Understanding why the vulnerabilities of the Texas electric grid were left unchanged following the 2011 storm requires an understanding of the state’s history with its energy market, specifically its deregulation in the 1990s under then-Governor George W. Bush.

The contiguous United States has three electric grids total: The Eastern Grid, the Western Grid, and Texas (also known as the ERCOT Interconnection). By having an isolated grid within the borders of the state, Texas is able to escape the jurisdiction of the Interstate Commerce Clause and thus federal regulation. For most states, due to their electric grid being interconnected and involved in transactions across state lines, they are required to meet the standards set by the North American Electricity Reliability Corporation (NERC). This means that while a state like Arizona, in a mostly desert climate, must prepare their energy infrastructure for extreme weather events despite their unlikeliness, Texas energy companies are under no obligation to do so unless and until the Texas government requires it by law.

This arrangement was strategically acquired by Texas in the mid-twentieth century. After the federal government enacted the Federal Power Act in 1935, Texas ensured its independence by not allowing electricity to cross state lines, escaping the regulatory authority of the then Federal Power Commission (which has since been succeeded by the Federal Energy Regulatory Commission (FERC)).

The Texas grid is managed by the Energy Reliability Council of Texas (ERCOT), a private nonprofit 501(c)(4) corporation. ERCOT was established in 1970 in order to ensure the Texas grid met new national standards for reliability (which were enacted following a major blackout in the Northeast just 5 years earlier), though it still remained out of reach of federal jurisdiction. Although the “power grid doesn’t actually cover the entire state . . . ERCOT manages about 75% of Texas’s land area and roughly 90% of its residents.”

Though originally formed as a “voluntary membership organization” with no delegated state power, the Texas legislature quickly granted ERCOT formal regulatory power through the Public Utility Regulatory Act (PURA), transforming it into a more formal organization: a “private coordinating council” that “oversee[s] the reliability of wholesale and retail electricity markets,” and “ensure[s] that the flow of electricity within the ERCOT system [is] contained within the state of Texas.” 

ERCOT is overseen by the Public Utilities Commission of Texas (PUCT). In 1975, the passage of PURA by the Texas legislature granted PUCT “traditional state regulatory powers.” The PUCT website clarifies its role, stating that “[t]he Public Utility Commission of Texas regulates the state’s electric, telecommunication, and water and sewer utilities, implements respective legislation, and offers customer assistance in resolving consumer complaints.”

A crucial part of the history of Texas’s electric grid is the state’s effort to deregulate the market in the 1990s. In 1995, the Texas Senate passed Bill 373, requiring ERCOT to ensure utilities accept bids from co-generators in order to create a deregulated, competitive, and—most importantly for the proponents of deregulation—an efficient wholesale generator market.

The thought process that justified this transition was simply that a more efficient, competitive market would lead to lower rates as private competitors found ways to lower the costs of production. Four years later in 1999, Senate Bill 7 was enacted, requiring ERCOT to create a competitive retail market as well. PUCT acknowledges this shift in philosophy, noting that after deregulation, its “mission and focus have shifted from regulation of rates and services to oversight of competitive markets and compliance enforcement of statute and rules . . . .” The retail electricity industry is simply the service providers that residents contract with to provide power to a building.

Consumers of electricity buy from retailers, whereas retailers buy electricity from generators. Understanding this, supporters of deregulation felt that a deregulated generator market was not the end point because competition between retailers for rates, perks, and plans would lead to better value for consumers. Further, by deregulating both markets, efficiency in the state’s energy system overall would increase—at least in theory—because government regulation was no longer creating monopolies within each market.

PUCT acknowledges this shift in philosophy, noting that after deregulation, its “mission and focus have shifted from regulation of rates and services to oversight of competitive markets and compliance enforcement of statute and rules . . . .”

The attraction to the deregulation of the Texas electricity market largely stems from an anti-regulation, market-focused movement and approach to law and policy that stems from the Chicago school of economics led by Milton Friedman and George Stigler in the 1970s. The philosophy was simple and easy to understand: government regulation is bad, the free market economy is good. This approach was first pushed onto electricity markets by powerhouse company Enron in California, which infamously led to blackouts and price manipulation by decreasing supply to create an artificial shortage. Prior to the failure in California or the general demise of Enron, the corporation’s executives also began pushing for the deregulation of the electricity market in Texas, utilizing its close connections with Governor Bush. 

The reality of Texas’s decision to deregulate its energy market is that it traded away oversight and public control of a critical infrastructure system that nearly every Texan relies on in exchange for alleged efficiency that never materialized into savings passed down to the customer.

In practice, the results were not as bountiful for consumers as initially hoped. One study found that “Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities.” Additionally, “a 2019 study from the U.S. Energy Information Administration [found that] the annual rate for electricity from Texas’s traditional utilities was 8% lower, on average, than the nationwide average rate,” but that “the rates of retail providers in deregulated markets averaged 13% above the nationwide rate.” The reality of Texas’s decision to deregulate its energy market is that it traded away oversight and public control of a critical infrastructure system that nearly every Texan relies on in exchange for alleged efficiency that never materialized into savings passed down to the customer. 

This history provides important context as to how Texas utterly failed in its preparedness for the 2021 winter storm. The hands-off, market approach to electricity illuminates how Texas possessed the knowledge that its infrastructure was vulnerable to a severe winter event, but never required the industry to address its shortcomings. 

Credit: Gary Ellis

In early February 2011, a severe winter storm hit the American Southwest, including Texas. As previously mentioned, the 2011 winter storm led to rolling blackouts due to demand outpacing supply. Investigations into why the electric grid had failed to meet capacity were conducted in the months following, with two key reports being issued, one by FERC and another released by PUCT. 

FERC’s report found that the primary cause of the blackouts during the storm was due to a lack of weatherization within the facilities of the generating entities that make up the Texas grid. Interestingly, FERC pointed out that PUCT had recommended better weatherization for parties involved in producing electricity after a winter storm in 1989: 

Despite the recommendations issued by the PUCT in its report on the 1989 event, the majority of the problems generators experienced in 2011 resulted from failures of the very same type of equipment that failed in the earlier event. And in many cases, these failures were experienced by the same generators. . . . The failures of these repeating units alone eroded a large share of ERCOT’s reserve margin going into the morning of February 2, 2011, putting the entire system in jeopardy.

In the FERC report’s key findings and recommendations section, it found, among many issues during the 2011 storm, that the lack of any regulation “requir[ing] generators to perform winterization left winter-readiness dependent on plant or corporate choices,” and that generators had been “reactive as opposed to being proactive in their approach to winterization and preparedness.”

As part of its recommendations, FERC’s task force began by simply recommending that, regardless of the low probability of severe winter events, “all entities responsible for the reliability of the bulk power system . . . [should] prepare for the winter season with the same sense of urgency and priority as they prepare for the summer peak season.” The recommendations also suggested that ERCOT reform its outage approval system in order to have more flexibility and regulatory power to deny and cancel planned outages “in cases of approaching extreme weather conditions,” along with recommending ERCOT be able to direct generating entities to “utilize pre-operational warming prior to severe cold weather,” and verify with each entity “its preparedness for severe cold weather.”

Specifically addressing the problem of lack of winterization among companies that generate electricity within the grid, the task force recommended that “[s]tatutes … direct utility commissions to develop the best winterization practices for its state, and make winterization plans mandatory” with “the authority to impose penalties for non-compliance,” as well as attestations from senior management that their generating units have successfully met the standards required for winterization.

Requir[ing] generators to perform winterization left winter-readiness dependent on plant or corporate choices.

After the 2011 winter storm, the Texas legislature passed Senate Bill 1133, directing PUCT to “analyze emergency operation plans developed by electric utilities,” and “prepare a weather emergency preparedness report on power generation weatherization preparedness,” which was to include “recommendations on improving emergency plans and procedures.” The act also granted PUCT the discretion to “adopt rules relating to the implementation of the report” and the ability to submit subsequent reports should weatherization technology improve or if there are any changes to the weatherization requirements.

PUCT’s report was released in 2013, and conducted by Quanta Technology, LLC. The report found that the Emergency Operations Plan (EOP) to be submitted to PUCT by each generating entity lacked enough detail for evaluations, that EOPs were not submitted by every entity that was required to by the rule, and that EOPs failed to address extreme weather preparedness. The report also critiqued plants for their failure to include extreme weather operating limits and address the recommendations from the 2011 FERC report. The report recommended standardizing the information required by EOPs and ensuring all entities have EOPs through means such as attestation forms and provided a list of best practices for cold weather preparedness with accompanying recommendations for PUCT to develop an effective mechanism to ensure compliance. In its final thoughts on cold weather preparedness, the report concludes that “[w]hether the solution lies with the implementation of a NERC or regional standard, the ultimate best practice may be to ensure known solutions are applied and tracked to ensure a repeat of the February 2011 event is avoided.” 

Perhaps the most prescient recommendation made in the Quanta Report is the highlighting of the importance of extreme weather preparedness coupled with a warning about waning vigilance due to the infrequency of severe weather events:

Of critical importance, extreme weather preparedness should receive a level of attention commensurate with the risk posed by other situations that threaten the ability of the plant to remain operating and online. As these extreme weather events are generally infrequent, the importance of continued vigilance in maintaining and implementing adequate EOPs tends to diminish as time passes for many reasons. As a result, it would be prudent for the PUCT to consider how to codify these expectations for generating entities to maintain sufficiently detailed EOPs and routinely practice their implementation in order to be adequately prepared for maintaining operating integrity during extreme cold weather events. 

Unfortunately, the recommendations made by FERC and Quanta failed to be codified in a way that sufficiently prepared the state for the much stronger 2021 winter storm. 

“Whether the solution lies with the implementation of a NERC or regional standard, the ultimate best practice may be to ensure known solutions are applied and tracked to ensure a repeat of the February 2011 event is avoided.”

Following the release of the Quanta Report, PUCT proposed amending Sections 25.53 and 25.362 of the Texas Administrative Code, resulting in more detailed information being required in EOPs and ERCOT assessments of generators’ reliability during extreme weather. Pushback from ERCOT over collecting information on weather design limits and critical failure points made up the bulk of the organization’s submitted comments during the notice and comment period. ERCOT argued that this requirement would have questionable value because “ERCOT’s collection of such information is incomplete and . . . any conclusions drawn from such data are likely to be unreliable.”

ERCOT additionally argued that the data they had was flawed because, while generators must provide their minimum and maximum ambient temperature data whenever they register with the system, most generators just do not provide that information because “manufacturers do not provide this data or did not provide that data at the time the plant was constructed . . . [and the data that is submitted] do[es] not necessarily reflect the actual operating limits of the plant.” For these reasons, ERCOT’s comments to PUCT posited, “ . . . ERCOT believes that submitted, as part of its extreme weather assessment, the limited information it does maintain about generator weather design limits is not likely to be helpful and could potentially be misleading.”

ERCOT continued by critiquing the Critical Failure Points requirement, arguing that its lack of expertise and familiarity with what could only be gleamed from an intimate working knowledge of each individual plant should be reason enough to strike down the requirement.  

Critiques of the proposed amendments came from the industry as well. Energy corporations like NRG Energy also commented on the proposed rule changes, recommending instead that “the commission take a light-handed approach to amend the requirements for registered power generating companies,” because those companies “fail to prepare their generating units to operate during emergency conditions already face the self-policing results provided by the competitive wholesale market.”

“An inability to generate during an emergency can either result in a foregone opportunity to sell power in a high-priced market, or the purchase of expensive replacement power to cover a [power company’s] obligations. Both of these results provide ample incentive to have generating units ready to perform in an emergency.”

Continuing, NRG’s comment concluded that, “[a]n inability to generate during an emergency can either result in a foregone opportunity to sell power in a high-priced market or the purchase of expensive replacement power to cover a [power company’s] obligations. Both of these results provide ample incentive to have generating units ready to perform in an emergency.”

Here, the threat of regulation that could prevent the loss of power in an emergency weather event served as a signal to again sing the refrain of the deregulated market.  First, a severe weather event does not have to be an emergency, but an opportunity for the market that a corporation will surely meet, therefore regulation is not required. Second, the anxiety surrounding this is unfounded because the market accounts for failures because corporations that fail will lose in the market, therefore they’ll either adjust to account for their failure or they will lose their market share to a corporation that will do what is needed. With this ironclad logic, NRG concluded that “. . . [a]ny additions or modifications” to the rule that PUCT proposed “will likely not be as effective as the incentives inherently provided . . . in the competitive wholesale market.”

NRG concluded that “[a]ny additions or modifications” to the rule that PUCT proposed “will likely not be as effective as the incentives inherently provided . . . in the competitive wholesale market.”

On the other side of the notice and comment period, while changes were implemented regarding EOPs, no other significant change that would actually require compliance to weatherize the electric grid occurred. The lack of action by PUCT, ERCOT, and the political offices of the Texas government beyond these minor, incremental changes left the grid open to the perfect storm: a “once-in-a-generation” blizzard covering the entire state for days in 2021.

The Quanta Report’s concern with the lack of pressure to implement winterization as time moved further and further away from the 2011 storm seems clairvoyant. The “once-in-generation” winter storm in 2021 swung a hammer straight into the cracks that had been identified as weak points. The result was an unmitigated disaster. The lack of winterization created a scenario in which the skyrocketing demand that NRG once referred to as a business opportunity for the market could not be met because generators were not prepared to come online during the storm.

The idea that a corporation could come in and flip a switch to capitalize on the lack of supply was an entrepreneurial fantasy without the proper infrastructure to capitalize. As the days passed and the storm continued, the need to shed load to avert a catastrophic shutdown led to what were supposed to be rolling blackouts, but many were continuous blackouts for multiple days. Right when people needed food and supplies the most, retail grocery stores could not open and were having to toss entire stores worth of food that had gone unrefrigerated due to loss of power.

The market forces that were supposed to provide an economic incentive to prepare for extreme weather events before they happened had instead led to hundreds of billions of dollars in property damage, the direct loss of nearly 250 lives and an entire state left asking, “how did they let this happen?”

Other than being a stronger storm in magnitude, the blackouts were caused again by the failure to weatherize the generating entities on the electric grid. However, unlike in 2011, another layer had been added to the crisis: the reliance on natural gas to support electric generation: 

When Texas deregulated its electricity market in the early 2000s, making supply and demand the primary forces for the price of power and increasing competition, wholesale power prices fell. That made it cheaper to electrify natural gas compressor stations and other equipment rather than the traditional method of using the natural gas produced in the field to run the compressor’s turbines or engines . . . 

Over the last two decades, the rapid expansion of electrification of natural gas increased overall supply across the grid and helped dropped consumer prices. However, the lack of significant change in the regulation of electrified natural gas led to it becoming a liability in attempting to meet the demand spike during an extreme weather event. “Reliance on electricity, however, made the state’s electric power system a loop rather than a chain: Electricity relied on natural gas production, and natural gas production relied on electricity.” This works well in normal operating conditions but has the potential to become a negative feedback loop when things go wrong in an extreme weather event.

During the 2021 storm, the increasing reliance on natural gas with no effective regulation to accommodate the co-dependent relationship between the commodities was evident in the form of “paper failures”. Natural gas suppliers to generators of electricity inadvertently had their power cut in the controlled blackouts to keep the grid online. This is because many of these critical producers were not on the list of connections to maintain power during emergency operations. PURA Section 25.497 places the burden of being added to a “Critical Customer List” on the customer by opting in via a standard form: 

There is no requirement for natural gas and other companies that operate crucial parts of the grid to register as “critical.” And a trend toward electrifying key components of the state’s natural gas infrastructure in recent decades, plus the lack of a single agency to oversee all parts of the electric delivery system, created . . . a “single point of failure.”

As a result, when power companies began disconnecting consumers from the grid in order to shed load, some unknowingly had cut the power to many of the state’s critical gas suppliers, as their names simply were not on their list of designated critical customers. This issue was compounded by the lack of weatherization standards of natural gas suppliers that help power the state. Despite generating 42% of all power generated in the ERCOT region in 2021, natural gas is regulated exclusively by the Office of the Railroad Commission of Texas (RRC).  

When power companies began disconnecting consumers from the grid in order to shed load, some unknowingly had cut the power to many of the state’s critical gas suppliers, as their names simply were not on their list of designated critical customers.

Another issue that likely should have been addressed through regulation is the prioritization of natural gas customers. Although the designation of the critical customer with an electric utility is problematic with its opt-in requirement and lack of understanding in the consumer base that it’s a program that exists, a similar program did not exist for natural gas customers, including generating entities. This led to a questionable prioritization during the winter storm because “natural gas pipelines are contractually obligated to prioritize residential customers; power plants typically don’t have similar contracts guaranteeing their fuel supply.”

The storm also highlighted the inadequate weatherization of the electric grid generally. Although EOPs had been improved since 2011, generators simply could not withstand the harsh winter conditions brought on by the 2021 storm. A FERC report released in November 2021 found that “a  combination of freezing issues (44.2 percent) and fuel issues (31.4 percent) caused 75.6 percent of the unplanned generating unit outages, derate, and failures to start.” The report also concluded that “protecting just four types of power plant components from icing and freezing could have reduced outages by 67 percent in the ERCOT region.” In other words, although the increased reliance on natural gas to generate power led to the loss of gas from winter weather having a greater impact compared to the 2011 storm, the primary issue of the 2021 storm continued to be inadequate winterization across the entire grid. 

During and after the storm, blame was placed on ERCOT and its leadership. Despite lacking the authority to mandate weatherization, Governor Greg Abbott publicly lambasted ERCOT for its failure to prepare for the extreme weather event, going as far as demanding the ERCOT leadership resign. Governor Abbott justified his outrage with ERCOT by explaining that ERCOT had assured him it would be prepared for the storm, having issued notice to generating entities to winterize properly. Governor Abbott then called on the legislature to enact legislation mandating winterization of the electric grid, even suggesting state funding to ensure power companies have the capital to weatherproof their facilities.

Despite the fact that the calls for reform in the state’s political news were mostly made up of the very recommendations made by the FERC and Quanta reports 10 years earlier, the disaster that was the 2021 storm not only provided the political will to implement change – it put the project in the express lane. 

In the aftermath of the storm’s devastation, regulations finally began to be proposed and enacted, including new rules issued by PUCT mandating that power companies comply with the decade-old standards of the FERC and Quanta Reports. One proposal is to connect Texas’s grid to the Eastern and Western Interchanges in order to have a fallback in this case of widespread grid failure.

Although Texas officials make a lot of its independence and freedom from D.C. meddling by staying isolated, “Texas could connect its decentralized electrical grid to the rest of the country’s system without losing autonomy and without action from the state legislature.” This would have been particularly useful  during the storm, as “each additional gigawatt of transmission capacity connecting the Texas power grid with neighboring states could have saved nearly $1 billion and prevented blackouts in around 200,000 Texas homes during Winter Storm Uri last year.” However, PUCT officials have not budged here, instead claiming “the state’s grid is stronger than ever and that there’s no need to connect the grids.”

Another proposal to address the increasing interdependency between natural gas and electricity is to create a new single agency to better coordinate the two commodities. Multiple members of the industry have stressed the disconnect between the schemes established for gas and electricity. James Robb, CEO and President of NERC pointed out that “[t]he natural gas system was not built or operated with electric reliability first in mind,” and that “[p]olicy action will be needed to ensure reliable fuel supply for electric generation.” Robb continued, stating that, “regulators don’t have enough oversight of the natural gas supply system in the U.S., given how much its role has grown in the electric power system,” largely as a result of replacing coal and nuclear plants and the use of fracking increasing natural gas production. He then added that natural gas “fueled 40% of all power generation in 2020, more than coal and nuclear . . . combined.”

Pat Wood, the former chair of FERC who previously served on PUCT also weighed in: “[T]he critical “interplay” between the gas supply system and the electric power system was pointed out a decade ago in a Federal Energy Regulatory Commission report, and since then, their reliance upon one another has only grown.” He then offered his support for the idea of granting a single agency the authority to regulate both electric and gas in Texas, stating that it is “long overdue,” but pointed out the reality of the “politically powerful oil and gas industry” makes the idea a “pipe dream.” 

He then offered his support for the idea of granting a single agency the authority to regulate both electric and gas in Texas, stating that it is “long overdue,” but pointed out the reality of the “politically powerful oil and gas industry” makes the idea a “pipe dream.”

So why was Texas so vulnerable during the 2021 storm if the 2011 storm and following reports explicitly pointed out that weatherization was a problem? The answer seems to be that the culture that accompanied deregulation designated ERCOT and PUCT as facilitators for corporations in the energy market, rather than as regulators on behalf of the public. In addition, the members of the industry put pressure on the agencies anytime they attempted to provide more regulation, as seen in 2011 when PUCT slightly increased the reporting requirements for EOPs.

The greed and power of energy corporations in Texas are—at the very least—a contributing factor to why Texas just remained idle after the 2011 storm. An open question remains on if Texas is protected enough now to prevent a complete disaster again. PUCT’s mandate to comply with winterization best practices certainly helps, but the newly discovered problem of natural gas reliance raises concerns since the Texas Railroad Commission (RRC) has yet to issue any regulations requiring winterization for facilities.

The RRC also must face the titan that is the Texas gas industry, a reality being acknowledged by a former chair of NERC and former member of the PUCT itself. It should not take a tragedy to enact common sense regulation that protects the electric grid so many rely on. While PUCT seems to have finally learned its lesson after the 2021 storm punished its 2011 failures, the RRC has yet to prove it is serious about protecting Texas power during extreme weather.

Since this was written, the Texas RRC has approved a rule requiring the weatherization of natural gas. Although the author was not able to take that into account at the time, it is worth highlighting some of the specifics.

The RRC states that, “[t]he new rule requires critical gas facilities on the state’s Electric Supply Chain Map to weatherize, based on facility-specific factors, to ensure sustained operation during a weather emergency; correct known issues that caused weather-related forced stoppages occurred before Dec. 1, 2022; and contact the RRC if they sustain a weather-related force stoppage during a weather emergency.”

Chairman Wayne Christian states that “These new rules ensure our state’s natural gas supply chain is prepared for extreme heat and freezing cold,” while also taking the opportunity to promote the increased reliance on electrified gas: “as Texas adds 1,000 new residents a day, the long-term solution to meeting our state’s energy needs must include building more reliable and affordable natural gas-fire electric generation.”

More about the new RRC regulation can be read on their website.

From The [F]law:

• Amelia Keyes, Seeking Environmental Justice in the U.S. Virgin Islands: St. Croix’s Battle with an Oil Refinery that Refuses to Die. 

From The Systemic Justice Journal:

• Jack Leahey, Beyond Buckley: Corporate Political Spending on the Governors Associations as a Function of Corporate Law and Power.
• HLS Student, The Moral of the Marketplace: Profit – Big Oil’s Prioritization of Profit Over Environmental and Human Safety.
• Cole Jermyn, Shale Games: How the Natural Gas Industry Is Swindling Investors, Society and the Planet.
• HLS Student, Polluting the Narrative: How Air Pollution Becomes Legitimate in Buffalo, NY.