PUC gutted enforcement team
Abbott disputes oversight hurt by appointees’ cuts
A decade ago, after an Arctic cold spell knocked out power and left millions of Texans shivering in the dark, the Public Utility Commission’s enforcement apparatus swung into action. Their aim: punish the companies that had promised but failed to deliver electricity in an emergency.
Specialists contracted by the state agency worked with an enforcement team the utility commission created four years earlier.
More recently, it had added lawyers whose only job was to pursue wrongdoing. The energy companies eventually paid fines and settlements totaling hundreds of thousands of dollars for failing to prepare for the extreme weather.
Two weeks ago, history repeated. Millions of residents were left without
power and water in below-freezing temperatures. The damage far exceeded the 2011 storm. Nearly a third of the grid’s power plants went offline. Dozens of deaths have been attributed to the event, with a full accounting yet to come.
But the enforcement tools that worked to hold companies accountable for the 2011 failures had been removed under Gov. Greg Abbott’s appointees on the utility commission. Hearst Newspapers reported last week that commissioners in November cut ties with the Texas Reliability Entity — the specialists hired — leaving state regulators without an external independent reliability monitor.
Four months before that, the governor’s commissioners had also disbanded the Oversight & Enforcement Division. The head attorney was told he no longer had a job; nine other team members were reassigned throughout the utility commission.
Several pending cases were dropped. According to commission records, by the end of 2020 the number of enforcement cases had fallen 40 percent.
Critics and former employees say the division was cut precisely because it was working — the state’s most recent move in a 25year campaign to pare down oversight to favor energy companies and their largest customers, starting when Texas began deregulating its electric market in the 1990s.
Both the commission and the governor’s office disputed that getting rid of Oversight & Enforcement as a separate department diminished the commission’s watchdog function. Abbott spokeswoman Renae Eze said enforcement cases now received “more legal and administrative support” in a department with 19 attorneys instead of five. The decline in cases was proof the targets of enforcement actions had been brought “into compliance,” she said.
Agency spokesman Andrew Barlow added that some dropped cases were “not viable” or involved “minor” violations and that “any assertion that our emphasis on oversight and enforcement was diminished by this streamlining is unfounded.” He said the Texas Reliability Entity’s specialized monitoring and oversight duties are being redistributed among commission attorneys “in consultation with subject matter experts” at the Energy Reliability Council of Texas — ERCOT — the organization responsible for managing the state’s power grid.
‘Muzzled and eviscerated’
Still, as furious residents and politicians begin determining which energy industry players to hold accountable for the deadly storm — and how — utility regulation experts said the moves portrayed an agency focused on cost containment to the detriment of oversight.
“How you choose to structure an organization says a lot about what you think is important,” said Beth Garza, who as ERCOT’s Independent Market Monitor from 2014 to 2019 kept an eye out for electricity market manipulation. Shedding the Texas RE and the standalone Oversight & Enforcement Division tells the industry the utility commission “may not be as interested in enforcement,” she said.
While acknowledging the state’s electric grid would have faced stiff challenges from last week’s historic storm no matter how many layers of oversight and enforcement were in place, former utility commission enforcement attorney Joshua Walters said removing those tools could hobble the agency’s efforts to pursue those responsible for the latest grid failings.
“The utility commission would have had something to respond and say, Hey, we have the Texas RE, hey, we have the Oversight and Enforcement Division, we’re going to unleash them on the industry and make sure justice is served,” said Walters, who worked at the utility commission from 2012 to 2017.
Without them, “this event just really demonstrates that they really bit themselves in the butt pretty good,” he said.
The shrinking of regulatory layers designed to protect Texas energy consumers in recent months is only the latest example of a larger trend by state lawmakers to fund utility market oversight at bare minimum levels.
Over the past decade, the number of customers served by the Electric Reliability Council of Texas has ballooned to 26 million, its figures show. Last year the utility commission received nearly 7,000 electric service complaints — nearly double what it did in 2017, according to annual enforcement reports.
Despite the growth, last September, when the Public Utility Commission submitted its new budget request to legislators, it noted that its operational funding for electric and telecommunications regulation had barely budged over the past two decades. The agency’s employee cap was higher in 2003 than in 2021, according to the document.
Operating on such a stingy budget “over the last 18 years demonstrates the agency’s commitment to financial stewardship,” the commissioners concluded.
Others read a different message. “Over the past 20 years the enforcement division has been muzzled and eviscerated as part of a series of governor-required budget cuts,” said Tom “Smitty” Smith, a longtime Texas utility watchdog.
Even when the agency sought to enhance its enforcement efforts, legislators have often balked. In 2011 and again in 2013, when regulators recommended raising utility commission’s maximum fine from $25,000 to $100,000, lawmakers declined.
Despite reports in the wake of power-disrupting freezes in 1989, 2011 and 2014 recommending companies better winter-proof their equipment, legislators decided to keep weatherization standards only as guidelines. Last week, Abbott finally signaled it might be time to make such rules mandatory.
‘That was my only job’
“Ensuring compliance protects customers, the electric markets, and the reliability of the grid, and promotes quality of service to all Texans who rely on regulated electric, water, sewer, or telecommunications services,” the utility commission wrote in its 2021 biennial report. Yet state law doesn’t require the agency to maintain an enforcement division.
In recent months it became clear the agency’s enforcement team was needed for other functions mandated in statute, such as routine rate cases. Last September, the utility commissioners told lawmakers they had “reorganized” the enforcement division to “better align the agency’s staffing with anticipated workloads,” such as rate regulation duties.
For utility commission enforcers, it was back to the future. Before the Oversight & Enforcement Division fielded its own team of full-time attorneys, lawyers from the agency’s general legal services department juggled investigations and prosecutions in between their other required tasks, those who worked there at the time recalled.
“Every once in a while, someone would come in and drop an enforcement matter on your desk, which you were supposed to do between rates cases and other things,” said Susan Stith, an attorney who worked at the utility commission through 2013.
Having a separate division dedicated only to pursuing and punishing wrongdoing, thinking as prosecutors and not rate-reviewers, made a huge difference, former employees said — “just by its nature by being a standalone, with that the only task you are meant to do is oversee and enforce,” said Walters. “As soon as you get away from that type of structure, you’re going to lose focus on enforcement. I mean, that was my only job.”
Stith recalled one case with particular pride — the agency’s pursuit of CPS Energy for failing to deliver electricity it promised to the grid during the state’s last disruptive freeze event, in 2011. In light of the big chill two weeks ago, the case seems eerily familiar.
In early February 2011, ERCOT initiated rolling blackouts across the state as numerous power generators failed in the intense cold. CPS had promised to deliver 96 megawatts of electricity in the event of an emergency outage, according to court documents. But when ERCOT called on the company to deliver it at 4:26 a.m. on Feb. 2, it was able to generate only half of what it promised within the contractual time limit.
The investigation first fell to the utility commission’s Texas Reliability Entity monitors, who informed CPS of the violation but couldn’t reach any settlement, documents show. It was turned over to the utility commission’s enforcement team, which, following its investigation, recommended CPS pay the maximum fine of $25,000.
CPS Energy claimed the cold weather had caused an unforeseeable equipment failure, so it wasn’t liable for not being able to deliver the electricity. In response, a Texas RE expert pointed out the company had several days’ notice of the severe weather and so should have been ready. He also noted some of the company’s other generators had begun failing earlier, but it still hadn’t called in enough staff to help fire up the emergency units.
The administrative law judge deciding the case agreed. CPS’ failure to contribute its promised emergency electricity “contributed to the deterioration of the Grid on that morning, which ultimately led to ERCOT shedding load (i.e. ordering rolling blackouts) to avoid a total system collapse,” he wrote.
For utility commission enforcers, the legal win was bigger than the fine. Because of the decision, another company that also hadn’t delivered promised energy during the storm, Luminant, agreed to a much larger settlement, Stith said.
“Since 2011, Luminant has joined other generators, electric transmission firms and state agencies to take measures to better prepare for future extreme weather,” the company, which did not admit fault, said in a statement at the time.
‘Roll the dice’
Having both a dedicated enforcement division, as well as the technical expertise of Texas RE analysts, was crucial, Stith said. “There’s no way we have that case without the report from Texas RE and its expert witness to testify. And if you didn’t have a separate division dedicated to that, you don’t bring the case.”
Now, without either “I think that it may lead utilities to think that they can roll the dice a little bit more and get away with less winterization and preparation,” Stith said. “Because they don’t feel like they are going to be penalized.”
Last week, as Texas warmed out of its deep freeze, the Public Utility Commission met to decide how to move forward after the storm. One item the three commissioners agreed on was the need for a thorough investigation to determine what went wrong.
Chairman DeAnn Walker, who faced withering questions from angry lawmakers at hearings on Thursday, had pushed to cut ties with the Texas RE and disband the special enforcement division. She conceded that conducting the deep, technical analysis required could be difficult.
“I don’t know that we have the staff … to be able to do a complete investigation, like it probably needs to be done,” she said. “We may want to think about if we want to look into hiring a third party to help us with this.”