Will 2022 Be the Summer of ERCOT's Discontent (and Blackouts)?

On Thursday, May 12, Texas grid operator ERCOT called on energy giant Calpine to keep a power plant online during scheduled repairs, a “scheduled outage,” to meet anticipated demand during unusually hot weather. Calpine naturally complied, but the plant unexpectedly tripped on Friday and went offline.

Then, also on Friday afternoon, ERCOT asked Texans to turn their thermostats to 78 degrees for the weekend, and avoid using large, power-hogging appliances during the hottest part of the day. Why? Well, several other plants—six, with 2,900 megawatts of generation according to ERCOT—had gone offline. Grid stability was maintained, but these plants also went down after agreeing to postpone scheduled maintenance shutdowns, according to a spokesperson for the Texas Competitive Power Advocates., as quoted in The Texas Tribune.

Generators plan outages weeks to months or more in advance and report them to the grid operator, so that ERCOT knows how much power will be available at given times. They typically perform them in the spring and fall, the so-called “shoulder months” when load is typically lower, so that their plants are available during the hottest days of summer and coldest days of winter. So, requiring operators to postpone planned maintenance puts both current and summer generation at risk from both a safety and reliability standpoint.

Notwithstanding the outcry following 2021’s Winter Storm Uri, which claimed at least 246 lives—and probably many more—and denied power to millions of Texans during subfreezing temperatures, the Texas grid’s stability and capability may still be at risk, especially this summer. This despite a reconstitution of the ERCOT, and new regulations intended to ensure that both generators and fuel suppliers stay available and operating in all conditions, enforced by the Public Utility Commission of Texas. It’s illustrative, if tragic malpractice, that Texas Governor Greg Abbott asserted that the problem during Uri was that Texas’s many wind turbines failed. Now, it’s true that wind energy diminished significantly during the coldest hours of the storm. But because wind was “only expected to provide a marginal amount of generation during this scenario, the loss of approximately 2-3 GW of output was less disruptive to the power grid than the loss of approximately 20 GW of natural gas-sourced supply” according to an analysis from law firm White & Case. And just this past February, despite his promise two months earlier that the lights would stay on this winter, Abbott backpedaled and said "No one can guarantee there won't be [power outages]," according to The Texas Tribune.

ERCOT may, or may not, be able to keep the grid going during what is forecast to be an unusually sizzling summer. But there are some flawed fundamentals here. ERCOT has what’s called an energy-only market. Simply put, generators make money only for the electricity they sell. That may sound reasonable, but it also means that generators must cover massive overhead costs all year, and typically fall into the black only when it's hottest and megawatt-hour power prices are highest. It also means that these generators lack the funding, and therefore the incentive, to invest millions in their facilities, many aging and needing constant upkeep.

Unlike ERCOT, other grid operators such as PJM (originally Pennsylvania, Jersey, and Maryland) which operates the largest electricity market in North America in the Northeast and Midwest United States, have a capacity market that provides standing payments to generators in return for their agreement—contractually, in effect—to be available to provide specific amounts of electricity at specific times. PJM, for example, also has an enforcement mechanism called "capacity performance”, which can result in millions in penalties if generators receiving capacity payments can’t provide power when called on. Capacity markets also provide “price signals” that provide incentives for generators to build new resources needed for grid capacity and reliability.

But a primary problem is that in the 1930s, the Lone Star State decided to avoid federal oversight, and implemented “self-regulation.” And it simply hasn’t worked well, unlike other grid operators and energy markets that the Federal Energy Regulatory Commission (FERC) oversees. As such, ERCOT has mostly isolated itself from interstate power transactions with neighboring states in the other two grids, the Eastern Interconnection and the Western Interconnection. During Uri, such connections would not have helped much, because those states were also under the freezing thumb of the storm, but they would certainly be enormously helpful under other weather and load conditions. And this same “islanding” from the interstate bulk power grid has further kept ERCOT out of the FERC’s jurisdiction.

In addition, the state’s oil and gas industry, which failed massively during Uri, due to lack of winterization, is regulated, oddly, by the Texas Railroad Commission (RRC), whose members have strong ties to the industries they ostensibly regulate. After Uri, RRC Commission Chairman Wayne Christian lined up with Governor Abbott to incorrectly blame “unreliable wind and solar generation” for the blackout, and said “the winter storm has been used as a weapon by the media and the far left to attack fossil fuels,” according to Austin’s KXAN Investigative Unit. And despite Commission claims that virtually all oil and gas infrastructure has been winterized, an analysis by Dallas’s WFAA found that the Commission’s own records don’t support that.

There’s another key player involved in ERCOT’s reliability: the independent North American Electric Reliability Corporation (NERC). On behalf of NERC, the Texas Reliability Entity, Inc. (Texas RE) develops, monitors, assesses, and enforces compliance with NERC Reliability Standards. NERC found, following URI, that the majority of generator and natural gas supply failures were due to frozen equipment, even though winterization requirements were in place and advance notice that the storm was coming. NERC issued its Summer Reliability Assessment reports on May 18, saying with respect to ERCOT: "Expected resources meet operating reserve requirements under normal peak-demand scenarios. Above-normal summer peak load and outage conditions could result in the need to employ interruptible load programs and additional operating mitigations reflected in the scenario. Load shedding may be needed under extreme peak demand and outage scenarios studied."

However, on May 17, ERCOT released its own assessments, during which Public Utility Commission of Texas Chairman Peter Lake asserted “We are better prepared than we have ever been before. We can say with absolute confidence (emphasis mine) to Texans, the lights will stay on this summer.”

When have we heard that before?

ERCOT isn’t alone in its problems. Potential blackouts are forecast this summer for the California grid (CAISO) amidst generation inadequacy, exacerbated by hot weather, droughts, and wildfires. Capacity shortfalls are also anticipated for the much larger footprint of the Midcontinent System Operator (MISO), spanning 15 states and Canada’s Manitoba Province, especially under hot weather conditions.

For the sake of Texans, I hope the PUCT Chairman is right. But based on history, maintenance issues in an aging generation fleet, ERCOT’s regulatory morass, the fact that that that assessment is based on “normal” conditions which may not obtain, and the unlikely willingness of millions to set their thermostats much higher than they like, I’m not taking that bet. And I'm very glad I live in the reliable PJM footprint.