ERCOT forced sites offline during storm

Power plant operators have blamed a lack of natural gas supplies for the February blackout

ERCOT confirmed that it forced dozens of natural gas facilities to go offline during the February winter storm under a program that pays large industrial users to shut down when electricity supplies are short.

Hundreds of major electricity users, such as data centers, manufacturing plants, and oil and gas facilities, have entered into “demand response” contracts with the Electric Reliability Council of Texas, requiring them to install an automatic circuit switch or manually shut down operations when power demand threatens to exceed supply on the grid. Under these contracts, the state’s grid operator has the authority to interrupt power to large industrial customers when there are less than 1,750 megawatts of spare power on the grid.

“We confirmed that some of (these industrial customers) are related to oil and gas,” ERCOT spokeswoman Leslie Sopko said.

ERCOT said it is unclear how much of an effect contractual shutdowns of natural gas facilities had on natural gas supplies and gasfired power plants, which accounted for about half the power plant outages during the freeze. Other natural gas wells, pipelines and compressor stations suffered freezes and power outages during ERCOT’s mandated rolling blackouts.

There are thousands of oil and gas facilities in Texas. These contractual outages affected a small portion of them.

Power plant operators have blamed inadequate natural gas supplies for the catastrophic power failure during the storm, which led to nearly 200 deaths and billions of dollars in property damage. Natural gas production in Texas fell by nearly half during the storm, and the largest share of generation outages occurred at natural gas power plants, according to the Energy Department.

“This is just incredibly incompetent,” said Ed Hirs, an energy economist with the University of Houston. “It’s remarkable that ERCOT would do exactly what was necessary to drive gas prices up

and hurt consumers.”

There were 447 industrial customers who voluntarily installed the automatic circuit devices to shut down power as of the end of 2019, according to ERCOT. These industrial customers have the ability to shed more than 5,550 megawatts of power from the grid, enough to power some 1.1 million Texas homes on a hot summer day.

ERCOT did not release a list of industrial users participating in the demand response program, but a Wall Street Journal analysis of ERCOT data and electrical substation maps found several dozen instances where power was cut off to facilities in the Permian Basin, the nation’s most prolific oil and gas field. The Journal, which first reported the contractual shutdowns Friday, found that ERCOT shut off power to five facilities in Loving County in West Texas, where nearly all the industrial activity is related to oil and gas production.

The Texas Oil and Gas Association, the state’s largest oil and gas trade group, said it was unaware whether members have signed the voluntary contracts with ERCOT. The association said Texas had enough natural gas supply and that fuel limitations represented a small percentage of problems at power plants during the storm.

ERCOT started the demand response program as a sort of insurance that helps the grid operator balance power demand and supply. When demand exceeds supply, ERCOT can call on heavy industrial power users that have signed contracts to reduce electricity consumption. If that fails to stabilize the grid, ERCOT can mandate rolling blackouts, such as those during the storm.

Industrial users potentially can save millions of dollars by entering into a demand response contract with ERCOT and other utilities operating similar programs. There is a cottage industry of demand service providers who help industrial users enter into contracts with ERCOT and utilities.

Companies that fail to shut down operations in a timely manner per the contract can be penalized by ERCOT and the Public Utility Commission.

It’s rare that ERCOT calls on its industrial volunteers to cut power or shut down operations, so the financial incentive usually outweighs the risk. However, in a grid collapse such as during the winter storm, these contractual shutdowns can have the potential to exacerbate power plant failures.

“Keeping electricity on to infrastructure tied to power generation units will vastly improve reliability of natural gas power generating facilities,” said Todd Staples, president of the Texas Oil and Gas Association.