Historic Winter Storm Prompts Widespread Outages

by Taylor Denison, Chris Brewster, and R.A. “Jake” Dyer

Winter Storm Uri, which hit Texas February 15 through February 19, left more than four million Texans without power for days, prompted the resignations and terminations of top energy officials, and may have implications for the future of the Texas energy market over all.

The controlled outages began early on Monday, February 15, and within hours it was clear that Texas was experiencing its most severe energy crisis in at least a decade. ERCOT announced Sunday night that it had set a winter record for power demand, reaching 69,150 megawatts between 6 and 7 pm. By Monday morning, more than 30,000 megawatts of power generation had been forced off the system. By Tuesday morning, more than 43 million Texans were without power, even as temperatures in many areas dropped into the single digits. The outages were not short-lived: by Wednesday, more than 27 million Texans remained without power, and many Texans continued without power into Thursday.

Winter Storm Uri was rare in both its scope and intensity. The National Weather Service issued winter storm warnings for all 254 Texas counties. In addition to losing power, residents across the state lost water service, and many of those with water were issued boil water notices because sanitation systems had failed.

The operator of the state’s primary power grid, the Electric Reliability Council of Texas (ERCOT) scrambled to manage the crisis, working to keep power in balance while simultaneously dealing with a surge in electricity use and a loss of a significant part of the state’s generation fleet. Both thermal and renewable energy units went offline. An ERCOT official reported that 16 gigawatts of renewable energy generation went offline—as well as 30 gigawatts of capacity from thermal sources, including gas, coal, and nuclear energy sources. Gas lines failed, wind turbines froze, and even a nuclear unit in South Texas tripped offline. ERCOT officials said they had no choice but to call the outages in order to avoid long-term, catastrophic damage to the grid. ERCOT stated that without the outages, a supply-and-demand imbalance could have spiraled out of control, causing a “black start event” which could have left the state without power for weeks or longer.

In the aftermath of the outages, the political impact has begun in Austin. Governor Greg Abbott called for a legislative investigation into ERCOT, declaring it a “legislative emergency.” He also called for the resignations of top ERCOT officials. Senate and House leaders likewise announced committee hearings into ERCOT and the blackouts. In the Senate, the Business and Commerce Committee, chaired by Kelly Hancock, conducted its first hearing on February 25. In the House, the State Affairs and House Energy Resources
Committees conducted a joint hearing on the same day. The State Affairs and Energy Resources Committees are chaired by Reps. Chris Paddie and Craig Goldman, respectively. Industry leaders from every facet of the energy field testified over the course of several days of hearings, prompting policy debates in both the House and Senate regarding our current energy-only market, the concept of deregulated markets, the reliability of conventional versus renewable generation, and many other topics. Throughout the next month, additional hearings were held by the Senate Committee on Jurisprudence and Senate Committee on Business and Commerce, as well as the House Committee on State Affairs and the House Committee on Energy Resources. The deadline for filing bills during the 87th Legislative Session was March 12. House lawmakers filed more than 4,500 bills and Senate lawmakers filed more than 2,100 bills. Among those bills are approximately 400 relating to energy or utility matters, which is three to four times the number during a typical session.

Winter Storm Uri has also prompted the resignations of top regulators. The Public Utility Commission’s (PUC) Chairman, DeAnn Walker, resigned on March 1 after facing harsh criticism in the aftermath of the winter weather event. One week later, on March 8, 2021, Commissioner Shelly Botkin resigned. Commissioner Arthur D’Andrea was then chosen by Governor Greg Abbott to replace Walker as Chairman. On March 17, less than two weeks after being promoted to Chairman, D’Andrea resigned. D’Andrea’s resignation will be effective upon the appointment of his replacement. Then, on April 1, Governor Abbott announced the nomination of Will McAdams, president of the Associated Builders and Contractors (ABC), to one of the open PUC Commissioner positions. The appointment must be confirmed by the state Senate.

In addition to the PUC resignations, ERCOT also saw turnover in the aftermath of the winter storm. On February 23, four Unaffiliated Directors resigned from ERCOT and one Unaffiliated Director candidate withdrew his application. All five members resided out of state. Governor Greg Abbott welcomed the resignations, issuing a statement the same day. Since then, four additional board members have resigned. In addition to the multiple Board resignations, the ERCOT Board voted on March 3, 2021 to terminate the employment of ERCOT CEO Bill Magness, effective May 3, 2021.

Financial ramifications from the storm have also been set in motion. Carrie Bivens, with Potomac Economics, which acts as the Independent Market Monitor (IMM) for the ERCOT market, testified in Senate Jurisprudence discussing the IMM’s recommendations. The IMM issued letters to the PUC on March 1 and March 4, recommending the PUC to direct ERCOT: 1) to reprice all day-ahead ancillary services (AS) clearing prices to cap them at the System-Wide Offer Cap; 2) to invoke the “failure to provide” settlement treatment for all AS that were not provided in real time; and 3) to correct the real-time energy prices to remove the inappropriate pricing intervention. The IMM’s recommendations led to a debate among key elected officials, culminating in a press conference by Lt. Gov. Dan Patrick in which he urged Gov. Greg Abbott or the PUC to address the repricing issue. Most members of the Texas Senate wrote a letter to then PUC Chairman D’Andrea, urging him to correct ERCOT prices during the 32-hour period. D’Andrea testified in both House State Affairs and Senate Jurisprudence, stating that he would not order the repricing because he did not agree with the IMM’s recommendation. He also stated he believes repricing would be illegal because ERCOT rules only allow for repricing due to operator mistake, and that repricing whole-sale energy and AS prices would harm various entities that had done a good job hedging for the winter weather and winterizing. In legislative hearings and witness testimony, it has become clear that market participants and lawmakers come down on different sides of the repricing debate. So far, repricing has not been ordered, although several bills addressing the issue have been filed.

Taylor Denison is an Associate in the Firm’s Energy and Utility Practice Group. Chris Brewster is a Principal in the Firm’s Energy and Utility Practice Group. R.A. (“Jake”) Dyer is a Policy Analyst for the Energy and Utility Practice Group. If you would like additional information or have questions about this article or other matters, please contact Taylor at 512.322.5874 or tdenison@lglawfirm.com, Chris at 512.322.5831 or cbrewster@lglawfirm.com, or Jake at 512.322.5898 or jdyer@lglawfirm.com.

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