Bloomberg

Texas Tried to Prepare for Crisis, Ended Up Sowing Confusion

(Bloomberg) — A few days before an energy crisis hit Texas, the state’s chief energy regulator issued an order to prioritize “human needs.” It sounded like a no-brainer: Divert natural gas supplies to homes and critical businesses and away from everything else deemed a lower priority.But more than 100 emails obtained by Bloomberg reveal how the move also sowed confusion as energy suppliers and Texas regulators struggled to determine which power stations should get preferential treatment as millions were plunged into darkness. The disarray meant some facilities that could provide power to the grid lost gas supply when they needed it most.One power plant that serves half a million customers saw gas supplies cut because of the way a pipeline company interpreted the state’s order. Utilities — and even some of the state’s own regulators — scrambled to figure out whether gas should flow to so-called cogeneration plants that provide both heat and power, because they typically serve industrial users but are also capable of supplying the grid. Gas producers, meanwhile, complained about their power being cut, choking off their own operations.“This may not be a cut and dry determination,” Mark Evarts, a director at the Texas Railroad Commission, the state’s oil and gas regulator, wrote in an email the morning of Feb. 14.The emails received by the commission show how woefully unprepared Texas was for the extreme weather and ensuing energy crisis, even though it has to contend almost yearly with hurricanes, drought and high winds. The confusion arose despite federal energy regulators saying in a report following a cold snap in Texas a decade ago that state regulators should clarify the priority they give to gas customers.Similar situations are likely to be occur as climate change is expected to bring more natural disasters and threats to power generation. While the recent experience in Texas highlights how the state is unusually dependent on power for heating, with almost two-thirds of homes equipped with electric heating, other parts of the U.S. are expected to follow that trend.The Railroad Commission emails obtained by Bloomberg are among the first state records regarding the February storm and subsequent outages made available by public information requests.The commission said in a statement that its orders were “a proactive step to prioritize natural gas deliveries for human needs,” including by elevating the priority of gas-fired power generation. State grid operator The Electric Reliability Council of Texas, also known as Ercot, said it was “appreciative” of the Railroad Commission’s orders. The state’s Public Utility Commission said it was “premature” to discuss individual factors that may have played a role in the outages.“In a crisis like this, there’s always some fog of war that leads to some misunderstanding,” said James Coleman, an associate professor at Southern Methodist University’s Dedman School of Law in Dallas, who focuses on energy.As the powerful cold blast and sweeping blackouts pushed electricity prices to historic levels in mid-February, gas supplies grew scarce as weather curtailments limited production. But gas producers also struggled to maintain output when their own operations lost electricity, leaving them unable to thaw frozen infrastructure and pressurize gas so it could be sent through pipelines.The Railroad Commission instituted emergency orders on the evening of Feb. 12, just about 48 hours before the Texas power grid came close to total collapse. The agency prioritized sending gas to residences, hospitals, schools and churches that could directly generate heat from the fuel. Direct use of natural gas for heat is more efficient than using it to make electricity, but well over half the state’s homes rely on the power grid for heat.Second priority went to power plants serving “human needs customers” — but officials at the commission quickly learned that it wasn’t always easy to figure out which facilities met that description.The Railroad Commission fielded questions from gas utilities trying to figure out if they were allowed to send supplies to cogeneration facilities. At one point, Ercot asked the commission for help keeping cogeneration units online after some had faltered due to a loss of gas supplies.“I would like to reach out to the pipelines and see if we can assure them that these units are exporting to the grid and that we do need them in order to restore electric service,” Woody Rickerson, the grid operator’s vice president of grid planning and operations, said in an email the evening of Feb. 15, the same day Ercot had called for rotating outages.In the early hours of Feb. 17, when millions were still without power, a managing director at Starwood Energy Group included the Railroad Commission on a message pleading for its gas supplier, Oneok WestTex, to restore service to the Quail Run Power Plant “as quickly as possible.” Oneok had cut supplies earlier that night, citing the commission’s order and leaving the gas-fired plant unable to serve its roughly 500,000 customers.“In these unprecedented times, I am sure you share our goal to support the restoration of the electric grid as quickly as possible,” Starwood’s Jeffrey Delgado wrote in an email at 3:02 a.m. local time.Oneok said in a statement this week that it followed the commission’s order and paused service only to “interruptible customers until they could establish they were serving human needs.” Once that was confirmed, the company said it shuttled gas to those facilities.It wasn’t just questions over the term “human needs” that created confusion. Eagleclaw Midstream, a private equity-backed pipeline company in the Permian Basin, said it needed special permission from the Railroad Commission so it wouldn’t face “a frivolous claim for significant monetary damages” for canceling an existing supply contract in order to send gas to a power plant in Odessa instead.“The issue is that we do not have the luxury of time!” Eagleclaw Chief Executive Officer Jamie Welch wrote in a message on Feb. 17. “Minutes and hours count.”But granting companies the ability to reroute supplies was the exact purpose of the order. Welch said this week that the commission responded promptly and the company was supplying the Odessa power plant within a matter of “a few hours.”Gas producers without electricity for their operations, meanwhile, frantically messaged well coordinates to regulators in the hopes of getting their electricity stored.“If I can get power back to [West Texas] we can supply 8,000 Mcfd+ back to the system,” one gas producer said in a message sent to the Railroad Commission by the Texas Alliance of Energy Producers on Feb. 17.“Targa can handle gas, but Navitas, WTG and DCP are all shut in or curtailed,” another said, referring to pipelines. “This is where the focus should be. We are doing everything we can to get our wells back online, but doesn’t do any good if the gas companies can’t move the gas.”It’s not yet clear how much of the shortfall in gas supplies to power plants was due to power outages versus well freeze-offs and other weather-related curtailments versus a lack of electricity.There might have been an easy fix to this problem: filling in a form that would grant certain companies the status of being critical to the grid and allow them to keep receiving power. But for much of the week, not even Railroad Commission Chairman Christi Craddick was aware that option existed.“I didn’t know that was an opportunity,” Craddick told lawmakers during a hearing on Feb. 26.The email exchanges show that it wasn’t until Feb. 20, after the worst of the crisis had passed, that Ercot sent a link to the application for critical-load status to the Railroad Commission, which then passed it on to more than 70 representatives of energy companies.“There’s still just so much we don’t know about,” said Coleman of Southern Methodist University. “A lot went wrong all at once, and I think that’s a clue that the solutions we should be looking at are network-wide things.”(Updates with federal regulators’ recommendations in fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.