‘Power Companies Get Exactly What They Want’: How Texas Repeatedly Failed to Protect Its Power Grid Against Extreme Weather

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 studyof 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 customers across the state were without power.

As millions of Texans endured days without power and water, experts and news organizations pointed to unheeded warnings in a federal report that examined the 2011 winter storm and offered recommendations for preventing future problems. The report by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation concluded, among other things, that power companies and natural gas producers hadn’t properly readied their facilities for cold weather, including failing to install extra insulation, wind breaks and heaters.

Another federal report released three years later made similar recommendations with few results. Lawmakers also failed to pass measures over the past two decades that would have required the operator of the state’s main power grid to ensure adequate reserves to shield against blackouts, provided better representation for residential and small commercial consumers on the board that oversees that agency and allowed the state’s top emergency-planning agency to make sure power plants were adequately “hardened” against disaster.

Experts and consumer advocates say the challenge to the 2014 proposal by Luminant and other companies, which hasn’t been previously reported, is an example of the industry’s outsize influence over the regulatory bodies that oversee them.

“Too often, power companies get exactly what they want out of the PUC,” said Tim Morstad, associate director of AARP Texas. “Even well-intentioned PUC staff are outgunned by armies of power company lawyers and their experts. The sad truth is that if power companies object to something, in this case simply providing information about the durability of certain equipment, they are extremely likely to get what they want.”

Luminant representatives declined to answer questions about the company’s opposition to the weatherization proposal. PUC officials also declined to comment.

Michael Webber, an energy expert and mechanical engineering professor at the University of Texas at Austin, said the original proposal could have helped in identifying trouble spots within the state’s power plants.

“Good engineering requires detailed understanding of the performance limits of each individual component that goes into a system,” Webber said. “Even if 99.9% of the equipment is properly rated for the operational temperatures, that one part out of 1,000 can bring the whole thing down.”

Luminant defended its performance during last week’s deep freeze, saying it produced about 25% to 30% of the power on the grid Monday and Tuesday, compared with its typical market share of about 18%.

In a public statement, officials said the company executed a “significant winter preparedness strategy to keep the electricity flowing during this unprecedented, extended weather event.” They declined to disclose whether any of the company’s generating units failed during last week’s winter storms.

State officials are again promising reforms. Lawmakers have called on officials with the PUC and the Electric Reliability Council of Texas, which operates the power grid that spans most of the state, to testify at hearings later this week. Gov. Greg Abbott has called on lawmakers to mandate the winterization of generators and power plants, and Texas Attorney General Ken Paxton said he was launching an investigation into ERCOT and almost a dozen power companies, including Luminant. Separately, the PUC announced its own investigation into ERCOT.

Texas is the only state in the continental U.S. that operates its own electric grid, making it difficult for other regions to send excess power in times of crisis, especially when they are facing their own shortages, as they were last week. All other states in the Lower 48, as well as peripheral areas of Texas, are connected to one of two grids that span the eastern and western halves of the country.

Because Texas operates its own grid, the state isn’t subject to federal oversight by FERC, which can investigate power outages but can’t mandate reforms. Many energy experts say the very nature of the state’s deregulated electric market is perhaps most to blame for last week’s power crisis.

In Texas, a handful of mega-utilities controlled the distribution and pricing of the power they produced until two decades ago, when the Legislature shifted to a system where companies would compete for customers on the open market. Lawmakers said the change would result in lower power bills and better service, a promise that some experts and advocates say hasn’t been kept.

But under this system, power companies aren’t required to produce enough electricity to get the state through crises like the one last week. In fact, they are incentivized to ramp up generation only when dwindling power supplies have driven up prices.

Other states with deregulated power markets, including California, have made reforms and added additional safeguards after experiencing similar catastrophes.

“The fault on this one is at the feet of the Legislature and the regulators for their failure to protect the people rather than profits, the utility companies, rather than investing millions of dollars in weatherization that had been recommended in review after review of these kinds of incidents,” said Tom “Smitty” Smith, a longtime Texas consumer advocate and environmental activist. “They have chosen not to do that because it would be too expensive for the utilities and ultimately to the consumers.”

“We’ll Be Opportunistic”

Three years after the 2011 storms, the Texas electric grid faced another major cold weather test when a polar vortex swept across the state. Freezing temperatures helped to knock out nearly 50 generating units at Texas power plants in the first week of 2014, bringing ERCOT perilously close to ordering rotating outages.

The event quickly faded from public attention because it was a near-miss that didn’t actually leave people without electricity or heat. But because the state had come so close to blackouts, the North American Electric Reliability Corporation, which has some authority to regulate power companies in the country, launched an investigation. The probe found similar problems to those that dogged the state after the 2011 storms, primarily equipment that failed to stand up to the freezing temperatures.

Despite the equipment failures that brought the electric grid to the brink of disaster, the polar vortex was a financial windfall for power-generation companies. In the months that followed the storm, some of the companies stressed to investors the financial benefits of the two days of cold weather and accompanying high energy prices.

“This business benefited significantly from increased basis and storage spreads during the polar vortex earlier this year,” Joe McGoldrick, an executive with Houston-based CenterPoint Energy, said in a November 2014 earnings call. “To the extent that we get another polar vortex or whatever, absolutely, we’ll be opportunistic and take advantage of those conditions.”

The company did not respond to requests for comment.

Texas has relied on the principle that higher prices will spur greater power generation when the state needs it most, a structure that helps explain the persistence of blackouts, said Ed Hirs, a University of Houston energy expert.

In extreme weather events like last week’s freeze, prices per megawatt jumped from an average of around $35 to ERCOT’s maximum of $9,000.

Hirs said it’s in the power generators’ interest to “push ERCOT into a tight situation where price goes up dramatically.”

“They are giving generators incentive to withdraw service,” he added. “How else do you get the price to go up?”

Texans have already been hit with sky-high bills since last week’s event, with some climbing as high as $16,000, according to The New York Times. At an emergency meeting Sunday, the three-member PUC ordered electric companies to suspend disconnections for nonpayment and delay sending invoices or bill estimates.

Power companies weren’t the only ones that saw the 2014 event more as a success story than a sign of weakness.

ERCOT concluded that operators “handled a difficult situation well” and took “prompt and decisive actions” that had prevented systemwide blackouts. In the “lessons learned” section of its final report, the agency promoted the continuation of its winterization site visits, which are not mandatory.

Winterization efforts were paying dividends in the form of fewer generating units falling victim to cold weather, the report stated.

Federal regulators agreed. During a meeting of the National Association of Regulatory Utility Commissioners in February 2014, a month after the storm, a top-ranking official from NERC stated that the response showed “industry is learning [and] using the resources and tools available to improve their preparations and operations of the grid during a significant weather event.”

But NERC’s investigation exposed problems that would bring Texas to a crisis point last week.

In the 2014 report, NERC methodically laid out how power-generating equipment failed during the cold snap, detailing 62 examples that included frozen circulating water that caused a supply loss and moisture in the air causing valves to freeze. In all, those cold-related failures were responsible for the vast majority of lost power during the event, the agency found.

The incident also highlighted the need to improve winter performance of natural gas pipelines, which NERC found hampered the ability of gas-fired power plants to generate electricity. The agency declined to comment, saying it doesn’t discuss investigations.

Natural gas and power generation are highly dependent on each other: Natural gas processing requires electricity, which may be produced in turn by burning natural gas.

Citing preliminary figures from ERCOT that show natural-gas-fired power plants performed worse than those fueled by other types of energy during this year’s power crisis, energy experts say producers and distributors of that fossil fuel played a major role in the catastrophe.

Natural gas producers and pipeline companies in Texas are regulated by the Railroad Commission.

R.J. DeSilva, a spokesperson for the agency, declined to say whether it requires natural gas producers and pipeline companies to weatherize wellheads or pipelines. He noted that poor road conditions made it impossible for crews from natural gas companies to inspect wells and said some producers reported “the inability to produce gas because they did not have power.”

Because so many homes are heated with natural gas, fossil fuel plays a much more central role in the winter than it does in the hot summer months.

“When all this began, millions of Texans wrapped their pipes to keep them from freezing, and the Railroad Commission didn’t order — has never ordered — the gas companies, the gas producers and gas pipeline companies … to wrap their pipes to protect them from freezing,” said Smith, the consumer advocate.

Failed Legislation

After days of scrambling to address the myriad crises that pummeled his city last week, former longtime state Rep. Sylvester Turner — now mayor of Houston, the state’s largest city — had a message for his former colleagues.

“You need to dust off my bill, and you need to refile it,” the Democrat said during a press conference Friday, referring to legislation he filed in 2011 that would have required the PUC to ensure ERCOT maintained adequate reserve power to prevent blackouts. “Because it’s not about just holding hearings.”

The state’s deregulated market is to blame for the crisis, according to some experts who say the catastrophe shows that the system ultimately prizes profits over people. But some of the architects of the system are doubling down.

In a blog post published last week on the website of U.S. House Minority Leader Kevin McCarthy, former Texas Gov. Rick Perry suggested that the current disaster was worth it if it keeps rates low and federal regulators from requiring changes to the system.

“Texans would be without electricity for longer than three days to keep the federal government out of their business,” said Perry, who was governor from 2000-15 and presided over the early days of energy deregulation in Texas. “Try not to let whatever the crisis of the day is take your eye off of having a resilient grid that keeps America safe personally, economically, and strategically.”

Perry, who returned to his job on the board of Dallas-based pipeline giant Energy Transfer LP after serving as energy secretary in the Trump administration, received at least $141,000 in campaign contributions from Luminant’s former parent company, TXU Corp., between 2002 and 2009, when he was governor.

On Saturday, Turner warned about the soaring residential utility bills that Texans would be getting in the coming weeks. In 2012, when Turner was still a state representative, he wrote a letter to the then-chairman of the House State Affairs Committee, raising concerns about PUC rule changes that increased the price caps companies could charge for power to $9,000 per megawatt.

Those price caps remain the same today.

This time, Turner called on lawmakers to pursue substantive reforms that don’t simply “scapegoat” ERCOT, referring to the increasing calls for an investigation into the council, including by Abbott. “You must include the Public Utility Commission in these reforms because they provide direct oversight over ERCOT, and all of those commissioners are appointed by the governor,” Turner said.

In 2013, Turner attempted, unsuccessfully, to pass a measure that would have replaced the governor’s appointees on the PUC with an elected commissioner. The same year, he tried to salvage a measure that would have increased the administrative penalty for electric industry participants that violate state law or PUC rules.

The Texas Sunset Advisory Commission, which audits state agencies every 12 years to determine how they can better function or if they should be abolished, recommended in 2013 that the PUC exercise additional oversight of ERCOT, including a review and approval of annual budgets and annual review of “PUC-approved performance measures tracking ERCOT’s operations.”

One of the recommendations called on the PUC to increase the administrative penalty to $100,000 a day per violation, stating that the $25,000 daily penalty “may not be sufficient for violations that affect grid reliability, which can cause serious grid failures, such as blackouts.”

Lawmakers passed a bill during that year’s legislative session that adopted many of those recommendations, but the change in penalties was left out. An amendment by Turner to restore the higher fee in the bill failed.

Another former Democratic lawmaker who now leads a major Texas city similarly tried and failed to pass legislation that would bring greater accountability to the state.

In 2015, Dallas Mayor Eric Johnson, then a state representative, authored a bill that would have required state agencies, including the PUC, to plan and budget for severe weather using state climatologist data.

“It would have forced state agencies to prepare for an event like what just happened and to account for that in their agency plans,” Johnson said during a Thursday press conference addressing the crisis. “It was quite unfortunate, because we can’t say that it would have prevented this situation but certainly may have.”

Then, two years ago, facilities owned or controlled by utilities regulated by the PUC were exempted fromlegislation that requires the Texas Division of Emergency Management to “identify methods for hardening utility facilities and critical infrastructure in order to maintain essential services during disasters.”

The bill’s author, Republican state Rep. Dennis Paul, declined to comment. State Sen. Eddie Lucio Jr., who co-sponsored the measure, said he did not know why the PUC was exempted.

“Demanding Answers”

For the past two decades, consumer groups have fought without success for a larger role in how the state manages its power grid. Giving residents a stronger presence on the ERCOT board would have forced the agency to take the lessons of extreme winter storms in 2011 and 2014 more seriously, said Randall Chapman, a ratepayer attorney and longtime consumer advocate.

“It would have changed things entirely,” Chapman said. “Residential consumers are the ones who have been through outages before. They are the ones with the broken water pipes, the ones freezing in their homes. They would be demanding answers.”

Chapman said the groups were stymied when the Legislature agreed to reserve only asingle seat on the ERCOT board for a representative of residential consumers. In comparison, eight seats, including alternates, are filled by representatives of energy retailers, power generators and investor-owned utility companies.

“Residential consumers need a stronger voice over at ERCOT,” Morstad of AARP Texas said. “Decisions are made every week that affect the health and safety of millions of Texans. You need a strong voice there to call B.S. when companies aren’t following through on winterizing or other things that are critical to reliability of the electric system.”

In 2011, Texas Comptroller Glenn Hegar co-authoreda bill while serving in the state legislature that would have increased the size of the ERCOT board and allowed for more consumer representation. It didn’t pass.

Hegar said the failures displayed in the last week once again bring the significance of representation to the forefront.

“As a result of this extremely unfortunate event where so many people were out of power and now have damage to their homes and their businesses, there needs to be a broader range of representation on the board and to bring those voices as we move forward in trying to decide what we want our electric grid to be,” Hegar said.