Loren Steffy, UH Energy Scholar
In the vast expanse of West Texas’ Permian Basin, hundreds of miles from the nearest power plant, lies a clue to why the February power outage was so catastrophic.
You see them at wellsite after wellsite — electric motors. A decade ago, the drilling equipment powering Texas’ most prolific oil and gas field ran on diesel fuel. Today, most are powered by electricity.
But as the February freeze settled in, power plants froze and electricity slowed to a trickle at many natural gas well sites. Then, as one industry insider explained it to me, a vicious cycle began. Without electricity to run the wells, gas production slowed. Without gas, power plants couldn’t generate enough electricity to power the wells. And even when more electricity did become available, it was selling at the maximum price of $9,000 per megawatt hour, which meant gas producers simply couldn’t justify the cost. Even if they could have kept pumping, they would have lost money on every molecule of gas they produced.
No one planned for this. The state’s natural gas and electrical systems are more intertwined than ever, yet we have a regulatory system — and industry mindsets — that still view them as separate markets.
The Texas Railroad Commission, a three-member panel elected by the public, oversees natural gas production. By putting a priority on gas used for heating, it actually curtailed the flow of gas to power plants.
The electric system is overseen by the Public Utility Commission, a three-member panel appointed by the governor. In February, the PUC stuck its finger in the allegedly free market for electricity and mandated maximum prices. It kept those prices artificially high for days, despite signs market conditions were returning to normal.
The agencies, housed in the same building in Austin, didn’t coordinate the response to the crisis. So the Railroad Commission starved power plants for gas, while the PUC jacked up prices, making the cost of producing gas unaffordable.
And since our state has no backup system to ensure reliability — no state program to offset gas producers’ high electricity costs so they could keep producing while the PUC meddles in the market, for example — no one bothered to look at how these actions, in total, affected the overall supply of electricity.
This week, the PUC and the state’s grid operator, the Electric Reliability Council of Texas, are talking about ways to tweak the emergency pricing formula. But neither the PUC nor state lawmakers have paid serious consideration to how to better manage the overall system.
That may be because the best way to improve the management is to get rid of the managers.
“I think we should erase the Railroad Commission and erase the PUC and have a new commission that not only does what they do, but also does more,” says Chrysta Castañeda, a Dallas oil and gas attorney who ran an unsuccessful bid for Railroad Commission last year. (Full disclosure: we also wrote a book together.) “We don’t have supply chain planning from beginning to end. We’ve got these siloed agencies that don’t talk to each other.”
Castañeda argues that the state needs a single agency that oversees everything — sourcing, demand, distribution — and does it with an eye toward the state’s needs, not just today but over the next three to five decades. The new agency would also take over the PUC’s oversight of ERCOT.
Forming a new commission – and eliminating the old ones – would probably take a constitutional amendment or legislative action, which probably won’t happen.
“It’s unlikely you’d see a merger between these two agencies,” said Brandon Rottinghaus, a University of Houston political science professor. “It’s a challenge to change the structure of Texas government. The voters usually don’t care enough to make widescale changes, and politicians are generally happy with the status quo.”
Voters simply have too many offices to keep track of, and as a result, even more prominent positions such as attorney general rarely get the full attention from the electorate, he said.
That’s even more true when it comes to the Railroad Commission. After all, its name doesn’t reflect its responsibility of regulating oil and gas production, and no one has gotten elected to it in recent years by proposing major reforms. (Castañeda did, and lost.) Besides, the industries regulated by the two commissions prefer things as they are.
“There’s a lot of inertia in Texas government, and part of the reason for that inertia is cemented by industries that are happy with the devil they know,” Rottinghaus said. “Change means uncertainty, and that something that most government folks as well as industries that work with these agencies don’t want to see.”
But such aversion to change could leave Texas even further behind when it comes to creating a reliable electric grid for the future. Castañeda believes a combined agency would protect consumers and businesses as the energy landscape becomes more complex. How will evolving battery technology will affect supply and availability? What might it mean for costs? How will we account for the vagaries of distributed generation — home solar panels, private wind turbines and the like?
What’s more, we could miss opportunities that fall outside conventional thinking. For example, she has proposed capturing the gas flared at the wellhead and using it to generate electricity onsite to power wells, basically micro-generation that would reduce harmful methane emissions at the same time. Some companies are already pursuing this technology.
And changing the regulatory structure could drive other changes as well. We currently produce most of our generation fuel — wind, solar, natural gas — in remote areas, then spend billions transporting it via pipelines or transmission lines to populated areas. In the future, companies could be incentivized to build manufacturing plants in remote areas, taking advantage of cheap and abundant power without high transmission costs.
“What if we didn’t have to spend so much money on moving power? What if we were able to access more power that’s generated locally?” Castañeda asks. “It’s a little bit like farm to table — sustainable farming happens closer to where people eat their meals. The same thing could be true for power generation.”
But for now, Texas leadership is more concerned with adhering to its ideological strictures — its stubborn belief that electricity is a free market, and that if we just keep tinkering, we’ll find a way to fix a system that hasn’t lived up to its promises for the past 20 years.
“For us to freeze our conception of how we generate electricity to the equivalent of 2008, which is where I think our minds are stuck, is just not practical,” Castañeda said. “We’ve got to think for the future.”
Loren Steffy is a writer-at-large for Texas Monthly, an executive producer for Rational Middle Media and a managing director for 30 Point Strategies, where he heads the 30 Point Press publishing imprint. He is the author of five nonfiction books: “Deconstructed: An Insider’s View of Illegal Immigration and the Building Trades” (with Stan Marek), “The Last Trial of T. Boone Pickens” (with Chrysta Castañeda), “George P. Mitchell: Fracking, Sustainability, and an Unorthodox Quest to Save the Planet, The Man Who Thought Like a Ship,” and “Drowning in Oil: BP and the Reckless Pursuit of of Profit.” His first novel, “The Big Empty,” was published in May 2021.
Steffy is the former business columnist for the Houston Chronicle and previously was the Dallas (and Houston) bureau chief and a senior writer for Bloomberg News. His award-winning writing has been published in newspapers and other publications worldwide. He has a bachelor’s degree in journalism from Texas A&M University.
UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.