Something special will happen June 12, which is Record Store Day. The guys behind the local record label Eastwood Music Group — that’s Skin Wade from Mavericks broadcasts and The Eagle’s Ben and Skin Show, and Luke Sardello from Josey Records — will drop a full-length triple LP as part of their Truth To Power Project. It’s a righteous cause, and you should read more about it here as you listen to this advance track.

When COVID-19 first arrived in Dallas and the shelter-at-home order took effect, all of North Texas’ scheduled blood drives were canceled. As a result, the American Red Cross experienced an unprecedented shortage of blood. We urged you, our readers, to consider donating once you felt safe to do so. Now, we’re urging you again.

This February, record-breaking temperatures and winter storms forced the cancelation of over 10,000 blood and plasma drives nationwide. The American Red Cross is asking all healthy North Texans–especially those with type O blood–to help replenish our local supply. Without donations, many of our medically vulnerable neighbors won’t receive the lifesaving care they need.

State lawmakers in Austin spent all of Thursday grilling the people responsible for keeping the power on in Texas. They want to know where and how the system broke down last week. But it really isn’t all that hard to figure out. Two former CEOs in Dallas saw this coming years ago, which is why they sold their companies. They’d separately come to the same conclusion: if something like last week occurred, it would put them out of business. One of those CEOs believed a disaster was likely, if not imminent.

Stream Energy and Ambit Energy are electricity retailers. Both companies have, by all accounts, achieved great success. After Stream began registering users, in March of 2005, it took only 10 months to become the fifth-largest retail electricity provider in Texas. This was three years after the Legislature deregulated the state’s electricity market, turning what the rest of the country considered a closely regulated utility into a free-market spree.

For the first time, Texans could choose their energy provider. Upstart retailers didn’t generate their own power but would instead buy wholesale from major generators. They would market that energy to consumers, usually undercutting the retail arms of the larger producers. (The Legislature froze established rates to trigger market competition.) The retail market ushered in creative delivery plans like free usage during nights and weekends. Some credit the proliferation of Smart Meters directly to this free market approach.

The idea of deregulation was to let the market drive energy production instead of any government agency, but that didn’t translate into sufficient reserve power or infrastructure improvements that may have helped keep the plants online in single-digit temperatures.

The Electric Reliability Council of Texas, known as ERCOT, manages the grid. It can order utility providers like Dallas’ Oncor to cut power to preserve the grid during periods of extreme demand, which is what happened last week. But ERCOT is supposed to be overseen by the Legislature and the Public Utility Commission of Texas, known as the PUCT. Neither did nearly enough to motivate generators to winterize their facilities or create enough additional power to fall back on in an emergency. The federal government even warned the electricity grid manager to do this in 2011.

ERCOT can make its utility partners like Oncor put customers in the dark, but it can’t order the private generators to pay for infrastructure improvements to prepare its generating units for a freak storm: insulated power lines, de-icing equipment on wind turbines, removable structures for natural gas plants, all of which is less expensive if you’re not retrofitting existing generators.

That’s not to say the state government didn’t dangle carrots. Deregulation introduced scarcity pricing. Generally, a megawatt of energy costs anywhere from $40 to $150 to produce, depending on the source of that energy—coal, natural gas, renewables—and the conditions under which that energy was being generated. But renewables were becoming so subsidized that it was actually priced negatively, spurring the PUCT to come up with a way to motivate more natural gas generation. (A megawatt can power about 200 Texas homes during peak demand, according to ERCOT.)

So when demand soared, the state allowed energy generators to sell electricity for an inflated price. It was capped at $1,000 per megawatt, then $3,000, then $4,500, then $9,000. The idea was to use this inflated pricing to motivate generators to produce more when prices were higher. The Public Utility Commission of Texas’ hope was that this would prompt these private generators to build more natural gas facilities; the more power you generate, the more money you make during moments of scarcity.

But for years, Texas generators rarely charged the inflated cap, especially not for consecutive hours. That wasn’t the case last week, when unprecedented temperatures froze natural gas in the pipelines, shuttered some coal production, held wind turbines in place, and knocked off a nuclear plant. Natural gas, coal, and nuclear account for 70 percent of the state’s production. It’s rough to lose renewables like wind, but when those traditional sources fail, we have a problem. And the traditional sources of energy lost about 41 percent of their generating capacity in a flash.

Texas had no backstop. And, ironically, some generators couldn’t benefit from the scarcity pricing because the cold had stifled the gas production.

Nevertheless, Stream almost certainly would have had to purchase wildly inflated electricity for its customers at the height of last week’s storm. The difference between that inflated cost and the lower income from its customers might have sunk the company. Its general partner and founder, Rob Snyder, sold the operation and its customers to NRG in May of 2019 for $300 million.

The company was doing well at the time of the sale. In May of 2019, days after the deal closed, Snyder quipped in an email to a Dallas Morning News editor that Stream was “such an efficient cash flow machine that I have almost become numb to the size of the federal income bills that I have been paying over the past seven years.” 

So why sell? Stream and Ambit sold energy like Mary Kay sells cosmetics, through thousands of direct-to-consumer salespeople.

Snyder says he saw last week coming and got out. He predicted the circumstance, if not the timing. He figured the grid would fail, or come close to failing, during the summer. That’s when demand has historically been at its highest, when rolling outages were sometimes necessary to conserve energy. Besides, Texas just doesn’t dip into single-digit temperatures, especially not across the entire state. But then it did.

A quarterly NRG earnings report in 2019 caught Snyder’s eye. Generally, ERCOT wants a reserve margin of 13.75 percent that can be deployed if generators can’t produce for whatever reason, including extreme weather. But there is no legal requirement for such safety nets. By 2021, Houston-based NRG was predicting reserves so low that the state wouldn’t be able to sustain even a day without blackouts if generation failed. The market had not motivated enough new generation to keep up with all the new Texans and their power usage should a catastrophe occur that resulted in generators not being able to operate.

“If we have a recurrence of the summer of 2011 (when we had 40+ consecutive days of 100+ degree weather), there is virtually no chance for the survival of independent retailers that do not have vertical integration with significant generation capabilities,” Snyder wrote in his email to the editor at the News. He was saying that companies needed to be in the generation game if they wanted to stay in the retail business. He sold to one of those generators.

Snyder said he saw retailers like Stream to be “shock absorbers” for when there was volatility in the market. Generators like NRG benefit because they can sell the electricity they produce at an inflated margin when energy is scarce. Customers who were locked into fixed-rate plans would be protected from market swings. The retailers—known as REPs, Retail Electricity Providers—would be the ones left holding the bag. (Customers with variable-rate plans would feel the pain, too. That is what happened with the much-publicized California-based Griddy. Powering your home at wholesale rates is great when demand and prices are low, but when scarcity pricing kicks in, five-figure electric bills follow. During Thursday’s hearings, the head of the PUCT said about 40,000 to 45,000 Texans out of 7 million total customers were enrolled in such a plan.)

Senate, House Take Aim at Who to Blame for Outages. Over the course of 14 hours yesterday, the Texas House and Senate grilled the Electric Reliability Council of Texas, which manages the state’s electricity grid. They ducked blame. The legislature grilled the Public Utilities Commission of Texas, which is supposed to oversee ERCOT. They also ducked blame, pointing the finger at the agency below them. One thing ERCOT CEO Bill Magness—whose annual salary is a cool $803,000—did note is that the Legislature could change the agency’s governance power. It could give them teeth to mandate generators winterize and further protect their equipment during extreme weather events, which will surely become more common as we live through the effects of climate change. Meanwhile, Curt Morgan, the CEO of Dallas’ Vistra Energy, said the natural gas companies couldn’t get gas to the power companies with the required pressures. Morgan told legislators that his faith in the deregulated energy market has been shaken. NRG’s CEO, Mauricio Gutierrez, basically said the same.

COVID Numbers Ticking Back Up after the Storm. Dallas County reported 614 new coronavirus infections on Thursday and 24 new deaths. The infection count has been artificially low because of how the storm affected testing and our ability to move about the city. County Judge Clay Jenkins anticipates those numbers to begin their ascent soon, but he believes deaths will begin to decrease.

It Really Hailed Last Night. I’m exhausted with this weather. Last night, two rounds of hail battered mostly parts of the northern corners of Dallas-Fort Worth. That’s where we got more reports of golfball and quarter-sized hail. The rest of the weekend brings a mild, springlike cold front on Saturday and widespread storms on Sunday. Saturday looks dry but cloudy, yet there is a chance we’ll get some precipitation.

Mavs Fall to Sixers. Luka had trouble against Ben Simmons, posting 19 points on 6-13 shooting with only four assists and seven turnovers. The Mavericks, who were without Kristaps Porzingis again, fell 99 to 111. Doncic posted a miserable +/- of -20 while Josh Richardson was even worse against his former team, with -24. The Mavs fall to 15-16 and snap a two game win streak.

As FrontBurner’s duly elected golf correspondent, it is my duty to tell you that the folks running the Charles Schwab Challenge (aka the Colonial) are proud of their 75th anniversary, as evidenced by the ticket prices they announced today. The tourney runs May 23 through May 30. Attendance will be limited by pandemic precaution. The cheapest ticket will cost $475 ($514.19 including sales tax).

You’re saying, “Tim, that’s insane! For that cash, I could buy a Cobra RADSPEED driver.”

I’m saying, “Sure. But if you bought a Cobra RADSPEED driver, it would become outdated, and you’d just wind up replacing it anyway, whereas if you went to the Colonial, you’d have an experience, a memory to cherish for the rest of your life, even though science has shown us that the more you access a memory, the more its fidelity to actual events degrades, so 40 years from now, you might be reliving a really expensive trip to Chuck E. Cheese.”

What were we talking about? Oh, yeah. With that $475 ticket, you get an all-inclusive deal, with booze and food on the course; access to the Palmer and Crenshaw villages, where you get ambassador greeters, waitstaff, shaded seats, and TVs; and use of the Colonial Country Club pool house and adjoining patio. This is the first time Colonial will have tried the all-inclusive thing. And there are more expensive options.

By the way, the AT&T Byron Nelson runs a few days prior to Colonial. It’ll be played at TPC Craig Ranch this year. The cheapest ticket I see is the $100 Bourbon Bunker. Sounds delectable, right? The bourbon costs extra.

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.