Topic: Utilities

Utilities

Introduction

In February 2021, winter storm Uri swept from the Pacific Northwest to the East Coast, leaving many in southern states without basic resources like electricity and water.[1] Texas was especially hard-hit, due in part to its lack of winter-weather-capable infrastructure.[2] Two hundred and ten residents died as a result of the storm, due mostly to hypothermia.[3] Millions more lost power for multiple days.[4] Even at the disaster’s beginning, it was immediately clear to electric grid operators within the Energy Reliability Council of Texas (ERCOT) that electricity generation was failing and would be unable to meet soaring demand.[5] Operators ordered distribution companies to shed load, leading to controlled outages[6] that left almost 70% of ERCOT customers without power for an average of 42 hours during the storm.[7]

When state legislators reconvened after the storm, they clamored to pass a torrent of legislation in response to the spectacular failure of Texas’ primary electric grid. Many state politicians blamed renewable sources of energy for the grid’s failure, with a conservative news correspondent even claiming “it seems pretty clear that a reckless reliance on windmills is the cause of this disaster.”[8] Contrary to these claims, however, failures throughout the natural gas supply and generation chain were mostly to blame for the failure in electricity generation.[9] Despite this fact, the legislative response to the grid’s performance during the winter storm keeps one eye pointed toward renewable sources of energy and opens the door to financially penalizing these sources through rulemaking, while neglecting to remediate the issues that resulted in the failure of natural gas facilities and related supply issues. 

Renewables’ Performance During the Storm

            At the peak of the blackouts, the highest amount of unavailable electricity due to generator outages and underperformance was 52,037 megawatts (MW).[10] For comparison, ERCOT has an expected total peak capacity of about 78,000 MW,[11] meaning that during the worst part of the storm, only 33% of the grid capacity was available for use. While all sources of energy failed to some extent during the storm, ERCOT notes that thermal sources—including coal, natural gas, and nuclear—lost nearly twice as many gigawatts of power as renewables.[12] ERCOT had previously prepared a worst-case extreme winter scenario, in which it expected to lose 14,000 MW of thermal resources.[13] In reality, thermal outages were more than twice that high during Uri[14], while demand was also 10,000 MW higher than projected.[15] Meanwhile, renewable energy sources contributed to only 13% of the power outages[16] and, importantly, wind power had only been projected to make up about 7% of ERCOT’s winter grid capacity to begin with.[17] In a post-storm report, an independent director of the ERCOT board stated that “relative to expectations, renewables overperformed, and thermal plants underperformed during the crisis.”[18]

            The across-the-board failures of the grid were due to a lack of winterization, as all types of power generation were left susceptible to freezing.[19] The federal government had previously warned ERCOT about its lack of weatherization after significant blackouts on Super Bowl Sunday in 2011.[20] An analysis from federal agencies after the 2011 blackouts advised power producers and natural gas suppliers in Texas to winterize in order to prevent future weather-related blackouts.[21] Additionally, the report pointed out a regulatory blind spot that left grid operators not knowing what facilities to prioritize when shedding load.[22] Power operators and gas suppliers had the option to file paperwork designating themselves as critical infrastructure, yet many had failed to file the 2-page document.[23] Although the 2011 report urged Texas regulators to correct these problems, power producers and natural gas suppliers were both repeat offenders during winter storm Uri.[24]  Clearly, the state’s response to such warnings has been inadequate. Power companies have complained that low electricity prices provide no incentive to make such improvements, but new laws may finally push generators to make changes.[25] 

Legislative Response

            New law SB 3 stands out from a flurry of new legislation as the most significant bill impacting suppliers of renewable energy. This bill deals with ancillary services, which are additional power resources beyond those needed to meet real-time customer demand that act as insurance in case of an unexpected interruption to the grid. It is imperative that there is at least enough electricity supply to match demand at all times—if demand exceeds supply and causes the frequency of the grid to drop outside its operating range, it can cause physical damage to infrastructure and lead to a complete failure of the grid for weeks.[26] Ancillary services are an important counterpart to nondispatchable sources of energy, or sources that cannot be turned on and off at will. Because wind and solar generation are nondispatchable and variable by nature, ERCOT purchases ancillary services as a back-up in case they fail to generate as much power as expected.[27] Currently, the cost of ancillary services are distributed among consumers,[28] but SB 3, which became effective immediately upon signing on June 8, now shifts at least some of the burden to renewable energy providers.[29] 

            SB 3 amends the Texas Public Utility Regulatory Act (PURA) to require the Public Utility Commission of Texas (PUC) to determine whether existing ancillary services continue to meet the needs of the ERCOT market by reviewing existing services and their costs.[30] This amendment also requires ERCOT to modify the design, procurement, and cost allocation of ancillary services “in a manner consistent with cost-causation principles and on a non-discriminatory basis.”[31] Although this cost allocation appears sound, agencies promulgating such cost-causation principles will face challenges in defining them due to the highly variable nature of consumer demand and the intermittency of non-dispatchable wind and solar generation.[32] New rulemakings could shift the relative allocation of costs of ancillary services either to renewables or across multiple categories of generation, but ultimately the final cost decisions are placed on the regulators defining cost-causation principles.[33]

            The bill also requires the PUC to oversee ERCOT in determining the amount and type of ancillary services needed to ensure reliability during extreme heat or cold events and when intermittent sources of generation like wind and solar are low.[34] This review must be conducted at least annually.[35] ERCOT must procure such ancillary services on a competitive basis and ensure that they are dispatchable, reliable, and capable of continuous use during extreme weather in the season for which the service is procured.[36]

            Lastly, SB 3 requires the PUC to promulgate rules requiring most electricity generation providers to implement weatherization measures.[37] Furthermore, providers of generation that experience “repeated or major weather-related forced interruptions of service” must contract with third-parties to assess their weatherization efforts and must comply with any recommendations in such assessment if ordered to do so by the PUC.[38] This provision will impact both renewable and thermal generators.

            As a separate matter, SB 1281 requires ERCOT to assess the grid’s reliability in possible extreme weather scenarios every other year. These assessments will consider the impacts of both thermal and renewable generation and recommend transmission projects that will increase the reliability of the grid.[39] 

Proposed Railroad Commission (RRC) rulemakings stemming from recent legislation would require facilities all along the natural gas supply chain to file critical infrastructure paperwork or else face a penalty of $2,500.[40] This rule differs from the previous system, under which facilities that wished to be designated as critical were merely encouraged to submit such paperwork on their own initiative.[41] While affected operators would now be required to file critical infrastructure paperwork, they would retain the option to either designate themselves as critical or simply pay $150 and declare they are opting out of the designation if they are not equipped to operate during a weather emergency.[42] Facing the costs of weatherization to ensure operability in weather emergencies, it may be more economical for some facilities along the natural gas supply chain to opt out of the critical designation and allow themselves to be shed during power shortages.  

Problem Solved?

            The mere fact of legislative focus on ancillary services seems to imply that ERCOT’s current level of reliance on non-dispatchable sources like wind and solar is what caused the massive outages during winter storm Uri. In light of this political framing, agencies may choose to allocate a high proportion of ancillary service costs to renewable generators, potentially impacting the growth of the renewable market and in turn limiting the amount of renewable generation the grid relies on. The implication that even low reliance on renewables leads to outages is contrary to the truth that renewable sources overperformed during Uri as compared to expectations while thermal sources drastically underperformed even worst-case scenario projections. 

Because a lack of weatherization is to blame for the gross underperformance of all types of generation during Uri, procuring additional ancillary services is likely not enough to prevent future outages. Even with more such services waiting in the wings, they will not serve their purpose as reliable safeguards if they are not properly weatherized. Priority should be placed on building the resiliency of primary sources of generation rather than on procuring a greater number of equally vulnerable sources. The natural gas supply and generation chain is in most urgent need of weatherization as it makes up the majority of ERCOT’s electricity mix and has proven to be susceptible to extreme cold. While renewable sources also need weatherization, spotlighting them in the conversation distracts from the pressing need to weatherize the thermal sources that provide most of Texas’ electricity. 

Pending rulemakings will determine the extent to which generators will be required to weatherize beyond what market forces acting alone have called for. Proposed rules from the RRC would allow natural gas suppliers to sidestep weatherization by simply opting out of a critical infrastructure designation. The RRC has long been criticized for its intimate ties to the oil and gas industry; recently, the Commission used a list of nominees hand-selected by industry leaders to appoint 4 of its 5 seats to the Texas Energy Reliability Council.[43] It is perhaps then unsurprising that rules proposed thus far by the RRC do little to impose greater regulation or mandate weatherization. 

Only time will tell whether new rules’ resiliency standards combined with ERCOT’s biannual projections of extreme weather events will be adequate to prepare grid operators to manage the next major storm or draught. In analyzing why engineers made bad decisions that led to the Challenger explosion, Astronaut Alan Sheppard said “it’s the human element. I suggest that there’s a complacency there that comes from success.”[44] Perhaps Uri was a wake-up call to Texas’ comfortably complacent energy market. The next storm will reveal whether this session’s slate of legislation answered it sufficiently. 

Alessandra Papa is a 2L studying energy and environmental law. As TELJ’s Symposium Director, she produced the 2022 Symposium on Legal System Changes to Address Climate Change and the Energy Transition in conjunction with the Texas Bar’s ENRLS. She has also been selected to serve as Editor-in-Chief of Volume 53. Alessandra grew up in Fort Worth, Texas and received a B.S. in Geography from Texas A&M. Her background in geoscience informs her legal studies and she looks forward to a career advocating for renewable energy.

Alisha Mehta is an attorney in the Environmental and Legislative section of Jackson Walker’s Austin office. She focuses on permitting and water matters, including real estate developers and special utility districts and counsels clients on transactional and regulatory issues before the Public Utility Commission of Texas.