The Texas energy system faces a winter reckoning — again

Canary Media’s Down to the Wire column tackles the more complicated challenges of decarbonizing our energy systems. Canary thanks CPower for its support of the column.

As Texas approaches the anniversary of last February’s devastating week-long freeze-up of its energy system, one obvious question looms: Is the state prepared for the next big winter storm? It could find out very soon — an Arctic cold front is headed that way.

Governor Greg Abbott (R) claimed last year that the state is ready. ​“Everything that needed to be done was done to fix the power grid in Texas,” he said in June after signing two bills intended to strengthen the grid.

But the experts say that’s far from the truth.

I’ve spoken with a number of leading energy professionals about Texas’ electricity system, and they all have serious concerns about its readiness for the next major weather disaster, be it a cold snap, heat wave or hurricane.

Winter Storm Uri knocked out power to more than 4.5 million people, led to the deaths of an estimated 200 people and caused more than $100 billion in property damages. No single change can be expected to prevent that kind of cascading collapse of interdependent systems, these experts said. Grid resiliency can’t be assured with one-and-done solutions.

State officials have made some important progress, the experts acknowledged. But these leaders have also failed to take practical and even obvious steps that would decrease the threat of future mass blackouts.

In the wake of the storm, the governor and other Texas lawmakers incorrectly blamed the blackouts on underperforming wind turbines, though the primary cause was in fact the failure of the natural-gas system. But then, over the past year, state leaders focused their policy changes on addressing shortcomings at gas and other fossil fuel power plants — changes that are indeed necessary to make the current power system stronger.

Yet the state is missing out on a huge opportunity to build a more resilient electrical grid by promoting energy efficiency and distributed energy. It’s fixing some of the problems with its old, dirty energy system but not being proactive in creating a new, cleaner, better system.

What’s not getting done

Alison Silverstein, a consultant and former senior adviser at the Federal Energy Regulatory Commission and the Public Utility Commission of Texas, is one of the experts who think the state’s efforts so far are completely inadequate. She joined five other former PUCT commissioners in writing a report outlining the steps the state should take to prevent another winter grid disaster. Its title: ​“Never Again.”

Those steps include requiring weather-hardening of natural-gas infrastructure, but also more future-focused measures such as:

• Upgrading building efficiency codes. 

• Spending far more to weatherize homes. 

• Increasing opportunities for customers to earn money from demand response or by reducing electricity use during grid emergencies. 

The report was released last summer, but none of these recommendations have yet been put into place, Silverstein said in a January interview. Not only that, but the PUCT has so far failed even to thoroughly analyze its policy options to try to learn what else can be done to ​“improve reliability with higher efficiency and lower cost,” she said.

Enacting the reforms proposed in the ​“Never Again” report would have the additional benefit of preparing Texas for a much broader set of climate-change-related challenges, according to Silverstein.

Texas’ summer heat waves remain a major threat to grid stability, and hurricanes and flooding have wreaked havoc on energy infrastructure. The state’s rapidly growing wind and solar capacity is bringing lower-cost and lower-carbon power to the grid, but that power flows intermittently, driving a need for more rapid-response grid resources that can balance it.

Building a strong energy grid for the future will require more than fiddling around the edges of the natural-gas system, in other words. Still, that’s where any plan to prevent what happened last February will have to start.

Winterizing power plants, but not gas supply systems

But even Texas’ fossil-fuel-focused reforms this past year have been half-measures, experts say.

Last February’s subfreezing temperatures forced nearly one-fifth of the state’s generators offline. And nearly half of the state’s thermal generation — natural gas, coal and nuclear power — was offline at the time, either because of the freezing weather or for maintenance.

In October, the PUCT adopted rules (first proposed after another winter freeze in 2011) that require power plants and transmission grids to protect pipes, instruments and other systems susceptible to failure in cold weather. ERCOT, the grid operator for much of Texas, reported in December that its inspections of more than 300 power plants and 22 transmission stations found they were ​“winterized and ready to provide power.”

Silverstein cited this quick work as an ​“absolutely good thing [that] materially improves the dependability of ERCOT generation resources.” 

But, she noted, ​“Gas production and delivery systems are not similarly winterized.”

And if gas plants can’t get enough fuel, then the next time there’s a severe cold snap, ​“the same thing could happen,” Curt Morgan, CEO of power plant operator Vistra, told The Texas Tribune and NBC News.

That’s a major weak point, considering that gas-fired power plants were responsible for the majority of outages during last February’s grid crisis, according to an analysis by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation. This chart from the Federal Reserve Bank of Dallas shows the outsized role that natural gas played in power plant failures. 

This weakness was on display a few weeks ago over New Year’s weekend, when a cold front led to significant natural-gas shutdowns and production drops in Texas, according to Bloomberg.

The PUCT doesn’t regulate natural-gas producers and distributors. That authority resides with the Texas Railroad Commission, and under its current plan, natural-gas companies won’t even begin to face weatherization mandates until 2023. What’s more, its proposed rules could allow gas companies to avoid mandates by opting out of classifying themselves as critical suppliers to power plants.

One way gas plants could keep running is if they have on-site emergency fuel supplies, as many power plants in New England do. The PUCT has proposed rules for ​“firm fuel service” that could compensate power plants that invest in this emergency resource, Silverstein said. But the proposal the PUCT provided to ERCOT was only a few paragraphs long, leaving the grid operator with the task of figuring out how to turn it into a market-ready program, she said.

Beth Garza, a senior fellow at research group R Street Institute and a former manager at ERCOT and Austin Energy, said that this program could be ready ​“not for this winter, but certainly for next winter.” But many questions remain about how such a program would work, how much it would pay and whether it would be sufficient to keep enough gas plants running to prevent another grid collapse.

Energy market fixes are on the slow track

One of the biggest problems Texas faces is how to keep its competitive energy market functioning in an era of increased climate uncertainty, without opening the door to another economic disaster like the one that struck last February. The PUCT and ERCOT have released a roadmap with market reform proposals, but it’s not clear how or whether these changes might solve the problem, Garza said.

The PUCT did take some immediate steps in a December order. The biggest was reducing the maximum price in ERCOT’s wholesale energy market from $9,000 per megawatt-hour to $5,000. That’s meant to avoid the price spikes that drove skyrocketing electricity bills for consumers and saddled some electric cooperatives, municipal utilities and energy retailers with budget-busting debts during last year’s emergency. Disputes over billions of dollars in costs are still being sorted out, some of them in bankruptcy proceedings.

At the same time, it’s unclear if reducing the maximum amount that market participants can earn in times of crisis will strengthen or weaken grid reliability, Garza said. That’s because Texas relies on high energy prices to give investors the price signals to build enough generation capacity to meet peak demands — and reduced peak prices could reduce that incentive.

To combat that risk, PUCT in December also ordered ERCOT to reconfigure its Operating Reserve Demand Curve (ORDC) — the structure that the Texas energy market uses instead of a capacity market to entice grid resources to remain available when the grid needs them the most — to increase energy prices as the reserves available to meet rising demand shrink. In combination, the two shifts should limit price spikes but also boost prices for grid resources that can respond to stabilize supply-demand imbalances before emergencies grow too severe, as this chart from energy company Exelon and its retail subsidiary Constellation New Energy indicates.

“Texans shouldn’t have to worry about whether they can power their lives or power our economy,” PUCT Chair Peter Lake said at the December meeting when the changes were approved. ​“And these efforts go a long, long way to ensuring that.”

Beyond these basic changes, however, the PUCT’s market roadmap ​“starts hitting a wall,” Silverstein said. Most of its next-step proposals are thinly sketched out, leaving it up to ERCOT to develop implementation plans that might pass the commission’s review.

But ERCOT lacks the capacity to do that right now. It informed the PUCT in January that it’s busy with a major technology overhaul and other upgrades, leaving it little time or budget to take on the additional tasks the PUCT assigned it. That leaves much of the PUCT’s roadmap in limbo, at least for this year and potentially longer.

Both PUCT and ERCOT are also moving slowly because they were ​“essentially decapitated and reformed,” Garza said. The three PUCT commissioners in place during last February’s energy disaster all retired afterward and have been replaced by four new commissioners, and ERCOT’s chair and four of its 16 board members also departed, including out-of-state members brought on for their electricity industry expertise.

But none of this absolves the PUCT of the responsibility to assess the costs and tradeoffs of its various market plans, said Suzanne Bertin, managing director of the Texas Advanced Energy Business Alliance, a trade group representing companies that want more access to renewable and distributed energy in the state.

“Customers are writing a blank check so far, with very little emphasis on the technologies that can actually save customers money or create new revenue streams for customers,” she said.

Ignoring the demand side of the equation

When Bertin talks about customer revenue streams, she’s thinking of everything from home weatherization and energy-efficient heating and cooling to distributed energy resources that can not only reduce electricity demand but also shift it to help prevent blackouts.

But so far, the PUCT has failed to address the demand side of the grid-reliability challenge, she and other critics contend. It has sidelined policies that could encourage utilities, customers and energy-services companies to invest in improving the state’s lagging energy-efficiency performance. It has so far failed to expand the economic opportunities for smart thermostats and grid-responsive heat pumps and water heaters to reduce energy use during grid emergencies, nor has it promoted distributed solar and batteries or backup power for critical facilities including hospitals and water treatment plants.

PUCT’s roadmap contains little more than ​“a perfunctory treatment of the demand side,” Garza said. 

The Texas Advanced Energy Business Alliance has been making the case for the grid value of these so-called demand-side resources in Texas for years, publishing reports citing their potential to reduce energy-market and grid costs by billions of dollars over the long term. But last winter’s energy disaster upped the ante by revealing the threat of winter grid overloads in a state where roughly 61 percent of homes rely on electric heating.

In that light, Bertin said, energy efficiency ​“seems like a no-brainer. If we had a more efficient system, it means [there’s] a smaller problem to be solved.” 

Neglecting energy efficiency also leaves a significant amount of potential flexible load untapped, said Don Whaley, president of OhmConnect Energy, the company formed by the California-based residential demand-response startup OhmConnect to tap into the retail electricity opportunities in the Texas market. Better insulation allows heaters or air conditioners to be turned off for longer without making homes uncomfortable, extending the length of time they can reduce grid stress, he noted.

Silverstein cited a long list of actions being proposed by a set of ERCOT stakeholders. They include demand-response providers like CPower, OhmConnect and Voltus, solar providers like Sunrun, battery providers like Stem, and advocacy groups ranging from the Environmental Defense Fund to Conservative Texans for Energy Innovation.

“That list includes energy efficiency, that list includes demand response, that list includes distributed energy resources of all flavors and aggregating them into virtual power plants,” she said. The aim is ​“to get behind-the-meter resources of all kinds integrated into the market.”

If deployed at large scale, these demand-side measures could make a major dent in Texas grid demand both in wintertime and in its traditional peak summer season, according to an October report from the American Council for an Energy-Efficient Economy, a trade group. The report proposes a nearly $5 billion investment in a set of household improvements, including insulating attics, sealing air ducts, replacing less-efficient electric resistance water and space heaters with heat pumps, and installing air conditioners, water heaters and electric vehicle chargers that respond to shifting grid conditions.

This investment could collectively offset about 7,650 megawatts of summer peak load and 11,400 megawatts of winter peak load, according to ACEEE. The latter figure is roughly equivalent to the gap between ERCOT’s winter demand forecast a year ago and what demand would have been during its February grid disaster if millions of customers hadn’t been hit with blackouts. 

The suggested investment of nearly $5 billion over five years is a big figure, ACEEE President Steve Nadel acknowledged in an October presentation. But it’s less than the $8 billion that Warren Buffett’s Berkshire Hathaway Energy proposed charging Texas electricity customers to build a set of natural-gas power plants equipped to keep the grid up and running during emergencies. That offer was rebuffed as too costly and incompatible with Texas’ competitive energy market structure.

Dedicating money to energy efficiency and distributed energy resources would be a savvy investment in building a resilient, clean energy system for the future. But Texas regulators are continuing to put all their emphasis on policies meant to encourage big, centralized power plants to make themselves more resilient to extreme weather. Will the current strategy improve grid reliability, and if so, at what cost? Texans deserve answers to those questions — but so far, they aren’t getting them.

“We’ve already been through a catastrophe that’s going to impose billions of dollars of costs on customers over the coming years,” Garza said. ​“We shouldn’t burden them with additional costs without ensuring there’s some benefit to it.” 

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This column is sponsored by CPower. CPower is a leading national energy solutions provider guiding customers toward a clean and dependable energy future. We maximize the value of our customers’ DERs by facilitating and optimizing participation in demand-side management programs, forming virtual power plants that are good for the grid and great for the community. CPower works with over 11,000 sites across North America to provide superior economics while delivering the highest-rated customer experience in the industry.