Texas' Biggest Power Supplier Wants to Blame the EPA for Future Blackouts

Texas' Biggest Power Supplier Wants to Blame the EPA for Future Blackouts
Peter Ryan

On February 2, 2011, the lights in the operating rooms of Dallas' chief trauma center flickered briefly as diesel generators began to drone. Elective surgeries — even emergency transfers from other hospitals — were halted until further notice. All nonessential operations went dark. The walk-in clinics, even certain hallways, were cut off as Parkland Memorial Hospital braced for the worst. This was triage by electricity. Texas was in the teeth of a hard freeze as arctic winds swept down through the Rockies and dropped temperatures into the teens. Parkland was running a skeleton crew, its doctors and nurses fighting a losing battle against icy streets.

Meanwhile, the grid operator whose job is to keep electricity flowing through three-quarters of the state was about to order the most sweeping rolling blackouts the state had ever seen and plunge Dallas into darkness. Despite assurances from power line company Oncor that Parkland wouldn't lose electricity, the hospital took no chances. "Our understanding was that it wouldn't affect any hospitals," Parkland trauma program and disaster management director Jorie Klein said. "We have been reassured by them that that will be taken into consideration."

Even so, the rolling blackouts found a way into Parkland's aging electrical systems. With the generators up and running, managers wouldn't realize until later that parts of the hospital had, in fact, lost power.

In the aftermath, as furious and bewildered lawmakers demanded answers — "It is unacceptable to have a system that is unprepared," scolded state Senator Kirk Watson — grid officials from the Electric Reliability Council of Texas (ERCOT) explained that the improbable had in fact occurred: One-third of the state's power plants were offline at the height of the crisis. Industry bigwigs such as the chief executive of Dallas-based Luminant, the biggest non-regulated generator of electricity in Texas, testified that frozen instrumentation had caused four of its huge coal-fired units to fail. To prevent the contagion of uncontrolled blackouts from spreading, its sister subsidiary, power transmission company Oncor, cut power to some 1.3 million North Texas customers.

It wouldn't be the last time the grid was severely tested in 2011.

Six months later, during one of the hottest summers on record, peak electricity demand shattered previous high marks almost daily. The Texas grid toed the brink of more rolling blackouts. But while lights across Dallas went out, AC units labored under the oppressive heat and white-knuckled ERCOT managers monitored the narrowing gap between supply and demand, the political class focused its attention elsewhere — primarily on its go-to villain, the Environmental Protection Agency. The agency had just announced a set of regulations that would reduce power plant emissions of sulfur dioxide — a byproduct of burning coal that contributes to the formation of acid rain and aggravates lung and heart disease, particularly among children, the elderly and asthmatics.

The rule would fall hard on Texas, which is second only to Ohio in sulfur dioxide emissions. It would fall even harder on Luminant, whose three northeast Texas coal-fired power plants — Big Brown, Martin Lake and Monticello — pump nearly half of the Texas total into that big, blue sky. Because the plants were old and, in some cases, lacked modern pollution controls, the company faced spending billions to comply with the new rules.

The price tag, Luminant warned, would be paid in blackouts, lost jobs and high prices. Luminant CEO David Campbell claimed the company had no choice but to idle two coal-fired generating units at the Monticello plant in Titus County, shut down a couple of lignite mines and lay off 500 workers. EPA's January 1 deadline simply left it no time to retrofit its plants with pollution control devices, Luminant asserted. "We have hundreds of employees who have spent their entire professional careers at Luminant and its predecessor companies," Campbell lamented in a statement. "At every step of this process, we have tried to minimize these impacts, and it truly saddens me that we are being compelled to take the actions we've announced today."

What Campbell neglected to mention was that his company didn't have to abide by the new rule until March 2013 — then a year and a half away.

But in an anti-regulatory state, where the governor ran a presidential campaign whose central plank was dismantling the EPA, when the largest power generator yells, it's not just a congressman or a state rep who answers. It's the members of key congressional committees. It's the chairman of the state Commission on Environmental Quality. It's the Texas attorney general. It is, of course, Governor Rick Perry.

The fact that Luminant's parent company made nearly $5 million in political contributions in 2011 probably didn't hurt its case any.

From the campaign trail, Perry blasted President Barack Obama and the "job-killing" EPA. "Yet again, this administration is ignoring Texas' proven track record of cleaning our air while creating jobs, opting instead for more stifling red tape," he said. (It should be noted that almost every major population center in the state violated EPA air quality standards in 2011.) "As expected, the only results of this rule will be putting Texans out of work and creating hardships for them and their families, while putting the reliability of Texas' grid in jeopardy."

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16 comments
Sclm087
Sclm087

While I have no love for the power company, the EPA is out of control. They are costing us billions in fines that companies have to pass on to us and the EPA is responsible for the loss of many jobs. They are power hungry and full of themselves....like putting real bullets in Barney Fife's revolver.

TexasElectricityRatings
TexasElectricityRatings

1.) Any notion of blaming the deregulated electricity market as it stands, or on investment guys for the problems plaguing Energy Future Holdings (at this point) as a problem that threatens blackouts and generation shortages is just folly. TXU was a mess beforehand, and they have been a mess since from the top down based on management, bad decisions, poor understanding the market, etc. The debt issue is huge, and one that I don't see how they'll ever be able to get out of successfully, although there is a very real possibility that they'll be seen as "too big to fail" on some level. That being said, as another poster pointed out, if/when they go belly up someone else will come in and buy their assets cheap and likely run them better anyway. So it's hardly a fear that this is going to cause us to lose generation or be without power.

2.) 2.) The EPA guidelines being passed down are complete garbage, and I don't think they were as obvious as this article would have you believe. For every "industry insider" that said they should have known what was coming, I could probably find 3 that were shocked, and not just people at Energy Future Holdings, but also at NRG, Xcel, etc. They're a real issue. But no, they aren't to blame for Texas's power problems.

3.) 3.) I'm sick of the myth that these people keep throwing out that Texans are paying some of the highest electricity rates in the country, as well as how deregulated rates compare with the regulated areas of Texas as well. If people in deregulated are paying high rates, it is THEIR choice and because they haven't leveraged the market or shopped for competitive rates. I've debunked this repeatedly. 50% of the people in deregulated areas are still with their incumbent providers paying absurdly high prices and won't flex the options the market provides them. The data used in this article is from the EIA and is horribly flawed, as it only measures state by state, and doesn't take into account people who pay more when they don't. The rates available in deregulated areas of Texas are the 3rd cheapest int he United States right now.

4.)4.) The BIGGEST issue here, barely covered in this article until the end, is the power generation assets and the discussion of raising the market cap to lure in new investment. I wrote a big piece on this on Wednesday. This is where people should be furious. The Texas generation issues are very real, and anyone paying attention saw them coming around 2005 when the population of Texas starting exploding and no new generation was being built...even when Natural Gas prices were favorable. And now they're extremely inhibitive. This is the problem that people have been sitting on their hands and ignoring, and this is the real problem...not the EPA or Energy Future Holding's problems. There's been no problems encouraging the generation of wind plants using subsidies and money. Of course, wind generation doesn't blow consistently or when Texas actually needs it, such as the sweltering summer. Deregulation has worked wonders for THAT kind of inconsistent generation, so pointing the finger at the same system as being at fault for a lack of natural gas generation plants is silly and hypocritical. The problems, as always, stem from political issues.

The discussion of raising the market cap should be a huge topic right now, but it's being ignored. Raising the cap from $3k to $4500 this summer, and eventually to $7500 doesn't guarantee new generation, it just might encourage it. What is does guarantee is that EVERYONE will be paying more. And doing it this summer feels like another POLITICAL move by the PUC Commissioners to cover their own backsides.

Tyler Nicholson
Tyler Nicholson

Like the article, very enlighting, and the artwork is just great!

Mister_Mean
Mister_Mean

Luminant remindes me of the Greek goverment bond debt.

Wutaboutu
Wutaboutu

Very well written article. And very informative. Thank you, Brantley, for this article.

Sa
Sa

I live in Garland. We had *one* - count 'em, one - rolling blackout at my house during the Feb 2011 freeze. Hurray for Garland Power and Light!

No, I don't work for them.

bassnabber
bassnabber

A few observations.

One reason municipally owned and other public utilities are bringing generation online is to avoid the prospect of their service areas transitioning to open access. What wasn't stated is that they are able to sell excess electricity into the grid and reap the benefits of the ERCOT generation bid stack.

The statement, "Deregulation, we were told, would open the market up to competition, driving down prices for the ratepayer. That didn't happen. In fact, prices rose. Dallasites and Houstonians, in particular, have paid some of the highest electricity bills in the country." is inherently incorrect. Electricity prices are the lowest they have ever been and research will bear that statement out regardless how you want to spin it. What has increased are the distribution provider costs which is monitored and approved by the PUCT.

The statement, "And when gas prices fell as the Barnett Shale glutted the market, rates paid by Texans living outside of deregulated areas fell by twice as much as those inside." is also incorrect. I know because I receive service from a Coop and my prices right now are approximately 30% higher than what I could get if I were to have access to open access market.

In relation to generation capacity, what you are witnessing is the generation sector holding the market at ransom via the legislature and PUCT until they receive some form of capacity payments (i.e. subsidies) because they dislike an energy only market. Known as ICAP in the eastern markets, not one generation plant has been built, though consumers have shelled out hundreds of millions of dollars for the sake of perceived system reliability. Ask for a written guarantee that if price signals are reached that each generator will build a new plant and see what kind of response you receive.

Perhaps a little more research would benefit the overall picture of what is really going on behind the scenes.

Robert
Robert

The fact your COOP is 30% higher than the market price is indicative they are burning has purchases made before the dramatic fall of natural gas prices between 2007 and now. Many Municipal operated utilities and COOP's made the mistake of buying a full service contract for unusually long terms (5-10 years or more in some cases) at gas prices that were off the peak high of $13-$14 per MMBTU in 2007, but significantly higher than today. Bottom line, natural gas drives the price of energy in Texas. That price is crazy low at the moment due to a variety of market forces, and when that price goes up again, so will the cost of energy in Texas. Deregulation hasn't accomplished what it said it would. It isn't because the principles of a free market are wrong, it is because the folks making the money have no incentive to provide the lowest price, just a price low enough to beat the next highest retail energy producer. In otherwords the pricing is now cost + the highest profit I can make, rather than the previous model of cost + a set return. There are times when a deregulated market will produce cheaper energy than a regulated market, but more often than not, a regulated market is cheaper when it comes to consumable commodities.

Commando
Commando

Before de-regulation, when TXU was an'integrated' utility, residential rates were around 8-8.5%......in the 70's and 80's rates at 7.5% were not unheard of....so, tell me again, how is de-regulation supposed to help me.....all Wilder did was destroy a once pround and respected Electric Company that had consistent AAA ratings and provide good returns for their investors

bassnabber
bassnabber

Comparing back 30 to 40 years ago is not really comparing apples to apples to today's environment, however even with today's operating cost you can today sign up for electric service for 12 months at 7.5 cents / kWh all in which means the electric portion of that rate is actually around 4.5 cents / kWh. If one were to look around a little more you could, today, actually get an all in price of 6.2 or approximately 3.2 cents / kWh for the electric portion of the charge. Its all about choice and options. Based on my experience the prices of the 70's & 80's normally didn't reflect the all in value so in the examples you provided I'd suggest that you are seeing roughly a 40% savings in price / cost to you for the 12 month offer and roughly 57% for the other offer I reference for just the electricity portion of a like bill. Hope that helps shed some light on the general subject of electric prices. If it helps I received my Coop bill today and my average price came in at 10.06 cents / kWh. Which means that sense I do not have choice I'm paying roughly 34% more in cost than what I could get if I had choice.

Mister_Mean
Mister_Mean

Looks like gross miss management fueled by greed egged on by our politicians here in Texas. I would gripe to my elected officials but they are the foxes guarding the hen house.

One would think that Enron would have been a warning on this not a business model. KKR-can you say “claw back”? To our politicians can you say long prison terms?

Lights Out
Lights Out

Everybody involved in this needs to go to jail for a long time. You can bet your ass all the TXU meter readers and linemen are about to lose their retirement and their health care while the New York jerks at KKR are toasting themselves at three martini lunches. Kirk and Baker can go fuck themselves for this bullshit.

RebeccaW
RebeccaW

what a load of crap. Just fix your outdated and broken plants/equipment instead of driving around a jalopy like the rest of us non-corporation 'people' have to do. You shouldn't blame the EPA for your issues any more than I should blame Texas when and if I fail my yearly vehicular inspection. Energy companies are not exempt from 'cost of living' expenses and that includes maint., compliance and repairs. And by the way, if companies were worried about polluting the environment as much as they should be, we wouldn't need to waste money on imposing and enforcing EPA regulations. The EPA is awesome.

james
james

excuses are like assholes and everybody's got one. these greedy lazy lyin' worthless assholes have been takin' lotsa money from us for not doin' their jobs.

 
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