It’s Time to Ask: “Should ERCOT Remain an Island?”

I’ve been experiencing the failure of ERCOT in this series of winter storms as I sit stranded in my home in Austin – we’re one of the fortunate families, with power still on and water flowing. I worry for the vast number of households though who don’t share our good fortune and for what lies ahead for my fellow Texans. How many are shivering and cold right now? The failure of our electric system is a shame and the fact that our situation could have been much better demands some deep thinking and critical decisions. Clean electricity is essential for our future, but without the right infrastructure in place, we simply won’t be able to accomplish the critical transition that lies ahead. The stakes are as high as they could be. I’ve spent the last two days talking to colleagues about what this unfolding disaster in Texas portends for the future of electricity and eMobility in particular – both here in the US and around the world.

In today’s economy and society, we depend on our infrastructures to thrive, but this week, we depend on them to survive. Our regional and local electric grids are critical, but so are our local natural gas pipelines, our local water systems, and finally our local roads and streets. We’re seeing in real time this week that this integrated infrastructure that supports our lives breaks down without reliable electricity. It’s no secret that reliability is the raison d’etre of the modern electric utility. So how did we get to this dramatic failure in reliability and what on earth are we to do?

I’ll argue herein that our situation begins and ends with politics. Politics got us here and politics can get us out. I have a somewhat unique personal perspective I’d like to share with the readers, going back personally to 1995 and historically much further. Here’s my understanding of how we got here in Texas, apologies for any details I get wrong. I’ll try to stick to relevant details and I’m sure that readers will point out what I left out and correct anything I got wrong in Comments.

In January 1995, 26 years ago, I started my first job in the electricity sector as a regulatory analyst at Central & South West (CSW), a unique electric utility holding company headquartered in Dallas with four operating companies in Corpus Christi TX (CPL), Abilene TX (WTU), Tulsa OK (PSO), and Shreveport LA (SWEPCO). CSW became the southern part of AEP after a merger about 20 years ago. Coming from a research office in the Texas Senate and new to electricity, I soon heard the first of many fascinating anecdotes, which I’ll share to walk through some of the politics and policy decisions that got us to where we are today.

How did the grid come to be regulated?

Nobody had more influence on our modern electricity system than Samuel Insull. In the late 1800s, he started as Thomas Edison’s clerk and was instrumental in what would later become General Electric (GE). He infamously stormed out of a dinner meeting at Delmonico’s Restaurant in lower Manhattan, where a group of business titans had assembled to discuss the launch of Edison General Electric. When Insull realized he wouldn’t be named as CEO, he walked out and left NYC to found the giant utility Commonwealth Edison (ComEd) in Chicago. So many important decisions at the outset of this new industry sector were driven by politics, and many were driven by Insull, as this article describes in detail.

As Insull’s empire based in Chicago grew, he created one of the largest electricity trusts that concentrated ownership of multiple electric operating companies under just a few decision makers, with Insull at the top of the pyramid. With Insull, it seems, everything was monumental. At the peak, he was chairman of 65 companies, president of 11, and sat on the boards of eighty-five more. His empire covered 32 states and all roads led to Chicago. Regulating this new industry was a challenge, where Insull’s unimaginable influence put politicians in his pocket.

Among the critical decisions in the early days of the grid was how to treat these emerging economic giants. Beyond his other areas of influence, and they are too many to list here, Insull might be called the “father of modern electric utility regulation,” given his outspoken early advocacy for an electricity system based on regulated monopolies. Only monopolies could support the business rationale to build ever larger generators, which he ordered in collaboration with Tesla and Westinghouse. In this way, regulated monopoly status would go on to drive down the unit cost of electricity and accelerate market adoption by the masses of electricity to access its benefits - light, power and electric machines and appliances. But, ironically, it may have been his world class fall from grace - the ultimate bankruptcy of his other utility, Middle West - that drove regulation still further and that would ultimately tie Insull to the story of regulation forever.

Investment in electric utility stocks financed electric grid expansion and became a key aspect of the stock boom and the “Roaring” 20s (it was indeed the Dot Com boom of our great grandparents). But as things began to spiral out of control, the bankruptcy of the mammoth Middle West holding company became a key event to usher in the Great Depression, and Insull fled to Europe. As the Depression grew, Insull became Public Enemy Number One for FDR’s attorney general with his “trust busting” campaign. The FDR administration ultimately arrested Samuel Insull and dramatically brought the fallen giant back from Europe to face a series of trials.

By 1935, the Public Utility Holding Company Act (PUHCA) was signed into law - today it’s referred to as both PUHCA (POOKA) and The 1935 Act. This law became a keystone of new government oversight. Among other things, this new law brought the new companies that formed from Middle West wreckage under federal oversight. As CSW was originally the southern half of what had been Middle West, it became a “PUHCA” utility under a different set of regulations from the larger Texas Utilities (North Texas) and Houston Lighting and Power (SE Texas), setting up a conflict in Texas that would brew over decades.

How did ERCOT become an island?

The story fast forwards four decades to the mid-70s, when those two large utilities with business strictly in Texas had slowly become interconnected with the CSW system for reliability purposes, but still enjoyed a light regulatory burden with no oversight from the federal government (no interstate commerce, no FERC). But CSW operating companies were conflicted with their PUHCA status and fostered the argument that Texas was indeed in interstate commerce by virtue of system interconnection. The situation came to a head with what became known as the “Midnight Wiring,” which I learned about in 1995 from a brief written by a PUCT staffer (see the fuller ERCOT story here).

As the story goes, a technician from WTU one night made an explicit connection to the Oklahoma grid near Vernon, TX on the border, forcing the issue and leading CSW to claim Texas to be in interstate commerce (and risking federal oversight in Texas). The other two utilities disagreed and disconnected their systems, leading to multiple arguments in Washington. Ultimately, a compromise was struck that created the modern ERCOT as an “islanded” regional grid. The issue of regulation and its political resolution was indeed central to the creation of ERCOT as an island.

I recall back in 1995 I was tasked to take a group of PUCT staff up to Vernon, where a very large CSW coal-fired power plant had been taken down for routine maintenance. It was the best field trip ever, highly recommended. Included in the tour was a chance to walk inside CSW’s DC Tie, collocated next to the plant, which was created as a result of the ERCOT settlement. CSW built this interconnection tie and another tie in NE Texas. The DC Tie is an engineering feat that allows power to be shipped into and out of ERCOT, but without the two systems being otherwise connected. The interconnection is described as asynchronous, because the power is first transformed from AC to DC, then transmitted through a massive wire (certainly the biggest wire I’ve ever seen), then transformed back to AC on the other side. This technological feat, elegant as it is, severely limits the amount of power that ERCOT can import or export into the region, which this week shut off a key lifeline that other systems in the US enjoy.

The First Wind Power in Texas

That same year, I was also sent to host a group of PUCT staffers on a trip to Ft. Davis, deep in remote West Texas and the home of the McDonald Observatory, but also the site of the first few wind turbines in Texas. Seeing this new power technology was remarkable; who would have thought how wind turbine systems would expand over the next 25 years and become yet another element of this debate. Wind power was one more political decision that began as a pilot of new technology. As the cost of wind power became increasingly economic when compared to fossil fuel-fired generation, more and more wind power was added to the generation mix, driving other political decisions. For instance, the massive investment years later in the CREZ transmission infrastructure was based on the need to connect West Texas wind resources with population centers to the East, another state political decision to accommodate change within the confines of the isolated ERCOT.

When an Island Causes More Problems Than It Solves

Since Monday, I’ve been reflecting on my personal experience long ago in my first year as a utility employee. ERCOT gradually became an island set apart from the rest of the US based on decisions that minimized regulatory oversight at first for political reasons, but then those original decisions drove other decisions down the road. It’s an historic anomaly that we became separated – it’s not by some design or inspiration, rather its more based on political priorities from decades ago, that have become ever more consequential over time.

I can only wonder at this point if this separation, so steeped in history, political compromise, reform, and negotiated settlement, still makes sense for the Texas economy and society in 2021? Is it time to reconsider the status of ERCOT as an island? When the events of this series of storms are examined, as they surely must be, we must ask ourselves this hypothetical what if … “What if our regional grid had been designed and built synchronously with the Eastern and the Western grids, so that we’d have the stability those systems enjoy when this series of storms hit us?” Could we have then rapidly imported massive power to deal with our generation resource deficit? I think it’s a question worth asking.

As this drama unfolds so many complex issues are already being raised. From pet peeves about the Green New Deal, to Wind vs Gas-Fired generation, to miniature nuclear plants, to market vs capacity system models, even to challenging the wisdom of shuttering of old coal plants in favor of new gas plants. Everyone with an opinion and an ax to grind will see an opportunity to bring up these arguments; I guess it’s inevitable as we search for reasons for this disaster.

But I must ask again that heretical question, “Does it still serve society and the economy to have such a dynamic state as Texas isolated from the rest of the nation’s electric grid in 2021?” This question is paramount as it drives those other elements of system design. How much will this disaster end up costing us in lives, pain and suffering and massive economic damage, not to mention historic inconvenience and discomfort? What will be the long-term impacts? Is it out of the question to correct our island status after so long?

I propose that we would be wise to reconsider the past 100 years of history and the political decisions made along the way. It is time to ask what may seem to many a “stupid question” about simply unbundling all this history and changing a fundamental aspect of our state grid. After we recover from this crisis, it will be time to reconsider ERCOT’s fundamental design, in light of the need to craft a 21st Century Energy Infrastructure to enable the critical needs we face now and into the future: resilience, zero carbon emissions, integration of onsite solar and storage, transportation electrification and the addition of charging infrastructure. We need to enable these new technologies in order to drive a robust economy and make a society safe from rapidly changing and disruptive weather systems.

Only an open debate about all stakeholders’ needs and system optimization that begins with this primary question about ERCOT and continues with the other questions on the table will lead to a path away from our current crisis. Without it, we’ll face this crisis again. I’m particularly interested to explore the role more microgrids could have played to support reliability and to enhance resilience. To begin, without asking these fundamental questions I don’t see how we can ever add the considerable EV charging load to ERCOT that we know is coming in the next few years. Why would fleets convert to electricity if they weren’t able to trust the grid? If we’re to collectively decide how we can move forward with a new improved ERCOT that will meet our diverse needs, we’ll first need to understand better how we got here in the first place.