An inept ERCOT contributed to February freeze fiasco
Texans are learning the ageold lesson you get what you pay for.
As journalists dig into the data — because the governments have not done it so far — we are learning how an underfunded, toothless electric grid manager likely made the February freeze more deadly and cost Texas consumers billions of dollars in unnecessary bills.
My friends Russell Gold and Katherine Blunt at the Wall Street Journal went through the nonprofit Electric Reliability Council of Texas’ logs. They discovered operators implemented a half-baked protocol and cut power to major industrial users to stabilize the grid. Called a demand response program, ERCOT pays the industrial users for the privilege of blacking them out when supply is tight.
I call the program half-baked because ERCOT did not know which industries they were blacking out. Oil and natural gas producers are among the biggest electricity users in Texas, and guess what we really, really need to keep our houses warm during a deep freeze?
Natural gas.
Texas is the nation’s proud leader in renewable energy, and we have our share of coal-fired power plants. But when electricity demand peaks, natural gas comes to the rescue. So, what on earth led ERCOT to think paying natural gas producers to go offline in an emergency was a
good idea?
“We do not know what type of facility it is,” Kenan Ögelman, ERCOT’s vice president of commercial operations, told the Journal.
ERCOT did not intentionally pay natural gas companies to stop sending fuel to the state’s power plants during a blackout. The grid’s managers just didn’t know what they were doing.
During the blackout, former ERCOT CEO Bill Magness tried to explain to an angry public how his quasi-governmental organization is just an air traffic controller for electricity. The Texas Legislature does not authorize it to enforce reliability standards or tell companies what to do.
Low regulation was the calling card of former Gov. Rick Perry, who oversaw the transition from a traditional electric utility system to the competitive wholesale market we have today. Texas’ conservative philosophy expects competition to sort everything out.
ERCOT’s primary job is to manage an algorithm that raises and lowers electricity prices based on supply and demand. Customers only pay when they need and get power from private companies. When we need electricity the most, the price skyrockets, and for most generators, those handfuls of hours every year are when they make their profits.
The Legislature felt sure that the opportunity to make $9,000 a megawatthour during a crisis would incentivize generators to spend tens of millions on weatherization. Some call it the free market at work. Others call it price-gouging. Either way, it didn’t work.
Generators were unprepared for the freeze and went offline, yet ERCOT kept banging its collective head against that wall. Even while it was paying $2 billion for companies, including natural gas producers, to remain blacked out, ERCOT kept the price at $9,000 a megawatt-hour even though generators couldn’t get not enough gas to restart.
Not all Texans were blacked out, though, and electricity retailers, co-ops and municipal utilities ran up huge bills. ERCOT’s managers, with one of Gov. Greg Abbott’s aides in the room, still overrode the algorithm to keep the prices high.
The independent market monitor, whose job is to make sure ERCOT and generators play fair, figures ERCOT’s decision to keep prices artificially escalated cost Texas consumers $16 billion in overcharges. When the Texas Senate tried to claw that back, House Speaker Dade Phelan stopped it.
Of course, cutting power to natural gas producers also created a natural gas shortage, sending the price from $3 for a million British thermal units to $400. Natural gas companies and pipeline operators that stayed online made more than $4 billion in extra profits.
Municipal and co-op gas and electric utilities are in dire financial trouble. Some, like San Antonio’s CPS, are suing to avoid paying the overcharges.
To sum up, millions of Texans spent days without power on the coldest nights in a generation and will likely end up overpaying more than $20 billion for the privilege by the time all is said and done. We are paying for our leaders’ decision to withhold regulatory authority from state agencies and underfund their ability to ensure a coordinated energy supply chain.
A few weeks after the Texas Blackout, I wrote that we needed time to investigate why ERCOT ordered blackouts that lasted days and left nearly 200 people dead, according to a Houston Chronicle accounting.
The picture is becoming more apparent, though there are probably more disturbing revelations to come. But as the Legislature moves into its final days, our elected officials are doing nothing to fix the underlying problems. This can happen again.