DALLAS — One week after the deadly power outages that spread across Texas last week, state lawmakers began to question energy executives and ERCOT officials to determine how to correct the near-collapse of the Texas energy infrastructure.
“I am mad. Our constituents are mad,” said state Rep. Craig Goldman, R-Fort Worth, who chairs the Texas House Energy Resources committee.
At least 32 Texans died in last week’s event.
Four panels of executives and officials will testify and take questions from House and Senate committee members. They include representatives from power plants, transmission lines like Oncor, natural gas operators, retail electric providers and officials from ERCOT, which manages the state’s electric grid.
At least two energy executives from North Texas will be among them, including Curt Morgan, the CEO of Irving-based Vistra Corp., which owns and operates Luminant.
“I want to tell you that in my nearly 40 years in the energy industry, this event has shaken me like no other. As power producers, we are well aware that electricity is the invisible lifeblood of society. It powers our homes, hospitals AND their lifesaving equipment, and our economy. I assure you – we WANT electricity to be reliable throughout any challenge. Last week, it was not. Seeing people go without this basic necessity for an extended period of time during extremely cold weather is heartbreaking,” Morgan said in his prepared testimony.
Vistra Corp. performed well during the statewide power outages. The company usually has an 18-percent market share of the generation capacity in ERCOT, but Morgan said “we estimate we produced 25-30% of the power on the grid during the period Monday-Friday. Our singular focus was putting electrons on the grid, often at the expense of making money.”
Below is the prepared testimony Morgan had entered into the record on Thursday morning for the Joint House Committee.
Testimony of Vistra Corp., Curt Morgan, CEO
Feb. 25, 2021
Good morning, Chairmen and members; thank you for having me here today.
My name is Curt Morgan. I’m the CEO of Vistra Corp. We are an Irving, Texas-based integrated retail electricity and power generation business, and we trace our Texas roots back 140 years through our predecessor companies. We serve more than 2.3 million retail customers in Texas through our brands, which include, among others, TXU Energy, Ambit, and TriEagle. Our power generation subsidiary, Luminant, is the largest generator in Texas, powered by a diverse portfolio of natural gas, nuclear, coal, solar, and battery energy storage facilities.
Also, before I outline the events, as I witnessed them, leading up to and during the winter storm event, I want to tell you that in my nearly 40 years in the energy industry, this event has shaken me like no other. As power producers, we are well aware that electricity is the invisible lifeblood of society. It powers our homes, hospitals AND their lifesaving equipment, and our economy. I assure you – we WANT electricity to be reliable throughout any challenge. Last week, it was not. Seeing people go without this basic necessity for an extended period of time during extremely cold weather is heartbreaking.
My sincerest sympathies go out to all Texans who suffered and many who are continuing to experience hardship as a result of this storm. We must do better. And Vistra is committed to being part of the solution.
In the days ahead of the winter storm event, Vistra’s staff meteorologist alerted us of just how cold it would get…and how long this would last. This was going to be a historic weather event – not only affecting all 254 counties in Texas, a first to my knowledge – but also much of the continent. Indeed, Monday turned out to be one of the coldest days in Texas in more than a century.
Based on this extreme cold, our own models showed electricity demand was going to be 10,000 megawatts higher than what ERCOT was expecting for Monday the 15th and Tuesday the 16th. We knew, even if everything went perfectly, that there simply would not be enough electricity supply to meet demand.
We were very concerned.
On Wednesday, Feb. 10, we sounded the alarm and let ERCOT and others know we thought their projections were off.
We saw this coming. The financial markets saw this coming as prices of gas and power were trading higher.
We were surprised by an apparent lack of urgency at the level you’d expect during an emergency. We have been involved in previous weather-related emergencies and the State of Texas has always performed well. We believe ERCOT could have had far greater and more frequent communication allowing State leaders, regulators, and the public the data they needed to make informed decisions and prepare for what was coming.
Our Luminant generation team began preparing for the winter weather last fall as we do annually heading into every winter. While much has been made about the winterization of Texas plants, Luminant learned a lot from the 2011 weather event; we took the recommendations, made changes and upgrades, and improved significantly. It is important to note that this event was far deeper and involved more frozen precipitation and lower temperatures than in 2011.
Every year, Luminant holds fleetwide readiness meetings prior to both the winter and summer seasons to ensure our plants are best positioned to operate through extreme temperatures. Our winter weather preparedness process includes an extensive checklist of items to review prior to the start of the season. This process includes installing temporary windbreaks and large radiant heaters to supplement existing freeze protection and insulation, and performing preventative maintenance on freeze protection equipment such as the insulation and automatic circuitry designed to keep pipes from freezing. Around-the-clock weather monitoring occurs, especially of critical instruments. It is important to note that the energy infrastructure in Texas is designed primarily to handle the high-temperature periods of the summer, given the likelihood and frequency of these conditions. At times, this primary focus presents difficulties for operations in extreme winter cold that occurs far less. Precautions can be taken to reduce the possibility of equipment failure during extreme cold, but as temperatures drop, these precautions are less effective.
As we started to realize the potential magnitude of this storm, we made additional emergency preparations at our sites.
In 2011, you’ll remember, some of our units experienced mechanical issues early on in the event. In 2021, our units stood up well. In fact, we have an 18% market share of the generation capacity in ERCOT, but we estimate we produced 25-30% of the power on the grid during the period Monday-Friday. Our singular focus was putting electrons on the grid, often at the expense of making money. Starting in the early hours of Monday, Feb. 15, this event became a mission to save people and the survival of the electric market – sadly, it did not appear this was the mission of all involved.
While the weather created a number of challenges, our primary capacity constraints were due to challenges with receiving a steady supply of fuel for some plants – both natural gas and coal. We also had some challenges with handling coal already on site, given the wet and freezing conditions. Our team was constantly working with the electric utilities, natural gas pipelines and producers, diesel suppliers, and the railroad companies to obtain as much fuel supply as possible so we could put the maximum amount of power on the grid as possible. Unfortunately, the upfront planning and coordination across the natural gas and electric systems were seemingly late and did not identify and address critical points of vulnerability.
For Luminant, winterization of our plants was not our biggest challenge; our biggest challenge was getting fuel to our plants. While we had some difficulty handling frozen coal at a few plants, our most significant issue was with natural gas – there simply was not the availability to run the network of power plants on this grid. The planning and coordination did not identify important dependencies, and the lack of prioritization of critical equipment led to power being cut, causing a chain of events that curtailed full gas delivery to power plants.
I think it’s important to lay out the entire energy chain to fully understand what happened. The first thing I’ll point out is that the gas system and the power system are inextricably linked. As you know, power plants fueled by natural gas are the largest source of energy in Texas. Our grid relies on gas to power Texas. As evidence of this, over 60% of our electricity came from power plants fueled by natural gas during the storm, and this level was at significantly curtailed output due to gas system problems. ((See Attachment A)) Let me explain why – before the plant can generate electricity, you have to get natural gas to the plant. In order to move gas on a pipeline at its full capacity, you need to get electricity to compressors that fill the pipeline.
The short version of this story is that the gas system didn’t function – it was at less than maximum capacity due to freezing and insufficient electricity – leaving a significant amount of gas-fueled electric generation on the sideline. ((See Attachment B))
The full version of the story is this:
As is typical, even before the extreme temperatures hit, the cold weather began to drive up demand for natural gas, primarily for heating needs and electricity. What wasn’t typical, though, was that the widespread cold impacted ALL of the gas-producing regions. We began seeing “freeze-offs” occur all along the gas system from the wellheads to the processing facilities and eventually within the pipelines. Pressure in the lines began dropping due to lack of supply and increased demand for gas. With so many aspects of the gas system freezing, the result was large supply curtailments.
Additionally, as the gas that was available was being prioritized for distribution curtailments, we learned that gas-fueled power plants were not given any distribution priority at all. So, these plants were standing in line with other non-critical gas purchasers at a time when they should have been receiving gas ahead of others. After all, more than 50% of Texas homes rely on electric heat – no less a human need than those that use gas heating.
At the same time, demand for electricity was rising, but some natural gas-fueled power plants couldn’t respond. With some pipeline systems not able to provide adequate pressures, some power plants couldn’t operate at full capacity. Others couldn’t get any supply and had to shut down.
Eventually, as we had feared and predicted, power demand exceeded the available generation output. ERCOT instructed Transmission and Distribution Utilities to begin what should have been controlled, rolling blackouts to shed load to prevent a more catastrophic grid failure. Our fuel supply issues were exacerbated as power outages hit gas processing facilities, natural gas pumping stations, and electric compressors on pipelines and at power plants. While efforts were made to restore electricity at these critical infrastructure sites in order to bring gas supply back, the delays further weakened both the electric and gas systems and exacerbated the load shed. For unknown reasons, ERCOT decided to instruct the Transmission and Distribution Utilities to “lockdown the electric system” early Monday morning instead of continuing rolling blackouts, resulting a bifurcated system of those with power and those without through the duration of the outage. This decision also had unknown and potentially far-reaching adverse implications on retail electric providers (REPs), as the allocation of load was uneven across the state. These events show that, across the entire infrastructure, we need (1) better coordination and communication – in total and across gas and power systems, (2) better integration of these systems, (3) more precise prioritization of curtailments, and (4) a complete understanding of the dependencies – there must be an entity with authority that has a detailed understanding of both systems. We can all do better.
Texas is not unfamiliar with natural disasters, and the State typically has a strategy and formalized protocols to address other extreme weather events like hurricanes. This winter weather event demanded the same advanced coordination and integration that the State executes during anticipated extreme weather, and that just did not occur. People didn’t know what was coming their way. It is not good enough to communicate with a siloed set of constituents. Communication should have been widespread and frequent.
Moving forward, this event has taught us that we have to imagine and prepare for the worst-case scenario. All of us have to shift from mitigating the problem in real-time to making investments in adaptation efforts to minimize the likelihood of an event of this magnitude happening again.
I think it is fair to debate and potentially consider market design changes in response to this event. For example, the State could consider market design measures that could reduce the likelihood of reserve margins for generating capacity reaching a critical low. It is my personal view that, as the state continues to see more renewable developments, the reserve margins should be increasing instead of decreasing in order to limit intermittency risks. Other markets have worked to address this with different approaches. I know some believe that the $9,000/MWh price cap is a windfall for generators. Admittedly, it does provide an incentive, but more importantly, it is the most severe penalty in any organized, competitive market. It also encourages conservation during periods of scarcity. I suspect all of these were in play last week, but when the dust settles, I believe you will see that generators and retailers lost big, and gas market participants reaped substantial profits.
The industry has made large investments in smart grid infrastructure. Given critical infrastructure, including hospitals, water utilities, and the natural gas supply chain, need power to function, we need to leverage this to do the load curtailment when needed in an emergency, in a smart manner. We know hospitals and water treatment facilities are included in this list – but some were missed. We learned during the height of this crisis that critical natural gas infrastructure, such as electric compressors, was not identified in time; when electricity was cut off, it caused natural gas pipelines to lose pressure and prevented some natural gas plants from operating at capacity or at all. Given the integrated nature of the electric grid and the gas infrastructure, we have to be able to ensure the gas infrastructure stays energized so we don’t have to shed even more load when electric generators cannot operate. We need to be thoughtful and more targeted about how the load curtailment process works, even if that means making additional investments to do this better.
I know winterization is a topic that the legislature will visit during this session, and the Governor has listed this as an emergency item. I certainly agree that winterization can be enhanced all the way from the oil and gas wellhead to natural gas processing plants, to the power generation facilities, and to the poles and wires. As I said earlier in my remarks, the Luminant fleet adapted after the events of 2011 and enhanced winterization, and we took additional measures for this event in particular. Although the fleet performed relatively well under the extreme circumstances of last week, we have learned that more can be done, especially as it relates to the storage and transportation of our fuel supply. Just like we did in 2011, we will learn from this situation and make additional changes as necessary to upgrade our assets. Unlike 2011, however, this was not simply a lack of winterization; rather, this was compounding failures at each step of the fuel production, generation, and distribution processes.
I cannot emphasize this enough: we have to create and maintain formalized protocols for communication and coordination across every part of our industry and across sectors. We need to think about how the power and gas industries are coordinated and aligned to ensure we can keep the state of Texas at full power even during weather extremes. We also believe certain principles of oversight employed by the electric regulators should be considered for Texas' natural gas sector.
We will continue to feel the impact of this event across Texas for weeks, months, and years to come. People have lost so much, including their trust in the electric system, and we all have an obligation to ensure an event like this does not happen again. Of course, we cannot control the weather, but we can control how we respond and prepare the public.
Before I close, I would like to call out our retail customers, our communities, and employees who have dealt with incredibly difficult circumstances. We insulated our residential customers from the extreme wholesale price spikes caused by the winter storm at considerable financial risk to the company – it was the right thing to do. We do not take risks at their expense, and we refuse to start now. We announced a $5 million donation as a starting point to assist our customers and our communities through bill-payment assistance and with other critical needs through our social service agency partners. And, as we always do, we will continue to offer our customers additional payment flexibility and customer support.
Vistra did not do everything perfectly, but I am proud of our team, especially in light of an ongoing pandemic. We focused on what mattered – doing our job, at all costs, to help people. I assure you that Vistra will be a part of the solution, and I will continue to be here as a resource as the State develops how we will adapt after this catastrophic event.
Thank you for your time, Chairmen and committee members, and I look forward to your questions.