“The Market was Working as Designed”. Texas Grid Architects Don’t See the Problem

March 1, 2021

Houston, you have a problem.
Dallas, you too.

Harvard Crimson:

After a winter storm in Texas earlier this month left the state’s residents to contend with widespread power outages and skyrocketing electricity prices, William W. Hogan, the architect of the state’s energy market system and a professor at the Harvard Kennedy School, said the state’s electricity market had “worked as designed” given the conditions in an interview with The Crimson Wednesday.

Hogan, an energy policy professor, has researched the structure of energy markets for several decades and advocated for a specific type of scarcity-based market model in an attempt to reduce prices for consumers. In 2013, Texas chose to adopt Hogan’s model.

Per scarcity-based pricing models, when the power supply is scarce, as was the case during the recent storm, the price of energy increases.

Energy generation dropped during the record-setting storm due to loss of power plants, fallen transmission lines, and damage to the grid. As a result, the price of energy rose, and some Texans whose power remained on saw their energy bills increase precipitously.

One Texas resident, for example, told the New York Times that the cost of his electricity went up 70-fold. He now owes $16,752 for his energy bill, wiping out his savings.

Hogan acknowledged in the Wednesday interview that such situations are “terrible.” Still, he argued the end result could have been much worse.

“The people who didn’t lose their power, they’re much better off than the people who lost it,” Hogan said. “Even if they had to pay bills for it, then that’s going to have to be figured out.”

He added that Texas residents who ended up with high power bills “chose not to have long-term contracts that protected them.”

Below, Michael Webber PhD of the University of Texas tweeted:

Crimson again:

Kennedy School student Christopher J. Stewart, whose family was in Texas during the storm, said residents’ negative experiences with the energy system during this crisis matched his expectations for a state where politicians have long pushed for cutting costs.

“It was interesting to see a comment from Professor Hogan that the system worked as designed because I actually think that that’s true — I think the system did work as designed,” he said. “It’s not surprising, because under the guise of fiscal responsibility, they’ve defunded a lot of our public services.”

Y. Joana Ortiz, another student at HKS, also said she was disappointed to hear Hogan’s position, but said it pointed to a “larger systemic issue.”

“Maybe people are surprised by his bluntness, but I think if you do not grasp that you live in a capitalistic society that favors private market for profit, I mean, that is the basis of our country,” she said.

Ortiz added that she believes Texas should meet the recent disaster with bold action.

“I think there certainly needs to be accountability, but I actually don’t even think accountability is enough,” she said. “I think there needs to be major reform and personally, I think that will really manifest itself in the next state election cycle.

Below, section from Electric Utility Response to the Winter Freeze of December 21 to December 23, 1989 (careful, big file)

Pro Publica:

In January 2014, power plants owned by Texas’ largest electricity producer buckled under frigid temperatures. Its generators failed more than a dozen times in 12 hours, helping to bring the state’s electric grid to the brink of collapse.

The incident was the second in three years for North Texas-based Luminant, whose equipment malfunctions during a more severe storm in 2011 resulted in a $750,000 fine from state energy regulators for failing to deliver promised power to the grid.

In the earlier cold snap, the grid was pushed to the limit and rolling blackouts swept the state, spurring an angry Legislature to order a study of what went wrong.

Experts hired by the Texas Public Utility Commission, which oversees the state’s electric and water utilities, concluded that power-generating companies like Luminant had failed to understand the “critical failure points” that could cause equipment to stop working in cold weather.

In May 2014, the PUC sought changes that would require energy companies to identify and address all potential failure points, including any effects of “weather design limits.”

Luminant argued against the proposal.

In comments to the commission, the company said the requirement was unnecessary and “may or may not identify the ‘weak links’ in protections against extreme temperatures.”

“Each weather event [is] dynamic,” company representatives told regulators. “Any engineering analysis that attempted to identify a specific weather design limit would be rendered meaningless.”

By the end of the process, the PUC agreed to soften the proposed changes. Instead of identifying all possible failure points in their equipment, power companies would need only to address any that were previously known.

The change, which experts say has left Texas power plants more susceptible to the kind of extreme and deadly weather events that bore down on the state last week, is one in a series of cascading failures to shield the state’s electric grid from winter storms, ProPublica and The Texas Tribune found.

Lawmakers and regulators, including the PUC and the industry-friendly Texas Railroad Commission, which regulates the oil and gas industry, have repeatedly ignored, dismissed or watered down efforts to address weaknesses in the state’s sprawling electric grid, which is isolated from the rest of the country.

About 46,000 megawatts of power — enough to provide electricity to 9 million homes on a high-demand day — were taken off the grid last week due to power-generating failures stemming from winter storms that battered the state for nearly seven consecutive days. Dozens of deaths, including that of an 11-year-old boy, have been tied to the weather. At the height of the crisis, more than 4.5 million customersacross the state were without power.

Luminant argued against the proposal.

In comments to the commission, the company said the requirement was unnecessary and “may or may not identify the ‘weak links’ in protections against extreme temperatures.”

“Each weather event [is] dynamic,” company representatives told regulators. “Any engineering analysis that attempted to identify a specific weather design limit would be rendered meaningless.”

By the end of the process, the PUC agreed to soften the proposed changes. Instead of identifying all possible failure points in their equipment, power companies would need only to address any that were previously known.

The change, which experts say has left Texas power plants more susceptible to the kind of extreme and deadly weather events that bore down on the state last week, is one in a series of cascading failures to shield the state’s electric grid from winter storms, ProPublica and The Texas Tribune found.

Lawmakers and regulators, including the PUC and the industry-friendly Texas Railroad Commission, which regulates the oil and gas industry, have repeatedly ignored, dismissed or watered down efforts to address weaknesses in the state’s sprawling electric grid, which is isolated from the rest of the country.

About 46,000 megawatts of power — enough to provide electricity to 9 million homes on a high-demand day — were taken off the grid last week due to power-generating failures stemming from winter storms that battered the state for nearly seven consecutive days. Dozens of deaths, including that of an 11-year-old boy, have been tied to the weather. At the height of the crisis, more than 4.5 million customersacross the state were without power.


FERC – Outages and Curtailments During the Southwest Cold Weather Event of February 1-5, 2011:

Between February 1 and February 4, a total of 210 individual generating units within the footprint of the Electric Reliability Council of Texas, Inc. (ERCOT), which covers most of Texas, experienced either an outage, a derate, or a failure to start. The loss of generation was severe enough on February 2 to trigger a controlled load shed of 4000 MW, which affected some 3.2 million customers. On February 3, local transmission constraints coupled with the loss of local generation triggered load shedding for another 180,000 customers in the Rio Grande Valley in south Texas. El Paso Electric Company (EPE), which is outside the ERCOT region, lost approximately 646 MW of local generation over the four days beginning on February 1. It implemented rotating load sheds on each of the days from February 2 through February 4, totaling over 1000 MW and affecting 253,000 customers. The Salt River Project Agricultural Improvement and Power District (SRP), located in Arizona, lost 1050 MW of generation on February 1 through February 2 and shed load of 300 MW, affecting approximately 65,000 customers. The New Mexico communities of Alamogordo, Ruidoso, and Clayton lost approximately 26 MW of load, affecting a little over 21,000 customers, when Public Service Company of New Mexico (PNM) experienced localized transmission failures, although these were largely unrelated to the extreme weather.

In total, approximately 1.3 million electric customers were out of service at the peak of the event on February 2, and a total of 4.4 million were affected over the course of the event from February 2 through February 4.

5 Responses to ““The Market was Working as Designed”. Texas Grid Architects Don’t See the Problem”

  1. Brent Jensen-Schmidt Says:

    Market working as it was designed to, that is, make money for the corporations regardless of service. Perfect.

  2. jimbills Says:

    Texas has a problem, and in more ways than one:
    https://www.nbcnews.com/news/us-news/gov-greg-abbott-lift-texas-mask-mandate-open-state-100-n1259329

    Texas currently ranks 45th out of 50 states for per capita vaccinations. Texas is one of 11 states still marked “red” for “unchecked community spread”. New cases this week in Texas almost doubled from last week.

    Idiocy reigns.

    • neilrieck Says:

      I don’t get this one. Now Texans are going to keep the disease alive -AND- spread it back to other states. I guess it is true what they say: YOU get the government YOU deserve

  3. Peter Scheffler Says:

    So based on the logic of the pricing system, shouldn’t only the customers who had power during the blackout pay for all the costs of repair to the system?


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