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By Madalin How

Junior, GWU

Texas has always taken pride in its independent electric grid, yet its faintly regulated wholesale power system has proven to have sacrificed reliability for low prices. Loss of electric generation capabilities, paired with a staggeringly high demand for power, ultimately resulted in blackouts for over four million homes across Texas. Critics from the right claim that frozen wind turbines were to blame for the crisis whereas critics on the left claim that frozen natural gas pipelines along with lackluster regulation were the real culprits. The PUCT should have enforced regulation to winterize generation equipment, but once demand reached staggering levels, rolling blackouts were inevitable. However the larger issue at hand is that ERCOT should have had an established capacity market, thus sacrificing reliability and leaving Texans at risk. 

 

In truth, the Public Utility Commission of Texas (PUCT) should have winterized natural gas pipelines and wind turbines to prevent freezing. PUCT is a state agency that regulates the Texas’ electric grid, and it was their responsibility to ensure that generation facilities would withstand the storm. However, the real issue is the Electric Reliability Council of Texas’ (ERCOT) libertarian electricity market structure.  ERCOT is an independent system operator who is responsible for Texas’ grid and dispatching power, yet they have not bothered to establish a capacity market to ensure reliability during extreme winter events. The recent crisis ought to serve as a wake up call to the fragility of the grid, and hopefully will result in action to either winterize generation equipment or incentivize the creation of electricity storage facilities. 

 

PUCT should have created regulation ensuring that natural gas pipelines were winterized, which would have prevented natural gas pipelines from freezing and would have sustained the power supply throughout the storm. Natural gas is Texas’ main fuel source and accounts for 35% of Texas’s electricity generation so far in 2021.When temperatures reached 20 degrees fahrenheit, pipelines froze, thus reducing Texas’ base load natural gas from 21 billion cubic feet of gas to less than 14 billion. In addition to frozen pipes, turbines also failed, leading to 18 GW of power to go offline. These failures could have been prevented if PUCT would have created regulation mandating that equipment needs to be winterized. These issues are a regulatory failure on PUCT’s behalf, who were warned in a 2011 joint report by the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Council (NERC) about the dangers that could arise without winterization. The joint report proposed heat tracing tests on generation equipment, construction of cold-weather shelters around equipment that was vulnerable to freezing temperatures, and maintaining other cold mitigation equipment. After all, natural gas pipelines already operate in colder temperatures, notably in North Dakota. In short, winterization could have helped prevent the crisis. 

 

A capacity market serves as a commitment by generators to generate power at peak demand and acts as a form of insurance, yet without a capacity market ERCOT has made itself vulnerable.  PUCT’s fragile market structure could not handle the sudden increase in electricity demand. This is why there were rolling blackouts. The Texas grid is a deregulated wholesale market in which electricity producers send bids detailing the price of their power capacity. ERCOT uses economic dispatch to choose the cheapest electricity prices for consumers. In doing so, ERCOT has to continuously do a balancing act to ensure supply meets demand. But, during the storm, supply dropped by 30 GW/hr while demand soared above 70 GW/hr. Due to this massive imbalance, ERCOT was left with no other choice but to enact rolling blackouts. Unlike other deregulated wholesale markets, ERCOT is not regulated by FERC, which has created a competitive landscape driven not by regulation but by market forces. Simply put, capacity markets require higher spending and thus are disincentivized in Texas’s competitive market structure. For this reason, ERCOT has neglected to establish a capacity market, which would ensure grid reliability. By adding a capacity market, there is a lower chance of failure and could even serve as a way to bring in more market participants in the future. 

 

Winterizing gas pipelines and turbines seems like the simplest solution to preventing another crisis, yet PUCT is unlikely to want to enforce winterization regulation, as it reduces market competitiveness and could drive up prices in the long run. Texas enjoys its deregulated market, reliability has never been at the forefront of the market. For this reason ERCOT should have established a capacity market to produce energy more consistently even without winterization. Rather than ERCOTs single energy market that relies on a pure market exchange, capacity markets incentivizes generators to produce more electricity.  Since natural gas production is already expensive, averaging at $4.8 million per well, it seems as though winterization would be an easy solution, as winterization itself is relatively inexpensive, with FERC estimating costs between $2500-30,000 per well. Due to the rarity of this winter storm many producers will shrug off the crisis as a one time event and are unlikely to invest in winterization. However, if a capacity were established these generation facilities would winterize since they are paid to produce electricity in times of emergency. Simply put,  market forces would push for winterization to maintain consistent power supplies. 

 

Since the Texas electricity market prides itself on independence, PUCT will look towards building natural gas storage facilities in order to ensure grid reliability without the need for FERC oversight. PUCT should push for tax incentives to encourage regulated gas utility companies to invest in storage infrastructure. Over a period of 10-20 years, these utility companies would pass costs to customers in exchange for more reliability. Storage facilities are simply more reliable, and performed well during this crisis when Texas’s most vital source of electricity supply remained underground due to frozen pipes. 

 

In sum, PUCT should be held responsible for not winterizing electric generation equipment. However, once turbines and pipelines froze, ERCOT’s only option was to enact rolling blackout to preserve the grid. This crisis exposes Texas’ fragile market approach, yet PUCT will not admit fault nor pass new regulation and instead will look to ERCOT to remediate the issue by establishing a capacity market and storage facilities to ensure reliability in  the event of future extreme weather events.

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