Week Ending February 26, 2021

Interdependencies in Texas Show Infrastructure and Industry Vulnerabilities

This Article Appears as Published in Foster Report No 3338

As state regulators in Texas held hearings on the winter storm that led to deaths and a series of calamities, the interdependency of the state’s energy system that involves natural gas, power generation, water and transportation infrastructure has come into focus.

Gas-fired power plants that had gas supplies cut, natural gas pipelines that had compressor stations lose power due to blackouts, frozen water lines at power plants, impassable roads that hindered repairs, frozen coal piles, municipal water facilities that faltered without heat and power, and sky-high commodity prices are some of the effects being examined.

Most of those issues, particularly the codependency of the gas and power sector and lack of information-sharing among the two industries, have cropped up before and been the subject of proceedings at FERC and at independent system operators (ISOs) in different parts of the country. There has been some progress made, but the events at the Electric Reliability Council of Texas (ERCOT) show that more is needed, said Philip Moeller, executive vice president for business operations and regulatory affairs at the Edison Electric Institute.

Moeller expressed some frustration that more has not been done to improve coordination among the gas and power sectors, which was a focus for him for much of his time when he was a commissioner at FERC from 2006 to 2015. He credited work at the North American Electric Reliability Corp. (NERC) and elsewhere for steps made to date, and noted that NERC CEO Jim Robb often says “it’s time to stop admiring the problem and deal with it.”

The tragedies that took place in ERCOT hopefully will lead to more productive discussion among industry groups, Moeller said in an interview with The Foster Report.

A collection of federal and state regulators, the Department of Energy, power and gas industry trade groups and stakeholders produced a NERC reliability manual in March of 2020 on fuel assurance and reliability risks for the bulk power system. The manual was prepared by NERC’s Electric Gas Working Group, related Daphne Magnuson, who is with the Natural Gas Supply Association and was speaking for the Natural Gas Council. “Outreach to ensure companies are aware of this 2020 manual is slated to ramp up this year,” with the possibility of regional workshops, Magnuson said.

But the events in ERCOT drove home the point that it is more than gas and power coordination that needs to improve, said Alison Silverstein, a consultant based in Austin, Texas, and author of numerous reports on grid resilience and weather events. In an interview with The Foster Report and during a February 24 panel discussion, Silverstein said extreme weather is becoming more common and showing the effects it can have in different parts of the country, with vulnerabilities across multiple sectors of the economy.

Regulators in Texas and the energy sector have not done enough planning and preparing for extreme events because for decades the operations have focused on past events and lessons learned, with “high impact, low frequency” events getting attention, Silverstein said. But high impact, medium frequency is becoming the norm, with hurricanes, wildfires, droughts and other events affecting reliability. Silverstein often refers to the power sector preparing for “Ozzie and Harriet” weather that is predictable, when “Mad Max” weather and war game planning for multiple contingencies should be a focus.

Because rolling blackouts at gas pipeline compressor stations were experienced in February 2011, there are probably a few more diesel generation units at those compressor stations, Silverstein said. Though during the Legislature hearings, officials recounted how gas pipelines could not deliver gas to generators when needed, or at least not to the level required during the emergency events that lasted several days.

One of the problems experienced in other parts of the country with gas and power coordination is contractual measures are relied upon instead of formal regulatory requirements. A hesitancy by generators to use firm contracts, which are more costly and not usually rewarded under power market pricing in restructured markets, has been highlighted by the Natural Gas Council and others.

Because extended periods of freezing temperatures are rare in Texas, the free market approach and light regulatory guidelines for winterization have market players accustomed to taking a risk on weather effects, Silverstein said. Texas lawmakers and regulators have emphasized competition and low costs for consumers, with limited federal oversight, she and others said during the panel discussion held by the Advanced Power Alliance and Conservative Texans for Energy Innovation.

There has been a lack of appreciation for the interdependence of multiple systems and a failure to foresee possible effects, said Jeff Clark, president of Advanced Power Alliance. Utilities in ERCOT were preparing for use of rolling blackouts, but the extended outages that lasted days instead of hours showed the vulnerabilities when gas and power sectors cannot rely on each other, added Daniel Cohan, associate professor for civil and environmental engineering at Rice University.

Other regions in the middle of the country did not escape the wrath of the storm, with use of rolling blackouts in Southwest Power Pool and parts of Midcontinent Independent System Operator, and an examination by FERC and NERC underway.

Ensuring infrastructure and energy delivery systems are operated to withstand extreme weather and climate change effects was mentioned by Silverstein – who has raised the issue for several years – and others, including FERC in a new examination of the energy market effects of climate change.

When roughly 40% of the power generation in ERCOT was unavailable for multiple reasons, balancing supply and demand became precarious and the grid was close to full collapse, ERCOT officials told state lawmakers and reporters during a press conference.

At a February 24 board meeting of ERCOT, where four members and one prospective member who live outside of Texas resigned, ERCOT President and CEO Bill Magness informed the board that the ERCOT region was just minutes away from a system collapse due to a rapid frequency drop stemming from generation losses and struggles to match electricity demand with supplies. A full collapse would have been a catastrophe, which is why ERCOT made the decision to have extended outages for days instead of rolling blackouts, Magness said.

Power generator and retail supplier Vistra Energy Corp. came within three minutes of losing all power at the 2,300 MW Comanche Peak nuclear power plant in Texas, which would have had a major effect, Vistra CEO Curtis Morgan told a joint committee meeting of the state House of Representatives. “We came dangerously close to losing the system,” Morgan said.

Testifying alongside Mauricio Gutierrez, president and CEO of NRG Energy, Morgan and Gutierrez told lawmakers there needs to be a better recognition of the interdependence of fuel supplies, power generation and delivery as an integrated system rather than individual components. “The gas system failed,” but it didn’t just fail in Texas, as there were gas outages in Oklahoma and New Mexico, Morgan said. “It was a whole system that had issues,” he said.

“How do we ensure the entire system is more resilient” and better able to withstand the effects of climate change is something lawmakers should examine, Gutierrez said. The Legislature could set standards or direct state agencies to come up with rules to ensure reliability, winterization or other measures are taken, he said. Lawmakers could define what is resilience if they want harder requirements than the guidelines in place today, Gutierrez said.

Under questioning from committee members, Morgan said he did not see urgency at ERCOT once the weather forecast and projections for demand were clear on February 14. He was concerned more steps were not being taken to notify the public and state officials to brace for a crisis.

While ERCOT has been in the crosshairs of politicians and borne a lot of blame, the lack of preparation and responsibility should be assessed on multiple parties, Silverstein said during the panel discussion. The Legislature passed the laws that has the Public Utility Commission overseeing ERCOT, with no hard requirements for winter preparations, with agencies and market players trying to follow rules they were given. “There are no villains here … we all share some blame” by enjoying low costs that the market design produced for decades, Silverstein said.

Among the solutions that have been thrown out at different events and in the Legislature: Overhauls at ERCOT, the grid operator regulated by the PUC; Legislation to change market rules and regulatory oversight; Mandatory winterization of power generation facilities, although some winterization steps could cause problems during the summer; Improved coordination among the natural gas, power and water sectors – with communication and broadband vulnerabilities examined as well; Stress tests and contingency planning to account for emergencies and unforeseen events; Better sectionalization of the distribution grid by utilities when rolling blackouts are used; Use of microgrids for critical facilities; Enhanced transmission connections; Improved communication with the public during emergencies.

The resignation of ERCOT board members outside of the state, which Governor Greg Abbott was pleased with, robs ERCOT of an outside perspective and people familiar dealing with energy system operations during winter weather, said Joshua Rhodes, research associate at the University of Texas Energy Institute. Independent board members on ERCOT are important, and getting rid of members just because they don’t live in the state does not make sense, Rhodes said during the February 24 panel discussion.

There was plenty of blame and finger-pointing during extended committee meetings held in the Texas Senate and House of Representatives February 25, with acknowledgements of responsibility by industry officials and a few state lawmakers.

NRG conducted winterization plans at its facilities, but they did not perform as designed for various reasons, Gutierrez said. “We own it. We did not perform” as planned, he said.

The committee hearings illustrated how state lawmakers unfamiliar with the power market established under Senate Bill 7, which ushered in competition 20 years ago, questioned officials about energy markets that have driven the state’s economy and enabled relatively low-cost power supplies for most consumers. The price spikes that have been infrequent in the past have been of short duration and deemed sufficient market signals for buyers and sellers, but the length of this winter storm and the effects lasted much longer, and the restructured market may not endure. The design of the Texas power market, dating back to legislation that brought in retail competition 20 years ago, the relative isolation of ERCOT from the Eastern and Western Interconnections and other elements were all mentioned during hearings that went late into the evening February 25.

House committee members vowed to address the situation once the evidence is gathered and possible solutions are narrowed down. New legislation is among the options on the table, with commitments to citizens that the events of mid-February should not be repeated.

If the Legislature allows scarcity pricing during times of high demand and low supplies as financial incentives for investments, ERCOT is obligated to follow the law, Silverstein said. There are unintended consequences of statutes, and “this is not some grand cabal” that has planned for generators to gouge customers, she said.

“The buck stops with the state Legislature,” and Texas historically has embraced limited regulation, with individual agencies addressing one part of a problem, said Cohan. Texas policymakers have held back federal regulation and “we are reaping that bitter harvest,” Silverstein said.

During a different online panel February 24, Texas’ focus on cost savings and lack of planning for climate change was noted by Michael Webber, chief science and technology officer at ENGIE. Texas’ regulatory structure focuses on market forces. “We’re building our infrastructure for 1970s weather and not 2050 weather,” he said in a phrase that was repeated at other events following the storm.

One of the messages heard repeated during the joint House meeting of the State Affairs and Energy Resources Committees was the lack of communication with the public and public officials to let them know the severity of the crisis the industry was facing. Officials with ERCOT, the Public Utility Commission of Texas, generation companies, utilities and retail power suppliers were all berated by lawmakers for their minimal communications and warnings.

Communication among the gas and power sectors nationwide has improved, but there is a need for constant coordination and enhanced understanding, Moeller said during the interview. EEI members practice for operations during extreme events so that everyone is aware of what can happen and who needs to be contacted when situations deteriorate in a hurry, he said.

Coordination is easier on a regional level, which is one of the things Moeller learned from FERC’s examination of gas and power cooperation, through regional meetings held in different parts of the country. Some ISOs have done some good work with the gas industry and pipeline sector on the number of gas-fired power plants served by one pipeline, and what could happen if gas supplies are limited, Moeller said.

Magnuson picked up on that point, noting that PJM Interconnection showed gas-fired generators increased use of firm transportation contracts following a polar vortex event in the winter of 2013-2014. PJM’s examination and changes included a capacity performance plan and changes in contracting practices by gas-fired generators.

Source: PJM Interconnection 2018 Report on Analysis of Capacity Performance

NGSA and the Interstate Natural Gas Association of America also participate regularly in calls with the ISO-RTO Council to discuss winter preparedness, Magnuson said. Pipelines have offered services with increased hourly gas flows and extended periods for nomination cycles, although “the last we heard was that few generators were actually using those cycles,” she said.

Besides the reliability manual put together by NERC’s Electric Gas Working Group, NERC conducts regular Grid Exercises and scenario planning for disasters and multiple contingencies. Those exercises are held every other year, and the NERC report compiled after the 2019 exercise has multiple lessons about enhanced collaboration needed. Utilities and grid operators should review their emergency response plans to account for complex collaboration with all levels of government that would be required during a grid emergency, NERC said in the early 2020 report.

By Tom Tiernan ttiernan@fosterreport.com

Want to try it out? Sign up for a free trial!
Subscribe Here