Update On The Great Texas Blackout
“The Texas blackout postmortem continues. It led to the outflow of ERCOT’s experienced board members because they do not live in the state and claims neighboring grids could have helped – they had blackouts, too. ”
Following several long days of hearings in Austin, the postmortem for the Texas electricity blackout is still in its early stage. So far, one outcome has been a mass exodus of independent board members from ERCOT, and now its CEO. However, we still lack the necessary data to analyze what happened to fuel suppliers and electricity generators. It will take months to assemble all the data. In the meantime, several retail electricity suppliers have been forced to file for bankruptcy protection because they cannot meet their massive bills from the jump to $9,000 per megawatt-hour power they were forced to buy during the blackout. Of course, we now have questions about the amount of the bills and possible overcharging of utility companies.
Critics have focused on the isolation of the Texas power generation system within the national grid network. They say that had ERCOT been more integrated with the power grids to its east, north, and west, Texas might have fared better. Would that have been true?
The Southwest Power Pool (SPP), which wraps around much of Texas and provides power to 14 states in the middle of the country, as well as the Midcontinent Independent System Operator (MISO), which handles the electricity for 15 Midwest states and the Canadian province of Manitoba and touches Texas on the east, were forced to institute rolling blackouts due to the storm. It is likely neither of these power grids would have been unable to supply Texas, as they suffered from similar weather and power generation issues.
Exhibit 14. National Grid Regulated By Multiple ISOs SOURCE: FERC
Commentary from officials heading local utilities in Oklahoma and Kansas pointed to their need for rolling blackouts to prevent greater system imbalances that risked major power outages. As one official put it, “it was not an issue of supply, but of demand.” They also pointed out that another reason for the rolling blackouts was to mitigate the fallout from the 100- to 200-fold increase in natural gas wellhead prices. While the interconnections with SPP and MISO might have helped, it seems that given the scope of the polar vortex they would have offered little help to Texas.
Another charge leveled at ERCOT was that it was not prepared for the extent of the cold weather on the power grid. It was pointed out that in the 2011 winter storm, ERCOT suffered a much smaller power loss. It is interesting to compare the scope of the two storms and their impact on the Texas grid. In 2011, 15 gigawatts (GW) of generating capacity were offline. That forced ERCOT to order 4 GW of electricity load to be cut, and the resulting blackouts lasted 8 hours. In contrast, the 2021 storm forced ERCOT to cut 20 GWs of load to stabilize the grid. That created blackouts lasting for 71 hours, impacting nearly five million homes across the state. People seeking to understand why the recent storm was more devastating than in 2011 appear to overlook the significant population and economic growth of the past decade. This does not absolve ERCOT from mismanagement charges, but it highlights why we need the actual data to study the grids’ flaws that produced the extensive blackout and resulting humanitarian crisis. Only then can we determine corrective actions.
The resignation of five ERCOT independent directors and the firing of the CEO has provided some emotional relief for angry Texans. Those directors tendering their resignations were all non-residents of Texas. While there are usually multiple considerations in people’s resignation decisions, the common theme in this case was that you could not creditably serve on the board of a dedicated state organization if you did not live there. This may be a parochial charge, but in a political environment with angry Texas residents and politicians, it was not a surprising outcome.
When we looked at the available information about the directors, we were impressed with their careers. All five directors demonstrated significant leadership and oversight experience. Several of those resigning had extensive careers in the utility industry, exactly the background one would desire in an ERCOT director. One was a former state utility regulator who served on the Michigan Public Utility Commission for seven years from 2013 to 2020. Another was an economics professor whose research focuses on electricity and financial markets. A third individual retired in 2018 from his position working for ISO-NE, the grid operator that manages the six-state New England electric system and wholesale power market. The fourth director had been approved to join ERCOT’s board, but he had not yet received final approval from the Texas Public Utilities Commission that oversees the agency. He was most recently the president of Consolidated Edison Company of New York Inc., a subsidiary of Consolidated Edison Inc., a major electric utility.
Having spent the last 15 years serving on public energy company boards of directors, including heading their governance committees, we have been involved in recruiting numerous directors. As we read the biographies of the resigning directors, we were left with the impression that they had the skill sets ERCOT’s board needs. ERCOT will have a significant challenge in recruiting new independent directors, a requirement for it to continue to operate, especially given the toxic political environment. These five directors were ousted because they were non-residents of Texas, and not for lacking the skills to fulfill their oversight role. The investigation of what transpired at ERCOT leading up to and during the blackouts may conclude that these directors were derelict in their duties, however, one of the five had not even served on the board. We suspect the remaining resigning directors will not be found to have contributed to the problems of ERCOT. Management will bear the brunt of the negative assessments anticipated. Whether the directors asked sufficient and appropriate questions of management will always be an issue. But the day-to-day responsibility of operating the grid rests with management, not the directors.