Last week in Texas, millions of people experienced the loss of power during a recording-shattering cold snap and series of winter storms. Pundits and politicians have peddled ideologically driven narratives about what factors and energy sources deserve the blame for the catastrophic and life-threatening cascade of failures. Lawmakers and regulators have called for investigations into why the energy grid failed so miserably, and it will take some time to unpack the causes and consequences of last week’s crisis.
In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by Cheryl LaFleur and Jesse Jenkins, two experts who have deep expertise in electricity and energy systems, for a deep dive into what we already know and what we don’t know about what happened in Texas.
Cheryl LaFleur is a Distinguished Visiting Fellow at the Center on Global Energy Policy. She is also a member of the Board of Directors of the Independent System Operator of New England (ISO-NE), the organization that plans and operates the power system and administers wholesale electricity markets for the New England region. Previously, Cheryl was one of the longest-serving commissioners on the Federal Energy Regulatory Commission (FERC), twice serving as its chair.
Jesse Jenkins is an assistant professor at Princeton University with a joint appointment in the Department of Mechanical and Aerospace Engineering and the Andlinger Center for Energy and Environment. He is a macro-scale energy systems engineer and leads a Princeton Lab focused on energy systems modeling to evaluate technology and policy options for net-zero emissions energy systems. He is a coauthor of a recent study from Princeton modeling scenarios to achieve net zero emissions in the US by 2050, which you can read more about in the cover story of this week’s Economist.
Jason Bordoff: Hello, and welcome to Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Jason Bordoff. In Texas last week, millions of people experienced the loss of power during a record shattering cold snap and series of winter storms. Pundits, and politicians, predictably were pedaling ideologically driven narratives about what factors and energy sources deserve the blame for the catastrophic and life-threatening cascade of failures. Lawmakers and regulators have called for investigations into why the energy grid failed so miserably. And while it will take some time to unpack the causes and the consequences of last week's crisis, I wanted to do a deep dive into what we already know and what we don't with two friends who have deep expertise in electricity and energy systems.
Cheryl LaFleur is to my good fortune a colleague now at Columbia, a Distinguished Visiting Fellow at the Center on Global Energy Policy. She's also a member of the Board of Directors of ISO New England, the independent system operator there. The organization that plans and operates the power system and administers wholesale electricity markets for the New England region. Previously, Cheryl was one of the longest serving commissioners on FERC, the Federal Energy Regulatory Commission, twice having served as its chair.
And Jesse Jenkins is an assistant professor at Princeton University with a joint appointment in the Department of mechanical and aerospace engineering and at the Andlinger Center for Energy and the Environment. He's a macro scale energy systems engineer, and he leads a Princeton lab focused on energy system modeling to understand technology and policy options to get to net zero energy systems. He's the coauthor of a tremendously valuable recent study from Princeton modeling scenarios to achieve net zero emissions in the U.S by 2050, which you can read more about in the cover story of this week's Economist. Cheryl and Jesse, thank you so much for joining us today on Columbia Energy Exchange.
Cheryl LaFleur: Great to be here.
Jesse Jenkins: Yeah, thanks for having us.
Jason Bordoff: So I should say that we're talking late in the day on Friday. This will come out early next week. So things will develop a bit in the next couple of days, but this has been a pretty extraordinary week in Texas and a few other parts of the country for the electricity system. It's pretty remarkable that we can land a rover on Mars this week, but not keep the lights on and the heat on in one of the most energy rich states in the country. Let's start by just explaining what happened and why it happened. The internet, I know Cheryl, you've been cautious within the Center on Global Energy Policy this week of noting there are a lot of hot takes and we got to wait and understand it better, but nonetheless, I'm going to ask you for hot takes and you too Jesse, and you had a great piece in the New York Times this week, Jesse explaining what caused the catastrophic failure, the life-threatening cascade of failures we saw this week. Can you just explain it for everyone?
Jesse Jenkins: Yeah, I mean, it all starts with the extremely cold weather that Texas was enduring this week polar vortex type event that extended over much of the country, but more severe than had been experienced in the past. I think even worse than the events in 2011, which was the last time that Texas had winter supply shortages in the power sector and that drove electricity demand and heating demand for natural gas to record levels almost as high as the summer peak demand, which is usually when Texas sets its record electricity consumption, and so on Valentine's Day on Sunday the demand was rising towards about 70,000 megawatts in the middle of the night as heating demand kicked in, and at the same time power plants started to fail due to either freezing up instrumentation and feed water pipes and things like that or inability to get pipeline gas due to failures in the pipeline system and wells, natural gas wells, and as a result about 30,000 megawatts of generation or enough to meet maybe 40, 45% of that peak demand failed in the middle of the night on Monday, and it has taken until well as of today, it's not all back on yet.
They're starting to make progress in bringing that capacity back online and reducing the shortfalls, but that's a staggering amount of capacity lost more than double the amount that ERCOT, the electricity system operator in Texas, had planned for in their “extreme generator outage scenario” that was included in their winter reliability assessment. So just really outside the bounds of what the system was prepared for, and as a result, large portions of the state were blacked out deliberately in order to avoid a total collapse of the Texas interconnect.
Jason Bordoff: So just a recap, make sure I heard that for everyone, they plan for extreme scenarios here. The extreme weather caused demand to be a bit in excess of what the extreme scenario would have expected. The real big gap was they planned for extreme scenarios, including the possibility of a loss of generation capacity, but that's where this was way larger than anything that they anticipated.
Jesse Jenkins: Yeah, that's right. I think the peak demand was about two or 3000 megawatts above the extreme peak load scenario that they considered, but the extreme generator outage, which was sort of based on what happened in 2011 and then taking a bit more extreme was 14,000 megawatts of both forced and planned outages because there are some plants down for maintenance in the winter since normally demand is higher in the summer. And what we saw was over 30,000 megawatts of forced and unforced outages at different points during the week. So more than double what they were considering.
Jason Bordoff: And this is just the inability of I mean, there are many parts of the country where gas plants operate in the cold wind turbines work in the cold, but this was a case of Texas not anticipating those sorts of extreme temperatures, not planning, not investing. So their infrastructure could withstand these extreme temperatures and then that was freeze water intake lines freeze, wind turbine blades ice up, that it was just the cold that caused it to freeze up?
Cheryl LaFleur: I think that's the primary explanation. There’s really different kind of levels of system and causality on top of each other. Physically, a large amount of the generation fleet of different types was not winterized for the weather they got and so you had a cascading system failure of multiple pieces of generation as Jesse said. On top of that are the structures of who, how things get paid and how the market operates, and on top of that, how it all gets regulated and I think there'll be lessons to unpack at every level, but first you have to understand what actually happened physically. And what happened was these piece -- both the gas delivery system as well as the generation system gas, wind and nuclear all had components that failed because of the weather. And as you said there have been examples in the past where lessons were not learned. Some of which I was personally involved in.
Jesse Jenkins: I have been reading this 2011 report that FERC produced on the winter that was called the super bowl freeze that happened right on the super bowl in February of 2011 and it reads exactly like what's happening right now, failure to prepare, failure to weatherize multiple forced outages at the same time, forcing rolling blackouts but at the time it was, I think about 5,000 megawatts of forced outage for thermal plants. So natural gas plants primarily going down and in this case we're talking about 30,000 megawatts, so it's just a much more severe loss of generation and that has made the impact on Texans that much more extreme because so many people are without power for such a long period of time in very cold and dangerous weather.
Cheryl LaFleur: Just a couple of other points. I think one of the most poignant parts of reading the 2011 FERC-NERC report was the 2011 report starts by harking back to the 1989 cold snap and tutting about the fact that we failed to prepare in response to that, but now we have a chance after 2011, and of course it's been a decade later and we have a much more dramatic and even tragic incident. The second thing that I don't think we've mentioned yet is that this event really highlighted the interdependencies between all of the critical infrastructure. The gas system, the power system, and the water system, which relies on power to run the water system and they are appear to have been possibly inadvertent failures in terms of allowing rolling blackouts to affect water treatment plants that then led to boiled water orders that were impossible to implement because people didn't have power to boil their water and a whole cascading problem, that did not happen in 2011.
Jason Bordoff: And that's where we are now, right again we're talking late in the day Friday, the power is coming back online slowly but surely and many more -- many Texans are getting their power back, but water is a big challenge now. As things warm up, the frozen pipes start to leak and you still need electricity to deal with the water supply and treatment.
Jesse Jenkins: You know, I think it illustrates just how dependent we are on electricity. You don't think much about the power sector and power system and electricity until it's gone or you flip the switch and you just expect the electricity to come out and it is one of these quite amazing engineering feats that we keep the systems running in all kinds of conditions but when they're pushed to the limit and they fail, they fail pretty spectacularly and that's what's happened here, and you can just see why it is worth all of the institutions and all of the investment and all of the infrastructure that we put in to keeping these systems running reliably, because we just become more and more dependent on electricity for critical services, cell phone tower, refrigeration, sanitation, everything.
Jason Bordoff: So, you've teed up several of the issues I wanted to come to. So let's just jump to them now, and we'll come to this in a minute, but one of them, it's what you just said, Jesse about how important reliability of the electricity system is and that will only be more true presumably as we electrify more parts of the economy in a low carbon scenario and you just modeled that in a two year project with your colleagues at Princeton. I want to come to that in a minute, but let me just stay on what you brought up, which was this 2011 report and what lessons should have been learned from it. So talk a little bit about what you think, what could have been done to prevent this from happening in ways that make sense. I mean, like we said, you wrote in your New York Times piece Jesse, how much insurance do we want to take out?
You can pay a lot of money to put transmission lines underground so trees don't knock them out. You can weatherize parts of the country for temperatures. They will only see once every few decades, maybe that'll change moving forward with the impacts of climate change, but talk a little bit about both of you, first Jesse and then Cheryl, what you think ought to have been done that would've made sense that would have prevented this and what we should do now?
Jesse Jenkins: Yeah, I did use that insurance analogy because I do think it's pretty apt. I mean, we have to think not only about the frequency of these events maybe it is once a decade or once every 20 years, but also about the potential damage and how catastrophic they are when they do occur. And if this was just a few percent demand reduction with rolling blackouts that didn't affect people for very long, that's an event you can sort of shrug off as, okay, well, how that happens once every 10 years. In California, there were rolling blackouts this summer during a heat wave that affected about less than 3% of customers and the longest blackouts were for about 90 minutes, and some were only eight minutes long.
I mean, that's something people can live with once every decade, but a total failure of gas and power systems leaving millions in the dark and in the cold for several days when it's dangerous at those temperatures, that's a whole different scenario, and so I do think of it like, we all pay for fire insurance and flood insurance for homes. Even if we never think we'll use them, right? Most people don't ever expect to have their house burned down, even it's an extremely rare event and yet it would be totally catastrophic to lose everything you own and have to start over from scratch, and so we pay for the insurance, even though we expect to never use it.
And so I do think both about, how probable are these events and maybe they are infrequent, but also potentially, how catastrophic are they? And are there steps that are reasonably affordable we can take to push back the point where these systems break and we're never going to have a fully resilient system, but we can push back further the envelope on how far they can go before they, as they bend before they break.
Jason Bordoff: Cheryl, we tend, sometimes we learn the lessons of the last crisis. So we have to react now by saying let's weatherize everything in Texas to deal with five degree, zero degree temperatures, but is that the right lesson or are there other steps we should be taking to build resilience for the things that next time it may be something else that causes these sort of failures?
Cheryl LaFleur: Well, I think there's a number of lessons to learn. In terms of what we could have done differently after 2011. One thing in our toolkit is more mandatory standards for what generators and grid operators have to do. How much black star power is available to restart a system. What sorts of what level of the system has to be winterized? Everything doesn't have to be done to the nth degree, but clearly not enough was winterized, and that's where I think FERC was trying to push in 2011, but of course Texas has a very complicated and rather unique regulatory system with limited federal authority.
So one set of lessons is what sort of mandatory rules should be made either by the Texas legislature or by the national the North American NERC, North American Energy Reliability Corporation and the Texas entity under it. But the second lesson is to look at how the markets are designed and how we can ensure that the generators are able to recover the cost of the insurance we're asking them to take out, and I think that one will take a little longer to analyze, but I think there will definitely be lessons to be learned in the way the market is structured.
A third lesson is how interconnected regions should be, what sort of transmission grid we need to hold the system together? And I think that's something that could have helped Texas in some cases to have stronger connections to their neighbors. And finally, I would just say that the overarching lesson is that the climate change is not just about mitigation it's about adaptation, and we're seeing more extremes of hot weather as in California, cold weather as in Texas, wildfires, hurricanes and so forth and I've said before, no region in the country can afford to have any schadenfreude here and say, Oh yes, that's just Texas because every region is vulnerable to climate extremes in some way, and we're getting ever more dependent on the grid.
Jason Bordoff: So what does that mean for, you know, we may have an opportunity for large spending on infrastructure in this country in the next several months. How would you think about the grid in that context, Jesse?
Jesse Jenkins: It's a good question. I mean, I think much of the focus has been on how do we transition towards a cleaner electricity system, because so that we can mitigate climate change and stop some of these extremes from impacting us in the future, but I think one lesson this gives us is that the resources that we count on to be firm to be dependable when we need them, and that's not the wind and solar. Wind and solar play a different role as fuel saving resources when they're there, they're the cheapest thing we've got and they reduced the need to burn natural gas or coal or something else that costs more money and they save throughout the year in that role, but they're not the ones we count on when in these extreme events and the real tragedy here was that the resources that we did count on, that Texans counted on to be there for them when they needed them, failed to do that.
And so I think we have to think carefully both in the short-term about the, how firm is natural gas, which has played a -- natural gas power plants, which have played such a critical role in our electricity sector over the last decade and are expected to continue to play that role over the next decade. As regions phased down, coal-fired power plants, how are they going to rely even more on gas for this and then if so, how do they assure that they actually have the fuel supplies needed to make sure that those plants are actually dependable? And then looking forward to the long-term so we start to replace fossil fuel plants as from resources, what is going to stand in their place?
If it's hydrogen combustion turbines, how firm is the hydrogen supply and how is that going to be assured. If it's nuclear power, then how are they going to be weatherized against outages? One of the four reactors in Texas went down due to an instrumentation failure. One of their instruments froze up and they didn't know if they were getting enough water fed in for the coolant and they had to take the precaution of shutting that reactor down. So there's all kinds of vulnerabilities to these resources that we count on being there and if we can't count on them then they're not as firm as we thought after all.
Jason Bordoff: And can you just comment on, there were still a lot of sort of folks talking in what seemed like somewhat ideological terms about, what this tells us about this was all renewables fault, this was all fossil fuels fault. You've written about that, just kind of explain for everyone your take on how one should understand the sources of energy here and what that tells us about their reliability?
Jesse Jenkins: Yeah. I mean, this is not any technology failure and we have wind turbines that operate in Antarctica. We have natural gas plants that operate in Alberta, and we have gas wells that operate in Alaska. So it's not like this is something inherent to any of these technologies. They all can operate through cold weather. It's more a failure of planning to anticipate the kinds of things that would have, that knock off line, power plants that we depend on and the reason I keep, you know, I bristle a bit at the efforts to paint this as a failure of wind or solar is, it's not like it's a newsflash that it's not windy all the time and that there's this thing called nighttime.
We know that and grid operators know that too and so they don't count on wind and solar as firm resources that are as reliable capacity. They heavily derate them in their winter reliability plans, such that the Texas system operator counted on as little as 1500 or 1800 megawatts, I should say of wind power during these winter events. Now they got 800 at one point, so they were maybe one gigawatt short of what they were counting on in that scenario, but what they really counted on was the 67,000 megawatts of supposedly firm generation and they lost 28 or 30,000 megawatts of that. And so it different resources play different roles in our system and fuel saving variable renewables are valuable throughout the year, but they're not valuable. They're not here for these kinds of events and so we have to think about how do we shore up the reliability of the things we're really depending on, because it's when you depend on something and it lets you down that you are in real trouble.
Jason Bordoff: Do were going to say something Cheryl?
Cheryl LaFleur: Yes. I think Jesse is exactly right that as we have ever greater reliance on carbon-free sources of electricity, it's going to be extremely important to sustain both physically and economically the balancing resources that we need to dispatch when we don't have wind or solar or in some cases, hydro, depending on its availability, and that means both making sure the resources can be operated when we're counting on them, that they have the fuel, but also that the structures we use to pay those resources, which will be used less and less frequently, but perhaps more and more necessary when you really need them, that those structures allow them to continue to be there.
In terms of your infrastructure question, Jason, there's two macro forces that are intentioned, but both true. I think, we're going to see a continued build out of localized infrastructure, more onsite generation and solar and storage, more micro grids, which can help play a role in emergencies, but we also need a tremendous amount of infrastructure and our high voltage grid, which is what enables the localized infrastructure, and which can allow us to harness the location constrained renewables that we're counting on. There's actually quite a lot of money to go into it. It's not so much that we need the federal government to pay for that, but I think the federal government has a huge role to play in permitting, allowing land use of federal land and allowing the structures in place that make that happen.
Jason Bordoff: And I'm, so tell me if I understand this right, Jesse, I'm sort of reacting to things like the Wall Street Journal editorial page and others sort of it's renewables, it's fossil fuels. The lion’s share of the lost generation capacity here came from thermal load, coal and gas some nuclear, when it comes to wind you used a phrase that stuck with me in your New York Times piece it's reliably unreliable, meaning there's a certain amount, I think it's 18,000 megawatts, they don't -- they expect only a small portion of that to be available at this time of year, but even from what they expected, what was available was significantly less.
So I guess the question is, in a scenario -- is it the case that most of the problem was hydrocarbons not wind, just because right now most of the grid is hydrocarbons, not wind, but in a scenario where you have a deeply decarbonized grid and most of it is renewables, then you would have had problems there and we need to build that resilience for all fuels?
Jesse Jenkins: Well, I mean, yes, if you were dependent entirely on wind and solar and batteries, it would not have performed well in this instance and that's why we shouldn't be buildings zero carbon grids with just wind solar and batteries, right? These are useful technologies that play a really big role in a carbon free system, but they are not the full team that we need to complete the job, right? So those are the technologies that are cheap and mature today and are going to scale up rapidly over the next decade and play a bigger and bigger role in our electricity system. We may even get as much as half of our electricity from wind and solar by 2030, if we follow the kind of timeline that we laid out in the NetZero America study, and really push the acceleration of deployment.
That said what we found in our modeling and I find consistently in all of my power sector modeling work is that we need basically the same amount of firm generating capacity as we have today. So yes, we get half of our electricity from wind and solar, but that doesn't mean we depend on them when the extreme conditions hit, and so again, it's there are different roles in our system, there are fuel saving variable resources that when they're there, they're practically free so use them. Instead of something more expensive and that saves money for rate payers throughout the year. I think it's worth noting that Texas has no mandate to purchase wind energy, right? It had a mandate that was met 16 years early. They met their 2025 target in 2009 and since then there's been no requirement to build wind.
So every wind farm that's operating in Texas is there because it saves more money for rate payers and makes more money for their owners than it costs to install. Now, there's different other roles as well that we need. We need firm resources that can run anytime of the year for as long as we need them to keep the lights and the heat on and that's where we depend on natural gas and coal-fired power plants and nuclear plants for today, and in a low carbon world we can keep as much of our existing nuclear fleet operating as we can, as safely as we can, as long as we can, but that's not going to do the job. We need to find some way to replace all of the coal and natural gas plants and any nuclear plants to retire with something that's clean and firm, and there's a whole another set of resources we need for that, and it could be gas plants that are running with carbon capture.
It could be hydrogen from clean sources, in a retrofit gas plant or a fuel cell. It could be geothermal or biomass, so firm renewable resources or it could be new nuclear power plants, and so we just have to have the balanced team to fill all the positions on the court and not have just everybody in one role, you don't want only point guards on your basketball team, right? You want to have the right star players on the right positions on the court and so it's the same deal with the, you know, it's a power system. It's a system and we need the system as a whole to perform all the time, not any individual technology to perform all the time.
Jason Bordoff: Yeah, that's really helpful. Thank you. The – Cheryl, people kind of reading the papers or other sources of news this week may have heard and read things like Texas ERCOT, the Texas grid is a grid onto itself, not connected to the rest of the country. They may have read phrases like energy only versus capacity. So can you explain how the Texas grid works? What does it mean to be an energy only market versus a capacity market? And would that have made a difference in mitigating this catastrophe?
Cheryl LaFleur: Well, starting first physically. There are four interconnections in North America, the Eastern interconnection that most people sit in, which goes from the Atlantic Ocean, the continental divide. The Western interconnection that goes from the continental divide to the Pacific Ocean, and then Texas and Quebec have their own grids. They balance separately. So had Texas been more connected to its neighbors. We might have seen performance closer to what we saw in the parts of Texas that are parts of larger multi-state grids. The Mid-Continent ISO and the Southwest power pool they had more neighboring power and neighboring transmission to lean on. I don't think we'll see that change in Texas anytime soon, because I think Texas very much likes it that way, but it's simply a case that they're more independent. So within that, because they are-
Jason Bordoff: And if they were not, would that have made a difference? Would they have been more resilient?
Cheryl LaFleur: I think it could have certainly given them the potential. If they'd plan transmission in conjunction with a larger grid they might've had more transition there to lean on, but that's not how they plan their transition. They do have a very large state obviously, but I think it certainly would have had the potential to help them, but that's not how Texas has wanted it for many, many years, but within -- so within the, so now we have a interconnection that's entirely within Texas and it's regulated at the state level rather than at the federal level, like the other interstate markets, and they had has had a actually a rather successful, but unique market structure of not having a capacity market, but only having an energy market.
So an energy market pays in real time for the energy that we need to keep the system on and a capacity market pays ahead of time for power you think you'll need in the future. A capacity market is a bit like an insurance policy. We think we're going to need this many megawatts in three years, so let's make sure we have it and we'll give them some money for being around and we'll penalize them if we ever need them and were not there because they’re our insurance and the meantime, every five minutes we'll pay whatever's the cheapest in that five-minute period. And energy only market relies on the very high prices that occur when energy is scarce to motivate people to build new generation, because it doesn't have the capacity payments that a capacity market has to attract generation investment. So I think a, something like a capacity market will become more necessary as we need more of what Jesse's calling firm resources, what I'm calling balancing resources. The less frequently used, but very much needed dispatchable resources that you need in a low carbon system, whether there's other ways to do it than a capacity market, but you have to find a way to make sure those resources get paid and that they're motivated to be available when you need them.
Jesse Jenkins: So I'm curious, Cheryl, over your take on this because I'm, you know, I look at the incentives in the ERCOT system where in their current market where generators were earning $9,000 a megawatt hour all week, if they were online, just printing money and I wonder if really any change in market design, any financial incentive would have made a difference because clearly any generator that could have been operating had a financial incentive to do so they even raised the market cap at one point, because spot gas prices were so high that they actually might not the most inefficient plants might not have been in the money, and so they needed to raise the price to up to $13,000. I think, I don't think it went that high, but they had the potential to. So I'm curious, in a capacity market, there's still financial penalties for not performing and there's similar magnitude. So how would that it -- would that have changed things or is it just a different planning mindset?
Cheryl LaFleur: I think it is a different planning mindset. This is where above all we have to avoid hot takes because you're really going to have to unpack exactly what decisions each generator made, but I think having had the price cap set at higher than 9,000 saying instead of 9,000, we're going to go to 20,000. I'm not sure that would have made a difference. Any generator that could turn on was turned on. Aside from the money, these generators live in the community, and you don't want to see people freezing and dying when you're sitting there and not turning on. So I think we can assume that the generators that could run were running, subject to finding out they weren't.
So I think something like a capacity market or new reserve markets or new ways of paying that would require -- that would potentially motivate generators in advance to put in more to be ready to perform might be something that could be considered. I don't think more money in the moment would have helped because there was plenty of money out there.
Jesse Jenkins: Yeah, I know that in New England and PJM, after having previous issues with non-firm fuel contracts for gas generators, where then when, you know, the gas. When they actually needed them for capacity performance, the gas wasn't there, they added additional requirements to capacity markets. If you want to participate in the market, you have to meet these certain requirements for winterization or demonstrate that you have on-site fuel storage, et cetera. I mean, I've been thinking all week about whether you could have implemented, whether Texas could have implemented similar requirements for generators to just, you know, if they wanted to participate in the energy market.
So maybe there is -- maybe this is really just a failure of setting minimum standards for if you want to be part of our system, here's what you have to do. The other thing though, I think we have to add to the story is that this goes much beyond the electricity sector and out to the wells in the Permian Basin that all froze up as well. So gas production in Texas dropped by about 50% on Monday and Tuesday as wells froze up and as some of them lost power and couldn't keep their pumps running. And those wells are not part of our jurisdiction at all, right? They're not part of the power sector. So maybe the Texas railroad commission should have had requirements for leasing and for operating in the state that required them to weatherize, so there's a whole, just a whole bunch of jurisdictions here that have to coordinate and it shows how interdependent are our power and our gas networks are, and this is becoming just more and more the case as we, as North America is awash in gas and we depend more and more on natural gas for everything.
Cheryl LaFleur: I think that's absolutely true and I just want to say, I am not saying that Texas must consider a capacity market. There's different ways to either require or motivate generators to winterize, but I think one of those ways has to be pursued, but to your gas point, Texas is in a little -- in some ways it's a little bit of the flip side of New England. New England, I'm on the board of ISO New England and of course, I lived there and New England is acutely aware of the gas pipeline constraints and the need for dual fuel and the potential loss of enough gas in the cold winter weather and is very geared to that. Texas takes natural gas for granted. They're sitting on natural gas, they don't buy firm because they've never run out of gas. It's like air or dirt in Texas, it's natural gas, you have it and so the notion that-
Jason Bordoff: There's often a lot just being flared because it's not valuable enough to bring to market.
Cheryl LaFleur: So the thought that they could run out of gas, it's like coals to Newcastle or whatever your, so it clearly was a technology issue and that has to be looked at.
Jason Bordoff: Well, this podcast is clearly more interesting when I get out of the way. Just let the two of you talk. I just, yeah, my thinking about it this week was just, I mean, given how -- that they were expecting all of that gas capacity to be available, I wasn't sure how a capacity market would have helped just because there was so far off from what the expectations were for what would be available.
Cheryl LaFleur: Only from what -- a capacity market would not, they didn't have a resource shortage, they had plenty of power plants. So we're not saying they need to pay to have more power plants, but some structure and a capacity market is only one such structure that motivated decisions by the generators ahead of time, is what we're trying to find.
Jesse Jenkins: Yeah, so I've been thinking about this, what difference the capacity market would could have made this week. I mean, there's sort of two things that come to mind, and they're not really about the financial incentives in the moment when the crisis hits it's that it gives you -- it gives the regulators and system operators another point at which they can basically say, you have to do this if you want to play in the market, right. If you want to be there for capacity, you need to take these steps to ensure that you have, that you're actually a firm resource. And whereas in the energy market, you don't have to be firm right. You could -- you can participate sometimes and not other times and so it doesn't make sense necessarily to require every resource in an energy market to be firm, I mean, the wind and solar resources aren't going to be firm, and yet they can contribute valuable energy throughout the year.
So capacity market is being very clear that what we want is firm capacity and there are certain steps you have to make to certify maybe that you are actually able to deliver. The other thing that it does is it gives another point of regulation effectively where you're paying for capacity every year. It's a little bit like that insurance premium, like Cheryl was saying, you pay every year, every month and generators can lose that payment if they fail an inspection or they fail to maintain certain standards, and so it could be another point where there's continual spot checks and a financial incentive on a consistent basis for generators to potentially forfeit their capacity payments, if they're not keeping up on weatherization and their fuel supplies or other things, and you don't really get that in an energy only market necessarily because, you're dependent on the actual crisis to provide the financial incentives for people to perform, as opposed to the sort of ongoing payments that could potentially be revoked.
I do think that we have to keep in mind that this is just such a systemic planning failure to consider this sort of extreme weather that I do think that's the primary takeaway from this is that we have to check our blind spots because it goes across the whole system, right. Households in Texas don't invest in efficient heaters because it's normally 60 degrees in February, and they don't insulate their homes and pipes against freezing up when the power goes out and the well operators don't weatherize their wells and the pipelines, aren't buried as deep as they are. I mean, it's just, it's across the whole board, and so what I think that tells us for the rest of the country, not just Texas. So like you said, we don't want to just fight the last battle is that we have to think much more about what are our blind spots.
We know in New England, you gotta have your fuel supplies onsite because you know that the gas pipeline is going to be a source of disruption, but what is it the New England's not thinking about just the way the Texas wasn't thinking about the cold. California knows now it has to contend with droughts and wildfires. What is it that they're not thinking about? And I think that's the challenge for when you're thinking about insurance steps because all of these things cost more money. All these weatherization steps, all these backups and redundancies, they cost more money and we have to figure out whether there really are sort of catastrophic events we want to insure against or whether we think we've taken out all the insurance policies we can afford to do.
Cheryl LaFleur: The thing is, I think that's all exactly right and in the aftermath of a crisis or indeed all of the time, there are people whose commercial interests are aligned with taking one step or another. There's the insurance salesman who wants you to buy more insurance. There are the people who are promoting certain technologies and somebody with independence like, the independent system operator like, the state and federal regulators has to take a clear-eyed look at what has to be required and not just in Texas, but across the country because I mean, I'm a capitalist. I think the system works, but we have to have somebody looking back from the system and looking at the lessons learned and I think ERCOT and the Texas regulators, as well as the federal authorities will have a lot of work to do in the aftermath of this to really understand it.
Jason Bordoff: Yeah. I want to ask you where we're headed from here, but just because we have the twice serving chair of FERC with us, we've talked a lot about state regulation and ERCOT. Just talk about the role of the federal government here, what FERC’s oversight responsibility, if any is and I guess the Chair Rich Glick has said, there'll be an investigation moving forward. Is that a good thing? What would FERC be doing now?
Cheryl LaFleur: Well, FERC’s primary authority in -- over electricity in Texas is through its reliability jurisdiction and its oversight of NERC and the Texas regional entity and I think FERC should definitely complete the investigation with NERC and I think I would expect FERC to be perhaps a little more muscular than we were in 2011 in pushing the next steps, but FERC can't do that in a vacuum. Some of the other agencies you've mentioned the Texas PUC, the Texas Railroad Commission that does the oil and gas regulation in Texas. The Texas legislature is already calling for hearings and ERCOT are all part of the structure going forward, but I think you can expect FERC to rely on its reliability jurisdiction to complete an investigation that hopefully will be completed and authoritative.
Jesse Jenkins: I've had a question all week then maybe you know the answer to Cheryl, which is how, what is NERC’s role here and how binding are their requirements for Texas?
Cheryl LaFleur: Their requirements are as binding in Texas as anywhere else. I mean, NERC covers Texas. I mean, as you know, NERC has its own peculiar system of industry voting on its own standards, and they have to pass a super majority and then get filed at FERC and get approved. So it's not like they just flip a switch and have a standard, but they do cover Texas. That's one aspect of federal jurisdiction that's there.
Jesse Jenkins: And so would that be one area where requirements for weatherization of power plants, at least, I mean, they don't extend to the gas wells, but at least a power plants could be required in the future via NERC?
Cheryl LaFleur: Yes, and that's something, that's a step FERC did not take in 2011. At that point, there is a something in the Federal Power Act where FERC can order the preparation of a standard and FERC did that for physical security after the Metcalf attack in California. FERC did that for geomagnetic disturbances on the grid, because it was such a systemic issue. You couldn't expect anyone to do it, but FERC did not order a weatherization standard. They just pushed and pleaded.
Jason Bordoff: So again, we'll use our remaining minutes to talk about sort of where we're headed from here to at least to broad trends, more extreme weather events coming with the impacts of climate change, and then you can talk a little bit about your modeling Jesse, on what it looks like to move toward a more deeply decarbonized energy system, but more things will be electrified. I know we are, Cheryl and my colleague at the Center on Global Energy Policy, Melissa Lott, was in Texas this week without electricity and running out to charge her phone because most cars were operating as diesel generators or gasoline generators this week that would have been harder to do if every car were electrified.
At the same time even if you have gas for heat instead of an electric heat pump, you still need blowers to move the air through your house and if electricity is out, gasoline stations don't work in the rest, but as we become more electrified as more of that comes from intermittent sources how does that change the way we should think about the insurance premium for reliability?
Cheryl LaFleur: I guess as we become more electrified, we'll be putting more of our societal needs in the basket of dependent on the electric grid. So I think we have to think about the robustness, resilience, and diversity of the generation that powers that grid, as well as the transmission that connects different parts of the country, and I think as Jesse has concluded and many others, as we decarbonize and electrify, we need far more transmission. We can't allow islands of operating problems in a future grid, but I think the imperative of decarbonization is as real as it has ever been, and the extreme events we're seeing only may clear what climate change can lead to, but the lessons of the last week show the care that has to be put into how you get there and what resources you need to make sure you have on hand and what kind of a transmission grid you need to take you through.
Jesse Jenkins: Yeah, I think that I agree with all that Cheryl, I think that this should redouble our efforts to develop clean firm generation technologies that can ultimately supplant natural gas and coal and the role that they will critically play in the near term to keep to serve as firm resources, and that we need to be clear about the differing role that demand flexibility and batteries have, right? These are very valuable resources for providing shorter duration output of flexibility or capacity, but if, you know, I've had a lot of people ask me, well, should Texas have invested more in batteries if that would that have helped for a few hours, but they would have been out of juice on Monday and it's Friday and they're still 10,000 megawatts short of capacity.
So there's just a limited role for certain resources. Again, I call this fast burst or flexibility balancing resources that are great for within a day, a few hours but not for sustained long periods of time and so it's just, you know, we need a balance of wind and solar that contribute a lot of energy, but very little capacity. We need short duration flexibility resources like, demand flexibility and batteries that we can use on a more regular basis, but aren't going to count on for long periods of time and we need firm resources that can pick up the slack and run with it as long as they have to keep the lights on, and the heat on.
Jason Bordoff: And just for everyone listening, when you say clean firm resources, what are you talking about?
Jesse Jenkins: Yeah. So I mean, anything that can basically generate, anything that has fuel and can generate for as long as it needs to. So geothermal power, nuclear power, natural gas, coal, or biomass power plants that capture all of their carbon emissions in air reduced or capture all their air pollutants and hydrogen combustion or fuel cells or any other kind of zero carbon gas and we can make synthetic methane or use biogas and burn them in natural gas power plants as well. I mean, just anything that basically is available whenever you need it and can last as long as you need it.
Cheryl LaFleur: There's two different vent sets. One is the vent set of resources that are carbon free and the second is the vent set of resources that are dispatchable and you can have them when you need them. We need to make those overlap so that we don't have to ideally, we want more carbon-free resources that behave like the ones that have carbon now.
Jason Bordoff: We only have a minute or two left, but we haven't talked about the demand side and how big a difference do you think investments in demand response would have made in a situation like this? How much resilience does that provide?
Cheryl LaFleur: I think it would've helped at the distribution level. The distribution companies that were dealing with this, I believe just relied on feeder maps and rolling blackouts feeder by feeder, if they had a more nuanced understanding and they have some of course of who could live without power for different lengths of time, and they could have potentially protected more of the water system, more of the residential customers and relied on demand response from other types of customers more than they were able to. I think that would have helped deal with the problems much better.
Jesse Jenkins: Yeah. I think maybe you're highlighting Cheryl, so there's sort of two ways we can think about the demand side here. One is sort of normal demand response events, which is just, I need to reduce consumption by a few percent, few thousand megawatts and we can do much more of that and that can help reduce the need for peaking power plants that are used very rarely. The other thing is just having a smarter understanding of what can -- what is where consumers are and what they're consuming and use that to help in emergency situations to order the emergency shutdowns of certain parts of the grid that's happening and given the fact that we saw water treatment plants go down, it seems pretty clear -- and other critical infrastructure -- it seems pretty clear that at least some distribution utilities don't even have a good, accurate sense of where the really critical infrastructure is on their system. In each -- something to understand is that ERCOT, for the listeners, is that ERCOT orders a certain amount of demand reduction or demand shutoffs, but it's actually the transmission and distribution companies that implement those and so there's different utilities that cover different parts of Texas, and they all have their own different plans about how to implement a certain amount of demand curtailment and so that's partly why people in Austin saw a different impact than people in San Antonio or people out in the rural counties. So there's different utilities playing that role, and it's clear that some of those were better prepared to protect critical infrastructure and to implement rolling blackouts that didn't leave people in the dark for too long, and others were less well prepared for that.
Jason Bordoff: I wanted to ask you finally, Cheryl, as a former regulator, the decision to let prices go high, because it creates the incentive to bring more supply generation online, the decision about which when you have rolling blackouts, who to cut the power to or who not? Those have quite important equity implications, right? Certain people are going to see pretty high bills. If their energy were flowing and certain communities get power and certain don't, how do those issues of equity come into the or how should they come into the decisions of state regulators?
Cheryl LaFleur: I think that there's two different levels. Decisions of equity should come in to how we think about how we plan the markets and if we rely on very, very high scarcity prices in order to attract investment, we have to think of how that's going to be recovered, and we haven't talked at all about the fact that in the ERCOT market, the system relies on a lot of hedging and a lot of behind the scenes, people covering their risk. That's a different model than in most other markets and it does have at the end of the day, some equity issues. I think though, at the distribution system, we have to think hard about the ability of different customers to withstand blackouts, and the difference between hospitals are on the top of most distribution companies, feeder wraps, water treatment plants should be as well, but certain types of residential customers, there's a lot of people on life support and so forth that really needs to be considered, it hits different people differently.
Jason Bordoff: Thank you Cheryl LaFleur, Jesse Jenkins, end of a long week, you both have been explaining what's been happening this week to many people, writing about it as well. Really appreciate your making so much time to be with us on Columbia Energy Exchange to explain what happened and what we do about it to prevent this sort of thing from happening, moving forward. Thanks for your time.
Cheryl LaFleur: Thank you.
Jesse Jenkins: Thanks Jason. It's an honor to be here with Cheryl as well.
Jason Bordoff: Thanks to all of you, our listeners for joining us on this week's episode of Columbia Energy Exchange. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu, or follow us on social media @ColumbiaUEnergy. Thanks again for listening. I'm Jason Bordoff. We'll see you next week.