Why Texas Froze Over

June 17, 2021

By: Esther Heymans

Texas is known for many things. Cowboy hats, brisket, and warm weather. However, balmy 40-degree winters are not a guarantee. February 2021 was a rude awakening for anyone who came to Texas to escape the icy weather up North. An unprecedented cold snap left Texas blanketed in a foot of snow, and many without power.

Ed Hirs, Distinguished Professor of Economics at the University of Houston and energy market expert, discussed this cold snap and subsequent blackout with “The Current.” “I began studying energy economics in the 1970s,” Hirs explained. Since then, he has had an illustrious career teaching various subfields of economics, but his focus has always been energy. “I try to make a living in energy because I have lived in Houston since the 80s and have experienced the ups and downs of the market,” said Hirs.

The Texas energy market sees its fair share of ups and downs due to its sheer difference from other energy markets across the United States. One main difference is the segmentation of the Texas market. Texas split their energy market into various segments. In his interview with the current, Hirs focuses mainly on the generation side. “The Texas market is distinguished because it is electricity only, on the generation side,” he explained. In Hirs’ mind, this segmentation is detrimental. “In Texas it’s a pernicious market setup, with ERCOT making the generators bid in each day or the day ahead to provide electricity. Over time, this leads to a lack of incentive for generators to reinvest or to invest in new equipment,” Hirs decried.

This lack of incentive is critical to understanding the crisis that happened in February of 2021. Texas had ample time to prepare for this crisis, as Hirs and other scholars predicted it all the way back in 2013. This prediction was grounded in data gathered during the polar vortex of 2011. This polar vortex showed the holes in the Texas’ grid’s energy protection system. Following the 2011 freeze, you would think weatherization would be at the forefront of every energy provider’s mind. Hirs explained why that was not the case, saying, “over the last decade it’s easily shown that the average price on the wholesale market is less than the average total cost of providing generation. That tells you that on average the generation fleet is not paying for itself.” According to Hirs, this reality directly led to the crisis on February 15. “The primary cause is a lack of return of investment for the generation fleet. The manifestations are that generators failed, that their supply chain failed, that they hadn’t maintained their equipment or planned for a severe winter event. They did not undertake the investment required to meet the recommendations following the 2011 event,” Hirs said.

The 2011 freeze should have been a learning experience for the generation fleet across Texas. The recommendations were made, the research was published, and yet winterization did not occur. Why? Because of the Texas legislature. Texas has championed ERCOT as a method of promoting deregulation, however ERCOT is not deregulated. In the eyes of Hirs, the ERCOT market is not well regulated, but it is a regulated market. “Deregulation in terms of making generation companies compete in a cannibalistic manner to get into the market is really not a free market outcome,” said Hirs.

Texas made it through the winter storm, but ERCOT has remained on the hot seat. Investigations have been launched into the failure of the grid during the winter storm, with frightening findings. Before rolling blackouts were initiated on February 15, ERCOT was only 4 minutes away from a total blackout. That blackout would have taken ERCOT months to recover from.

In the months to come, all eyes are watching Texas to see how the state responds to the crisis on February 15, and Texas live in worry of another grid failure that leaves them stranded without power.

Listen to episode 29 of “The Current” to learn more!

Episode 29: Texas Winter Storm Outages

“The Current” sat down for our very first live-audience interview on the social media platform Clubhouse to discuss the February winter storms that struck the South. Texas electricity consumers were particularly hit hard, with millions of Texans going without power in freezing temperatures for days. It could have been worse. The grid was just minutes away from being wiped out. The storm renewed focus on the Electric Reliability Council of Texas (ERCOT), and its failure to prepare for and respond to the disaster. Ed Hirs, Distinguished Professor of Economics at the University of Houston and a bona fide expert on energy markets, sits down with Brad to discuss what happened and how to prevent this disaster from happening again.