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation of the 2011 event, which included widespread blackouts for much the same reasons, found that "the massive amount of generator failures that were experienced raises the question whether it would have been helpful to increase reserve levels going into the event. This action would have brought more units online earlier, might have prevented some of the freezing problems the generators experienced, and could have exposed operational problems in time to implement corrections before the units were needed to meet customer demand."

On Tuesday, both agencies announced that they would investigate the causes of this year's failure.

Texas shares with California an unwillingness to compensate generation companies for maintenance, Hirs said, unlike most of the rest of the country. He said that what happened to California in the heat last summer has now been reflected in Texas' winter.

"Both Texas and California have failed spectacularly this year," he said. "There's a tremendous human cost. People died in California. People died in Texas."

Texas is unique among the states in having a grid all of its own that is almost entirely cut off from the rest of the country. That has prevented Texas from importing much electricity as its power plants went down, but Hirs said that the cold is so widespread across the heart of the nation that no one has electricity to spare anyway.

Bill Magness, the CEO of ERCOT, said in an interview with WFAA television in Dallas that the state grid was better prepared for winter than it once was.

"In 2018 we had some very cold winter times, but we saw the generation fleets performed very well through that," he said. "I think we really made some progress getting ready for these winter times. And this storm has been extraordinary. We are seeing a whole lot of units coming off for reasons that have to do with the weather, so certainly winterization is something that constantly needs to be looked at."

One factor that may have hurt was that the sudden high wholesale price of electricity may have caused ERCOT's computers to order companies to "shed load" - cut off customers - rather than deal with the spike in costs.

The state's Public Utilities Commission ordered ERCOT on Monday to allow for those high prices. The cost of that electricity, at least in the short term, probably will fall most heavily on the retail utilities.