Analyst: Weather a poor excuse for Texas power problems

Texas’ electric grid has experienced a couple of hiccups this year that have been blamed on weather extremes.

In February many parts of the state experienced rolling blackouts when dozens of power plants were knocked offline by several days of extreme cold.

And at the end of June the Electric Reliability Council of Texas called on consumers to cut back power use during peak afternoon hours when high temperature coincided with a handful of unexpected plant outages.

The same happened last week when a whopping 3,800 megawatts of power plant capacity went offline unexpectedly.

The February event has been looked at by state regulators, who now say it does not appear market manipulation was behind the outages, while a federal report concluded cold weather was indeed behind the outages, but that there’s more power plant operators could have done to avoid them.

One group of analysts isn’t buying it, however.

McCullough Research, a Portland, Oregon-based firm best known to some for its work turning the light on some of Enron’s electricity market manipulation schemes in that region several years ago, says the weather extremes Texas experienced earlier this year are nothing new.

“The temperatures experienced on both February 2 and June 27 are within the extremes Texas has experienced in the past three years,” the group, led by former PG&E exec Robert McCullough, wrote in a report released late last week (see it below).

Rather, ERCOT’s change to a nodal market late last year — where power flow is monitored and priced based on hundreds of points throughout the state (typically major substations) instead of just a handful of zones — seems a more likely culprit, McCullough says.

Also, so-called heat rate, a measurement of power plant efficiency, has been consistently higher and more volatile than in 2010 than 2011, McCullough said (see the final chart in the report).

“Without fully understanding these mechanisms and their potential effects on the market as a whole, it is difficult to determine whether the emergencies on February 2 and June 27, 2011 were due to artificially-created scarcity compounded by ERCOT’s lack of market transparency,” McCullough writes. “What is clear is that the weather is not the reason for ERCOT’s inability to operate reliably while simultaneously possessing high reserve margins.”

McCullough’s brief analysis raises more questions than it answers, but it does touch on a strain of skepticism that many readers have maintained in the wake of the recent power events.

We’ve asked ERCOT and some industry experts for their take on the piece, so stay tuned …

McCullough on ERCOT Weather Events

9 Comments

  1. Energy Moron

    Howdy Neighbor:

    I have just sent you the 6/27 wind report and note the steep dip in wind power at about 2 PM, losing about 4 gW of generation capacity.

    Obviously someone with solar panels on my roof is not against renewable energy but this does illustrate a kind of huge problem with renewables that needs to get addressed… the backup power. Those who are opposing natural gas well how do they plan to store stuff? My house doesn’t have any of those nasty solar batteries to store power, for example, because they are nasty.

    This also shows the imperative for conservation efforts. Even without solar my electric bill (using Green Mountain and not cheaper energy sources… I am NOT writing this as somebody who is against wind!) during the record hot June would have been 92 dollars (including 3 bucks for the dumb meter, mind you)… it was really a seven dollar credit.

    Except for solar hot water I can recommend everything I did to the home as paying out in 11 years to 20 years (CFLs 2 years)

    We have a choice as a state. We can either continue to just waste energy and build more and more power plants… since wind is not reliable during peak time they have to be backed up. Note that solar, while generating during peak hours (and since mine are SSW this is especially true), also do not produce during the peak (the total state power requirements are on what I sent you). We can either spend more money for electric plants (making power more expensive for all of us) or reduce what we WASTE.

    Solar thermal generation plants like those being built in CA with molten sodium backup looks to be a promising technology…

    But I suspect the problem is that wind power wasn’t powering…

    #1
  2. David

    I can’t take these guys seriously when they ramp up the drama to levels that a 14 year old girl would find embarrassing:

    Clearly the changes to ERCOT’s market model have not increased efficiency or decreased prices.

    Gee. You mean the changes that were made 7 1/2 months ago? 7 1/2 months of data is all you need to declare them a failure?

    I suspect they have some other agenda that will unveil itself as time passes. It’ll be interesting to see what it is.

    #2
  3. The McCullough analysis is incredibly weak.

    For example, his “evidence” purportedly raising suspicion about February 2, 2011 is that January 9, 2010 had the same minimum temperature at February 2 this year (as measured at Love Field in Dallas), but we didn’t have blackouts in 2010. I’m guessing McCullough doesn’t understand that power demand tends to be lower on weekends, and that January 9 was a Saturday (February 2, 2011 was a Wednesday).

    Powerplant operators report that wind chill was a significant factor on February 2; McCullough doesn’t mention wind chill at all.

    And, by the way, what underlying motivation is McCullough asserting here? The generators that didn’t deliver the power they promised on February 2 ended up losing millions of dollars that day while the companies able to keep their units operating made a substantial sum. Is this a conspiracy to lose money?

    I agree it is worth examining these events for what they might reveal about problems with the market, but this report lacks useful insight.

    #3
  4. It is possible to get of the grid and save tons of money with no stress if they are making cuts in time of bad weather. You can completely remove your household from the electric company for almost nothing.

    #4
  5. David Gower

    McCullough’s weak research makes one think that they have a self serving motivation. Any information on McCullough’s posible motives here Tom?

    #5
  6. GAPlatt

    The heat rate variances mentioned in McCullough’s report are directly attributable to the extreme cold weather in February causing one spike and the very hot summer we’re now experiencing. When you move to the right of ERCOT’s dispatch curve – due to either loss of baseload generation (Feb.) or increased demand (now)- you turn on more expensive plants thus increasing the average HR. McCullough knows this; why is his report so misleading?

    #6
  7. Energy Moron

    Howdy Neighbor:

    Along the same lines as my earlier comments on intermittent wind I found this in the Senate testimony today from the MIT prof. There are reasons it took me only about 2 seconds to find the 3.8 gW disparity in the power generation that day.

    From

    http://energy.senate.gov/public/_files/MonizTestimony071911.pdf

    “Natural gas-fired power generation provides the major source of backup to intermittent renewable supplies in most U.S. markets. If policy support continues to increase the supply of intermittent power, then, in the absence of affordable utility-scale storage options, additional natural gas capacity will be needed to provide system reliability. In most markets, existing regulation does not provide the appropriate incentives to build incremental capacity with low load factors, and regulatory changes may be required.”

    It’s pretty simple… the testimony today made sense in the media world dominated by extremes…

    Anyway, also from the MIT testimony talking about the importance of

    “Gas Substitution for Electricity in the Buildings Sector.”

    Yah, buying a new dryer (yah, I have hung a line but convincing folks to use it is another question) has a 3 year payout… no brainer and also much better for the environment than the electric one.

    #7
  8. Anonymous

    These guys clearly have an agenda. This is their plan:

    Step 1: They wish to muckrake and give a special interest group an idea about attacking ERCOT in a general sense for high prices (because electricity should be free, right?). This always works because a majority of the population is a member of the FSA (free stuff army), and they have various special interest groups to represent them (NAACP, AARP, Tom “Smitty” Smith, etc.).

    Step 2: Once McCullough has planted the seed of doubt in the energy markets in said special interest group, they will offer their “services” (such as implicating energy companies, regulators, and other energy market participants in a vast scheme to defraud members of the FSA of their hard earned money) for a “fee”.

    Step 3: Go back to Portland and think of the next scheme to charge money to the lowest common demoninator for bullcrap reports on energy markets.

    A Few notes about this report and McCullough in general:

    1. They prey on the fact that 95% of the population would fail a simple logic examination. Their arguments are weak from a logical argument perspective as they impose the burden of innocence on the market participants, and forces market participants to prove a negative in order to satisfy the requirements of their thesis.

    2. Any factual claims in their reports are either based in ignorance of market mechanics or an attempt to mislead by omitting other key facts. In their report, they only use Dallas as the temperature comparison, not because it is relevant to the matter, but solely because it supports their idiotic assertions and inclusion of other data would blow their argument up. This is the entirety of their assertion that weather can not possibly be to blame for the February event. In fact, on a statewide basis, we were much colder on Feb 2 2011 than on Jan 9 2010. This is a clear attempt to mislead by omitting the temperature of the rest of the state as only about 30% of the load is in the Dallas area. (Sidenote on electric demand: most electric heat pump systems, ie most electric heat systems in the state, operate as a heat pump when temp_outside is within 40 degrees or so of the system/indoor temperature. When the outside temp drops below this 40 degree mark, most systems go into an emergency mode where they basically turn into a strip heater. Therefore, when areas of the state that have predominantly electric heaters (ie south texas) see temperatures that are below 30 degrees or so (40 degrees below most people’s thermostats), electric demand skyrockets, sometimes unpredictably. On Feb 2nd, we saw multiple hours south of I-10 below the 30 degree mark, hence the state wide record demand set on that date.) This McCullough guy ALSO omits how ERCOT did in fact set an all time winter demand peak on this day, due to both the low temperatures seen coincidentally throughout the state (a rarity), sub 30 degree temps in Houston and the Rio Grande Valley for several continuous hours (a rarity), and the year over year load growth the state has been enjoying thanks to a booming economy (check any census report to see Texas as fastest growing state in the country). ERCOT set the record despite an estimated 2,000MW of load being interrupted (rolling blackouts); if ample generation was present, the record would have been that much higher.

    Does this idiot suppose load growth is because of market redesign and “artificial scarcity”? Give me a break, and shut this guy down while you are at it. Not to say that ERCOT is perfect, but any system will have flaws for any given specific situation.

    #8
  9. ntangle

    Their heat rate chart illustrates the extremes for the Feb. event and for the June event. But it seems (to me anyway) to exaggerate them because its data points are monthly. It refers to NG @ Henry Hub. Couldn’t find its reference for electric prices. Perhaps they’re inadvertently mixing select daily electricity prices with more stable, monthly NG prices.

    When I used EIA electricity costs for S-ERCOT, there was indeed a lot of volatility during the shortages. But the extreme swings in the ratio (esp. early Feb.) were for a few days, not so much for the month, as implied by the chart.

    Note: The definition of heat rate provided in the link is what I think of too…namely energy efficiency, ie., for gas turbines. Not as it’s used in the report (a ratio of costs, i.e. the cost of electricity divided by the cost of NG).

    #9