The Texas Legislature is conducting hearings today to determine what led to last week’s massive power outages. We’ve all learned a lot about how Texas’ energy infrastructure works in week since the historic winter storm, and the story of the failures of the deregulated marketplace has remained at the top of the nation’s headlines.
What is now clear is that last week’s event was brought about by a confluence of factors, ranging from physical challenges in natural gas distribution and power plant operation to market-related issues with how plants are incentivized to prepare for catastrophic weather events. There have also been a lot of potential fixes tossed about, ranging from reconsidering the independence of Texas’ grid from the rest of the nation’s infrastructure to taking to task the Electric Reliability Council of Texas, or ERCOT, which operates and manages the state’s electrical grid.
The legislative sessions hope to bring some additional clarity as to what went wrong, as well as identify ways the state’s leadership can ensure that such a cataclysmal event – which has resulted in the deaths of a still un-certain number of Texans – never happens again. But as the legislature deliberates, keep an ear out for any answers to these four key questions that must be at the heart of any attempt to repair Texas’ broken electricity system.
Will the Legislature Pass Regulations With Teeth?
This isn’t the first time the legislature has tried to respond to the aftermath of a winter storm. In 2011, the state passed new recommendations that attempted to urge power producers to prepare for bad weather. That obviously didn’t work. That’s because every time the Texas Legislature pantomimes reform of its energy sector, it passes laws that recommend – rather than require – companies to make plans to prepare their operations for catastrophic events.
Real reform will require Texas to pass legislation that sets new regulatory standards for power generators, the companies that manage the distribution of the resources used in electricity production, and the grid itself.
Will the legislature muster the political courage to do this? I’m not entirely optimistic. After all, it was clear after Hurricane Harvey that the storm’s devastation was worsened because development was allowed in areas prone to flooding. And yet, in the years since, there has been little effort to restrict new development in vulnerable areas.
Who Will the Lege Ultimately Hold Responsible for the Outages?
Over the past week, there has been a lot of blame heaped on ERCOT, the agency that manages the state grid, but ERCOT’s role in the catastrophe is something of a mixed bag. The agency certainly failed to prepare for the event, despite having advance warning that the state was going to experience a crisis, and ERCOT ultimately made the demands that local energy distributors, like Oncor, reduce the load on their grid. But that was because ERCOT was trying to avoid a complete meltdown of the state’s grid – a nightmare scenario that Texas avoided by mere minutes.
The reality is the causes of the outages were complicated and multi-faceted, and they include weather-related impacts on natural gas distribution and power plant operation. Everyone involved in the energy sector shares some of the blame. Power producers were ill-prepared. The distribution grid failed. Electricity providers were unable to equitably manage mandated blackouts. Even some retail electricity providers gouged customers with astronomical prices, even as they froze in their powerless homes. And what does it say about Texas’ energy market that such horrific crisis can also produce huge financial rewards for certain market players?
The responsibility for this chaos ultimately falls on the agencies that oversee this market, including state bodies like the Texas Railroad Commission and Public Utility Commission of Texas. Ironically, what we have now are public hearings being conducted by a legislative body intended to find out who is responsible for the failure of its electricity grid – and yet it is that very legislative body, and the state commissions it oversees, that bear the brunt of the blame.
Will the State Remove the Energy Lobby From Electricity Regulation?
It’s no accident that the state has failed in its oversight duties. While there has been considerable and understandable outrage targeted toward ERCOT and its non-Texan board, there has been less anger directed at the state agencies that have acted as industry pawns, actively dismantling oversight of electrical grid. The Public Utility Commission ousted an independent auditor of the state’s electrical providers three months before the storm. The Railroad Commission, which regulates the states’ energy industry, is known as a revolving door of industry players. An Austin American-Statesman investigation found what it described as a “well-worn path from the oil and gas industry” and the very commission that oversees that industry:
The ties between Railroad Commission employees and the oil and gas industry have been mirrored in policy: The agency has sought to shield the industry from further federal regulation and has beaten back criticism from environmentalists on everything from seismic activity to fracking.
It’s a record of protection that makes the commissioners proud: The industries the agency regulates are “the backbone” of the Texas economy, says Railroad Commission Chairman David Porter.
Top officials at the commission have long had ties to industry: Commissioner Christi Craddick was an oil-and-gas lawyer; Commissioner Ryan Sitton served on the board of several energy trade associations; and Porter was a Midland accountant for oil and gas companies. In addition, the commissioners, who are elected, receive much of their campaign money from the industries they regulate.
Ultimately, responsibility for maintaining the grid and providing oversight of the electricity market falls to these bodies. But until protective energy interests are removed from the very governmental agencies that are charge with overseeing the energy sector, there is little reason to believe they will.
Can We Admit Texas’ Electricity Marketplace Screws Regular Texans?
We’ve been sold an idea that the deregulated electricity market uses profit incentives to drive investors, suppliers, operators, and retailers alike to cut costs, resulting in lower prices for Texans. But in reality, it functions more like a protection racket for industry players.
(Case in point: the PUC this week made a decision that will allow the consolidation of large energy companies’ power over the Texas market during the tumultuous market fallout following the storm.)
And yet, plenty of states – including regulated and semi-regulated markets – provide electricity at lower average rates than Texas. Oklahomans pay less than Texans for electricity, and they weathered the same winter storm without suffering a catastrophic loss of power. Wyoming residents also spend less than Texans. Do you think the Wyoming grid can withstand a week of freezing temperatures?
The real active participants in the electricity marketplace are not consumers, but rather the investors involved in the buying and selling of the natural resources that power our grid – people like Jerry Jones, whose energy company described last week’s disaster as “hitting the jackpot.”
Companies make money by betting on the fluctuations in electricity demand. As a spokesperson with the PUC explained it to me, “Our system is designed to determine the price of wholesale power based upon scarcity, mirroring the efficiency of the free market. This keeps energy prices low and encourages generators to design their equipment and focus their efforts on situations in which the grid is most in need of energy.”
The market is an efficient means of setting the value of commodities, but the problem is electricity isn’t a normal commodity. Electricity is a basic need in our society that provides millions of people the energy to – quite literally – not die.
By leaving decisions about how and when to prepare to supply the grid with power to power companies, it reduces life and death decisions about power generation capacity to simple business risk calculations. Did it make sense to invest in the infrastructure and weather protections to ensure that the grid could withstand an event like last week’s storm? Without federal guidelines requiring the electricity industry make those preparations, Texas’ power companies decided the risk wasn’t worth the investment.
What we have seen this week is a case study in the limits of the free market’s ability to protect and guarantee the delivery a public resource. It has driven home is the reality that electricity – like water – is a public utility. Electricity is a resource so central to functioning of daily life that the government has a responsibility to step in and protect its supply, regardless of how that might impact the electricity marketplace.
But to date, Texas’ state government has shown more interest in protecting the needs of marketplace players over and against the citizens whose interests it is obligated to represent.