Why Energy Is Not Just a Commodity

On Sunday 14 February 2021 an Arctic air mass that had been settling over Texas for four days pushed demand on the state's grid to a new winter record of about 69 gigawatts (reported). The grid is run by the Electric Reliability Council of Texas, ERCOT, and serves most of the state through a market that is almost entirely separate from the rest of the United States. That evening its generating plants began to fail. Gas wellheads, gathering lines and processing plants froze; some lost power because they sat on circuits that were being cut; gas production fell; and the gas-fired plants that depended on that gas tripped. Coal piles and instruments froze, wind turbines without cold-weather packages stopped, and at one nuclear plant a frozen feedwater sensor shut down a reactor. At the worst point roughly half of ERCOT's generating capacity was unavailable.

In the early hours of Monday 15 February ERCOT ordered rolling outages. Grid frequency fell below 59.4 hertz for several minutes, and ERCOT later said the system had come within minutes of an uncontrolled blackout that could have lasted weeks or months (reported). Load shedding peaked at about 20 GW. Millions of Texans lost power, many for days, in sub-freezing temperatures; the state's health department later counted 246 deaths related to the storm. The same day the Public Utility Commission of Texas ordered ERCOT to set the wholesale price at the market's cap of $9,000 per megawatt-hour while load was being shed, on the logic that electricity nobody could get should be priced at scarcity. In a normal year ERCOT's average real-time price was in the tens of dollars per MWh. Load shedding ended on 18 February, but the price stayed at the cap until the morning of the 19th. ERCOT's independent market monitor later concluded that it had remained there for about 32 hours longer than it should have, adding about $16 billion of costs, and recommended a correction; the commission declined to reprice.

The bills arrived within days. Brazos Electric Power Cooperative, Texas's largest generation-and-transmission co-op, received an ERCOT invoice of about $1.8 billion for the week, several times its annual revenue, and filed for Chapter 11 on 1 March 2021. Griddy Energy, a retailer that passed wholesale prices directly to households for a monthly fee, sent some customers bills of thousands of dollars for a few days of power, lost its access to the market and went bankrupt. Vistra, the state's largest generator and retailer, had sold forward much of its expected output; when its gas plants could not get fuel it had to buy power at $9,000 to cover those sales, and it put the net cost at about $1.6 billion (company, April 2021). NRG Energy reported a loss of about $750 million or more and close to $1 billion of negative cash impact (reported). Several ERCOT board members resigned on 23 February and the board dismissed its chief executive on 3 March. A FERC–NERC inquiry after a cold snap in February 2011 had recommended that Texas plants be winterised. Winterisation had been voluntary.