Blackouts and Bias: Clearing Up the Grid Narrative
The preliminary data shows all major fuel classes—wind, solar, nuclear, natural gas, hydroelectric and coal—had performance problems. In Texas, the most adversely affected region, the grid operator reported 28 gigawatts of thermal power generation and 18 gigawatts of renewables were forced offline by extreme cold. But the narrative should reflect the suppression of customer preferences for reliable service as much as deficiencies in supply.
In an effort to clean up false narratives and redirect discussion toward productive frames, stakeholders should keep in mind the following:
- Get past the technology wars. Arguing for or against a particular technology misses the policy point. Electricity policy is, and should be, technology-agnostic. That said, the performance of types of technologies should inform the regulatory rules that facilitate fair competition and align market participant behavior with the reliable operation of the system. The point is for the regulatory architecture to let markets allocate resources efficiently, especially for investment and operations during extreme weather events.
- There’s no evidence that customer outages were caused by subsidies or lack of “baseload” power investment. False claims that a lack of baseload power investment—generators that can run around-the-clock at a steady state—and too much wind and solar are proliferating on the political right. In one sense, the biggest issue is that so-called baseload generators didn’t perform as… baseload generators. As for subsidies, they certainly distort markets and constitute bad policy, but there’s no evidence that they contributed materially to this week’s reliability problems. And areas like Texas do not need out-of-market subsidies for more capacity, baseload or otherwise, but instead should focus on why tens of gigawatts of current capacity was not available.
- Emphasize demand as much as supply. The bulk power system must balance supply and demand instantaneously to keep the lights on. Many, if not most, press articles exclusively cover supply reductions, ignoring the criticality of reducing non-essential electric demand. The consequences of the supply shortfall could have been dramatically reduced if there were better systems in place to curtail low value uses of electricity and to ensure households experienced only brief, rather than sustained, outages. In the Great Plains and Midwest, where most power plant owners are under cost-of-service regulation, that may mean expansion of emergency demand response and better load prioritization protocols, like California pursued to manage wildfire risk. But in price-driven Texas markets, policy reforms should enable differentiated retail reliability products to flourish to address why more demand didn’t come off the system voluntarily when price levels exceeded estimates of what many electric customers are willing to pay for continuous service.
- The duration of customer outages often matters more than the number. Inoperable heating systems are a nuisance for a half hour. They are deadly for days. Unfortunately, this reality is evident in Texas. This makes limiting the duration of customer outages arguably more important for public health than keeping the total number of outages down. Per protocol, rolling blackouts cut off customers typically for about 20-30 minutes. Yet many Texans have been without power for days, while others never experienced an outage, even in the same metro area. Why rotating blackouts aren’t rotating is one problem policymakers should seek to fix.
- Focus on local utilities and causes of generator outages, not just the ERCOT. The Texas grid operator, the Electric Reliability Council of Texas (ERCOT), is rightfully in the public eye. But the ERCOT is merely the air traffic controller that coordinates power plant operations and, when necessary, instructs local utilities to curtail service to customers. The ERCOT is not responsible for power plants tripping offline or how local utilities implement load-shed procedures. Some knee-jerk reactions from politicians appear to think customer outages are entirely the ERCOT’s fault and that they were left uninformed of the risk. Yet the ERCOT has been transparent about what its system is designed for—generally, one-in-10 year events—and what it isn’t, like once-a-lifetime events. Policymakers could seek to revise this planning standard, but they could do more good by revising operating practices that allocate scarce resources, such as examining why local utilities cut off some neighborhoods for days and others not at all. Productive policy postures would point fewer fingers and ask questions about the level of severe weather risk suppliers internalize and how to improve the sectionalization of distribution circuits to better control the selection and duration of customer outages.
States and federal authorities have already launched investigations to get to the root causes. Let’s hope they frame the fact-finding exercise and policy recommendations better than similar exercises did after cold weather outages in 2011 and 2018. In particular, the new joint inquiry of the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) should dig into the state and regional institutional contexts that affect supplier and customer behavior, and reconcile the appropriateness of reliability standards with the role of wholesale market design and state prudency mechanisms. One key difference between this week’s events and those of the prior decade is that the deficiencies in natural gas supply were more prevalent, which may require as much conversation about natural gas industry reform as that in the electric industry.
On February 18, the FERC serendipitously closed its stale grid resilience docket. Although it had roots in the “baseload bailout” agenda, the importance of the theme could not be better illustrated than this week’s events. Hopefully, the FERC will choose other vehicles to rejuvenate grid resilience consistent with economic principles. Also, ironically, the FERC simultaneously announced a technical conference series that might nudge the Mid-Atlantic market, PJM, toward a model that closer resembles the ERCOT of all things. After this week, the political desirability to emulate the ERCOT seems challenging, to put it mildly. But let’s not forget that the ERCOT was the consensus gold standard before among consumers and economists. And when this blackout dust settles, it may well be that the ERCOT’s key shortcoming is that it restricts market forces—especially on the demand side—and not that it over-relies on market mechanisms.
In the meantime, armchair grid “experts” may want to give it a rest and retweet information from credible sources. The most colorful advice came from Commissioner Neil Chatterjee of the FERC who, after noting all fuel sources faced issues in the extreme cold, suggested that “[e]veryone just shut the f— up, and let the experts sort out what’s happening”. Enough said.
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