Special Report: The Valentine's Day Freeze in Texas

Texas suffered a perfect storm of surprises, mistakes, blunders, and bad luck between February 14th and 19th. After the fact, finger-pointing has become a popular sport. Texas power planning and operational readiness left its citizens in peril. Officials are scrambling to resolve serious and, in some instances, ludicrous situations. This resolution is unfolding but for better understanding, we believe three areas need examination: Weather, the Grid, and real-time pricing (LMP).

Weather

In the not-too-distant past, the recent polar vortex incursion might have been dismissed as a Black Swan event, one that rarely occurs and can’t be planned around. Exceptional cold in a state known for its summer air conditioning demands isn’t prevalent, but neither is it rare, to the point of “1-in-a-100-year” status. 2011 saw another polar vortex event that prompted some industry leaders to point out deficiencies and infrastructure shortcomings. Cost trumped prudence and improvements were avoided for the most part.

It’s not just cold weather that deserves scrutiny. “1-in-a-100-year” hurricanes have become “1-in-10-year” events, witnessed by the destructive storms along the Gulf Coast. “Harvey” was the most expensive storm in history for SE Texas (prior to the current event). Disaster relief was an exceptional circumstance we relied on to get us through those rare instances of being overwhelmed by nature. Unfortunately, that’s not the case anymore.

Extreme weather is more severe and more frequent. If there was ever a wake-up call, the past week was it. All of Texas’ citizens have to know that in time of system stress, authorities have their back. Cost can’t be the go/no go criteria for decisions. Examples of things to be done:

Weatherize all infrastructure (well heads, transportation, generation, etc.) so delivery integrity is as close to an absolute as possible. Fossil fuel generation, nuclear, and renewables are necessary pieces of energy answers. It isn’t that any one of these failed as a source of power; rather they weren’t properly protected.

Building standards need to reflect the new realities of weather extremes. Busted pipes are preventable, again, at a cost.

Old expectations should be replaced by the new realities of weather.

The Grid

ERCOT is charged with maintaining the dependable transmission of generated power to end users (Loads). Generation assets are independent entities. Investor Owned Utilities (IOU) managed delivery from the transmission lines to their customers. Commercial & Industrial entities (C&I) are large end users, notionally more sophisticated and suitable for risk incentivized by lower price. Smaller commercial users are your local laundries and restaurants. Residential loads are our homes and apartments. This last group is the only innocent in this discussion. They have virtually no control of their power-using fate and suffered the most from the loss of power.

Looking past the discussed requirement of infrastructure weatherization, the integrity of the Grid was paramount to ERCOT concerns. Transmission is enabled within a tight range of frequencies that are constantly monitored and regulated (two of the ancillaries services are reg up and reg down, i.e., turning on generation or turning off generation to maintain required frequency). Skipping over the technical details of how this is done, know that without such regulating, the grid will fail. ERCOT had to prevent losing grid integrity, so they instigated rolling blackouts in order to maintain frequency. They recognized the looming failure (something that could last for weeks) and managed accordingly. They did their job with the tools at their disposal.

Pricing

The lessons learned include issues of suitability and understanding. A much publicized failure concerns the lifting of power via real time pricing by Griddy, a Retail Electric Provider that advertised and advocated the variable rate product that historically has been the cheapest option. It comes at a risk of open-ended exposure to price spikes. The average of prices has, heretofore, offset the to-be-expected price spike that must be anticipated. Such spikes have been relatively short term events (note the chart below through January 2021).

Look at where we are to date through February 21st:

The magnitude of price is obviously crazy and will be adjusted. Prices are algorithmically computed every 15 minutes (96 intervals a day). The intent wasn’t to provide windfall profits for generators, but rather to incentivize generation to be available for grid integrity. Without going into the bid stack details, the price capped numbers of last week were an unintended hiccup that will be corrected in some form or fashion in the near future. No one benefits from the prices reflected above.
That said, suitability for such a pricing venue should be reviewed. Residential customers looking for price benefit are not appropriate for open-ended risk and will likely be restricted from same going forward. Knowing your customer rules need to be emphasized. Common sense will prevail.

Conclusion

We, of the power industry, are all at fault to some degree. Ignorance isn’t a valid excuse for issues we should have foreseen and protected against. Texas will correct the discussed problems and insure that they don’t get repeated. ERCOT has a good record of managing a system based on energy only pricing. It works with the tools provided and they broke. It isn’t a time to throw out but rather improve a system that works (usually).