Why is the Texas Grid in Such Trouble?

Texas is the energy capital of the US, if not the world.
So why are they so bad at keeping the lights on in stressful situations?
Do they think things are going to get any easier? At what point will Texans consider a change in leadership?

Andrew Dessler in the Climate Brink:

The Texas grid, run by ERCOT, has had a rough few years. In 2021, winter storm Uri blacked out much of the state for several days. About a week ago, Hurricane Beryl knocked out power to millions of Houstonians, and a week later, hundreds of thousands of Houstonians still hadn’t had their power restored.

It might seem that these two events are completely different — one was a winter storm that caused a blackout by knocking out the natural gas supply, while the other one is a hurricane that knocked out the power distribution system.

But the root cause of these two incidents is actually the same. To understand what’s going on, you need to realize that keeping the power on is incredibly valuable to society and, when the power goes out, the damages are enormous. The Uri blackout cost well north of $100 billion. I have yet to see an estimate of the cost of Hurricane Beryl, but I’m guessing it’s also going to be eye popping.

But here’s the key fact: these costs are not paid by energy companies. When the power went out during Uri and pipes froze and burst, the energy companies didn’t pay those costs. Homeowners and insurance companies did. When the power outage caused Texans to freeze to death, the energy company didn’t pay, society did. Energy companies aren’t paying the expenses from Beryl, either.

Thus, power outages actually cost energy corporations very little money — maybe a few days’ revenue.  Hardening energy infrastructure, on the other hand, is very expensive and entirely paid for by the energy corporations. This cuts into their profits and stock price.

Put slightly differently: Energy corporations pay the full cost of hardening infrastructure but capture only a small fraction of the benefits. Most of the benefits flow to society in the form of avoided burst pipes, avoided loss of income, avoided health impacts.

So why in the world would a corporation spend money hardening the energy system? The answer is there’s no reason. The net result is that the rational thing for corporations is to underinvest in making the grid resilient to extreme weather.

This is a market failure just like the carbon dioxide problem: There’s no incentive for emitters to reduce emissions because they pay the full costs of the emissions reductions but capture only a small fraction of the benefits of avoiding the impacts of climate change. In such a case, the rational thing for a profit-seeker is to keep emitting carbon dioxide.

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Below, Houston Chronicle energy columnist Chris Tomlinson, after the disastrous 2021 blackouts. Those blackouts were caused by the failure of Texas regulators to require weatherization of power plants, especially fossil gas generators.
“..in 5 to 10 years we’re going to have another storm like this and we’re going to have the same problems.”

Loren Steffy in the Houston Chronicle (gift link):

We taxpayers have spent billions upon billions of dollars trying to fix our broken grid, and we keep coming up short. Our state leaders, their campaign coffers fattened by the companies and executives who profit from the market flaws, cling to the ideology that a partially deregulated market, with enough tweaks, may finally work. They’re hoping you don’t notice how they keep shoveling money into the abyss. 

So let’s review some of the more egregious costs:

Remember that constitutional amendment that Texans voted for, and this newspaper grudgingly endorsed, last year? The $10 billion “energy insurance fund” it created was supposed to give us a more reliable market. Some $7.2 billion was to provide loan subsidies for building more thermal power plants by 2029. This a tacit admission of the market’s failure. Despite the need for more generation, the market doesn’t create the financial incentives needed to buy more generation unless the government subsidizes them. In other words, your electric bills aren’t enough.

So now, the PUC, an agency with no banking or financial expertise, is in the loan business. Generators know a good handout when they see one, so the state, which received $39 billion in loan applications, is expanding the fund.

The remaining $2 billion was earmarked for developing backup power systems, grid modernization and weatherization around the state. The darkened stores, houses and streets of Houston over the past two weeks remind us how desperately all of these things are needed. But again, these are basic improvements that our bills should be paying for. They shouldn’t be an add-on cost.

Then there’s the $6.3 billion or so worth of bonds that the state used to cover the cost of the market failures in the 2021 disaster. We’ll be carrying that debt until about 2050. Children now in diapers will reach adulthood to find their electric bills fattened by the failings of the past. That, too, is a way of dispersing accountability. Unless you read the fine print on your electric bill each month, that money is largely forgotten.  

The state budget surplus could have covered these costs. Instead, our state leaders chose to force future generations to pay for their mistakes.

And those are just the latest bills. Houstonians have paid dearly for our deregulation debacle. Back in 2004, the PUC granted CenterPoint the right to recover $2.3 billion for the “stranded costs” of power plants it inherited from the old Houston Lighting & Power.Stranded costs are an industry term that means the amount a company invested in a plant exceeds its market value. That added $5.10 to the monthly bills of all Houstonians.

But it wasn’t enough. CenterPoint came back to the PUC in 2011, saying it needed another $1.7 billion. If you’ve read this far, you already know what the PUC did.

And what happened to those plants? CenterPoint sold them to billionaire David Bonderman for $3.7 billion. Bonderman flipped the plants, selling them to NRG a year later for $5.8 billion. Apparently those costs weren’t so stranded after all.

With the PUC’s loving assistance, CenterPoint fleeced Houstonians to the tune of $4 billion, and left about $2 billion on the table.

This has been the legacy of deregulation — the slow drip of taxpayer billions over the years. That doesn’t even count the higher electric bills consumers paid in the early years, the broader economic impact of power failures, or the cost of smart meters that CenterPoint rolled out, in yet another failed promise, to speed disaster recovery.

So we are left with a system that leaches billions from our pockets and no one who’s willing to do anything about it. The leaders who perpetuate this failed system keep getting reelected, and CenterPoint and other players in our electric mayhem continue to get belly-scratches from the PUC.

The market that has failed us so often since 2003 will continue to cost us more and more while delivering less and less. It’s a market that promised lower prices and didn’t deliver, that promised more reliability and didn’t deliver. And now, as the energy capital of the world emerges from a week-long blackout, we see yet another broken promise: accountability.

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Recent studies of possible consequences of power failure during a heat event are sobering.

Fox 10 Phoenix:

What would happen if Phoenix is hit with a heatwave and a power grid failure at the same time?

That’s the question behind a new study release this week, and the worst case scenario is scary.

The study comes as blackouts across the country have doubled over the past eight years, climate change is making heatwaves, hotter and longer, and cities like Phoenix are increasing its heat islands with every new building, roadway, house and driveway.

The study uses a scenario of Phoenix being hit by a heat wave, with high temperatures hovering around 110F, coupled with a power grid blackout that lasts at least two days.

Based on that scenario, the study found that about half the city’s population – nearly 800,000 people – would suffer from heat-related illnesses, overwhelming the city’s 3000 emergency room beds. In addition, and an estimated 12,800 people would die.

“We’re very excited about the piece of the analysis that we were able to tackle, and we hope it increases conversation between local and federal governments, and how we can be prepared for large scale hazards,” said Hondula, who is also Phoenix’s first Director of Heat, Mitigation and Response.

“We are looking at those extreme events, so it’s really helpful to see what it does, so they can be evaluated for planning,” said ASU Climatologist Erinanne Saffell.

Dessler again:

After a big December 1989 blackout caused by lack of winterization of the energy system, fixes were promised. Those were never implemented and another blackout occurred in Winter 2011. A subsequent report laid out steps to make the grid more robust. Those were never implemented, so we had another blackout in 2021.

After the 2021 blackout, a natural gas billionaire made huge campaign contributions to prominent politicians and, lo and behold, nothing was done to make natural gas providers harden their infrastructure. If we had another Uri tomorrow1, we could once again see widespread blackouts. 

The same will happen over the next few months with respect to the Beryl blackout: After the outrage theater dies down, nothing will be done.

This is one of the reasons, by the way, why Texas is so popular with corporations. They are never held accountable for pushing their costs onto society, as long as the people who pay the costs are the poor and middle class.