Here Are Some Terms You Need To Know To Understand The Debate Over The Texas Blackout
Texas state lawmakers on Thursday will hold the first of what will likely be many hearings in response to the blackout that gripped Texas last week. They will discuss what happened and how to stop it from happening again. They will also be using a lot of jargon that hardly anyone understands.
For those of you who want to follow along, here's a glossary of terms you'll likely be hearing a lot in the coming months. Hopefully this will help demystify the wild world of Texas power generation and distribution.
The Grid: The grid is a physical collection of transmission lines and components that move electricity around the state. In Texas, different private companies produce, buy and sell electricity on the grid. This is called a deregulated market. Think of the grid as a big auction house. You'll hear people talking about buying or selling power “to” or “on” the grid. As you will learn below, this auction house also has an auctioneer.
Texas Grid Independence: One thing that makes Texas unique is that it is the only state in the U.S. with its own independent grid. It is operated by the Electric Reliability Council of Texas (see below) and provides electricity to about 90% of the state.
That independence comes at a cost. There are few connections between the Texas grid and other national grids. That means the state can’t pull much power from elsewhere if needed. Texas leaders have kept it this way to avoid federal regulation.
Deregulated Energy Market: Texas' energy market is deregulated, which means different companies generate electricity to sell to other companies that then sell it to consumers. In other parts of the U.S., one big company generates electricity and sells it on to consumers. If this utility isn't publicly owned, it is highly regulated. In Texas, there are some groups, like municipally owned utilities, that can generate, buy and sell electricity. But, for the most part, these functions are all broken up.
Generators: These are companies that own anything that makes electricity. That could be gas power plants, wind farms, nuclear plants or anything else that generates electricity and sells it on the grid.
Retail Electric Provider (REPs): These are private companies that buy power off the grid from generators and sell it to consumers. The two biggest retail electric providers in Texas are TXU and Reliant. Their parent companies, Vistra and NRG, provide electricity to 70% of electric consumers in Texas and may soon hold more.
People in favor of the deregulated market consider REPs to be dynamic, innovative providers of electricity. Critics look at them as middlemen, just trying to take a cut.
ERCOT: The Electric Reliability Council of Texas. ERCOT is often referred to as the “grid operator” or “grid manager.” It is a nonprofit group empowered by the Texas Public Utility Commission to serve, essentially, as both an air traffic controller and auctioneer on the grid.
It is an air traffic controller because it manages the flow of power to the grid. But to do that, it also needs to operate as an auctioneer, setting prices for generators to bid their power onto the grid for other companies to buy.
It is important to note that ERCOT’s prime directive is not to get electricity to consumers; it is to “maintain grid stability.” By ordering the blackout, ERCOT was actually doing its job.
Maintaining Grid Stability: The electricity going on the grid from generators and the electricity being pulled off by consumers must always stay in balance. Ensuring that balance is called "maintaining grid stability." If supply and demand gets out of balance, it leads to a catastrophic grid failure. To avoid that, ERCOT’s option of last resort is planned blackouts, also referred to as “rolling blackouts” or “rotating outages,” which are defined below.
Catastrophic Grid Failure: This is what happens if supply and demand of electricity on the grid gets out of whack. Basically, the imbalance fries the grid. It blows electric generators and substations, and ruins transmission lines. Engineers say it can take weeks or months to power the grid back up after such a failure. That's why, ERCOT says, the blackouts last week were necessary. They were preferable to a catastrophic grid failure.
Load: This is technical jargon for electricity on the grid.
Shedding Load: This means cutting power from the grid, usually to balance supply and demand on the system. This is what ERCOT ordered companies and publicly owned utilities to do, resulting in the blackouts. The alternative would have been catastrophic grid failure.
Planned Blackouts, Rolling Blackouts or Rotating Outages: This is what’s supposed to happen when a grid operator intentionally cuts power (er, um, “sheds load”) to maintain grid stability.
The idea is that the power cuts are rotated through the system so that no consumer is left without power for too long. Obviously, that's not what happened last week in Texas. ERCOT says the amount of electricity it needed to cut was so great, the blackouts could not be “rotated.”
Texas Public Utility Commission: This is the main state regulator when it comes to the grid. Among other things, it regulates retail electric providers and electric transmission and distribution companies. The Public Utility Commission also oversees ERCOT.
The governor appoints the commission's members.
The Railroad Commission of Texas: This oddly named state agency has nothing to do with railroads. Instead, it regulates the oil and gas industry in Texas.
One of the causes of February’s blackout was natural gas wells and pipeline infrastructure freezing, so therefore unable to deliver gas to power plants. Some people believe the Railroad Commission, which has regulatory authority over those systems, should mandate better winterization of infrastructure.
Railroad commissioners are elected by Texas voters in statewide elections.
“Energy Only” Market: In many parts of the country, power plant owners are paid to build power plants just in case their electricity is needed. This is called a “capacity market.”
Things aren’t like that in Texas. Here, the owners of power plants make money only when they sell electricity. This is called an “energy only” market. In this type of market, electricity generators are incentivized to build power plants when they see the value of electricity is high on the grid. That usually happens when electricity is scarce and demand is high.
Some have said that the blackouts could have been avoided if we had extra power generators in case of emergency. Others pointed out that extra natural gas plants would not have helped, because the gas wells froze up.
Electric Reserve Margins or Capacity: This is not the amount of electricity on the grid, but the extra amount available to the grid if needed. Grid operators always want a good reserve margin of electricity in case demand for power goes up. In Texas, there's a conflict because scarcity of electricity plays an important role in the market.
As noted above, in some places, the public pays power companies to build power plants in case of emergency. In Texas, power companies are paid only when they sell electricity, so electricity needs to be valuable enough to build a power plant. The value is greatest when it is scare. That scarcity is necessary to encourage companies to build power plants.
Scarcity Pricing: When electricity on the grid is scarce and demand is high, the value of electricity rises. This is called scarcity pricing. Scarcity pricing plays an important role on the Texas grid because it motivates generators to build more power plants, and it incentivizes them to bring more electricity onto the grid.
This means that Texas has, historically, operated with a much smaller “reserve margin” of electricity than many other grids.
And there's much, much more!
This list is far from exhaustive, but hopefully it can help you make sense of the policy debate over how Texas manages its grid. It may get updated. Note: Please don’t use this list as part of a drinking game while watching the hearings. You might find yourself experiencing a blackout of your very own or worse!
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