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'Texas energy crisis' shows similarities to 1970s oil shortage

Winter Weather Texas Power Failures eletrical grid
Posted at 4:22 PM, Mar 15, 2021
and last updated 2021-03-16 08:37:31-04

DALLAS/AUSTIN, TX — The similarities between our deep freeze problems and the national shortage of gas and oil in the 1970s goes well below the surface.

Problems with ERCOT has utility regulators looking for answers.

Like several Texans, Ty Williams got a real "electric shock" when he opened his power bill.

”$17,000," he said.

Ty took a deal from a company called Griddy which buys electricity on the so-called "spot market."

Power prices went through the roof in the Texas deep freeze, as power grid operator ERCOT jacked prices up to the max, hopefully prompting power producers to pony up extra juice.

It left people like Williams to pony up, people without the protection of a fixed price contract.

Economically speaking, this has all happened before, but with a different kind of energy.

In the 1970s, Arab countries cut off America's oil supply, eventually sending gas prices, which you could sometimes find for 25 cents a gallon, up about 400%.

In the years that followed, lots of oil companies bought on the "spot market" where it seemed like even the littlest thing could send gas prices to as much as 4 dollars a gallon or more.

But this time, we have no OPEC to blame.

”Natural gas didn't get to electric generation plants, and to allow them to generate electricity. And the reason it didn't get there and at the pressure that was required is because they didn't have electricity,” explained Chrysta Castañeda, who understands the ERCOT problem better than almost anyone.

The Dallas-based engineer and attorney deals with court matters involving the energy industry every day.

She says if you think Ty Williams has a problem, consider this.

"ERCOT raised the maximum price for a gigawatt of electricity on the grid to 9000. It didn't actually produce the response and demand that it needed to and they left it sat at that level for too long, resulting in $16 billion dollars of extra charges that frankly shouldn't be there," she said.

$16 billion is the bill for just a few days, that's more than all of us spent on energy for all of 2020.

Why? That's the way free markets work. Scarce resources demand top dollar.

As it did during the gas crisis of the 1970s, it happened again in the Texas deep freeze, putting the Lone Star State in it's own little "energy crisis."

"Yeah, I mean, that's kind of the way this deregulated grid works though is that lots of money gets made in a very few days and not very much money gets made the rest of the year. This is an unusual aberration even on top of that,” said Castañeda.

We really can't blame nature for the deep freeze.

Castañeda says we can, and should, blame regulators and our political leaders for not taking the recommended action to protect the electrical system the last time something like this happened in 2011.

As the 1970s energy crisis almost put the Chrysler Corporation out of business, now the Texas deep freeze has made some power companies almost powerless, seeking bankruptcy protection.

”Who gets rich and who gets ruined. That's really the question,” said the Dallas attorney.

The questions left Ty Williams wondering which one he'll become as he struggles to find the money to pay for that bill.

”$17,000," he repeated.

The sales pitch from Griddy suggested to Ty Williams he could save big money, and he did for a while through "market pricing."

”Griddy is real time, access to the power grid wholesale, which is great. Most of the time."

This time, the deep freeze turned the market around quicker than a Texas two-step, leaving folks like Williams with a bill more like college tuition.

When ERCOT jacked up electric rates, in a bid to get the market to get us more juice, the market stumbled.

Why? Gas companies, for instance, couldn't bring new wells online because the power was out.

”We should have seen it coming,” says Chrysta Castañeda.

"Well I think that that natural disaster of the weather storm, combined with a monumental failure to figure out how to adequately ensure the reliability of our electric grid, combined with some missteps of the few regulators that we do have is going to present a cascade of failures not only the deaths and the property losses and the losses we've already seen that failure after failure of the companies that are on the grid," she said.

CPS Energy in San Antonio reported a billion dollar loss when it suddenly had to buy gas on the "spot market" for top dollar.

The Brazos Electric Co-op declared bankruptcy to re-organize its debts.

Potomac Economics, hired to keep an eye on ERCOT, says it left its sky-high rates in effect for too long, and it owes rate payers a $16 billion refund.

The next day, the Texas Public Utility Commission declined to order the rollback.

By that time, Commission Chair DeAnn Walker walked away from the job.

Shortly after the controversial vote, Commissioner Shelly Botkin followed Walker out the door.

The last commissioner standing, Arthur D'Andrea, faced a Senate hearing on the disaster, stopping just short of calling Lieutenant Governor Dan Patrick a "liar" when Patrick said D'Andrea, in a phone call, agreed the situation needed fixing.

The new PUC Chair claims the rollback would create "unforeseen circumstances" in the market.

He said the ERCOT overcharges only totaled about $3 billion.

That same day, Potomac said it stood by its $16 billion figure, but only called a reduction of $4.2 billion.

”The Commission, put the spot price of electricity to $9,000, a gigawatt hour, that was by order. And can that order can actually be undone to where all of the transactions that traded for a period of time, are settled at a lower amount in some of these losses can be just paper losses,” said the Dallas attorney.

These "paper losses" happen on Wall Street all the time.

It happened during the recent mortgage crisis.

In just about every case, somebody eventually pays, whether it's hapless investors looking for quick buck or everybody that draws from an electric meter in Texas.

”The losses that the electric generation companies and distributors incur are going to get passed along to consumers and taxpayers, unless the state of Texas intervenes. Some of this can be undone,” said Castañeda.

Undoing it with money from taxpayers makes Williams' $17,000 bill our $17,000 bill, and it doesn't end there.

”There's still going to be lots of losses left to go around and unfortunately it's going to fall back on Texans as taxpayers and ratepayers to make up those losses,” said the lawyer and former candidate for Texas Railroad Commission.

If we miss a contract deadline, or our power companies go under, Texas tosses us to a so-called "provider of last resort" that charges top dollar.

”I unplug refrigerators, I turned off everything I turn off all the lights, we literally tried to stay in one room, and use our gas heaters," said Williams.

It didn't prevent his big bill, and experts say, we may all soon see bigger bills as our current contracts come due, and sign-up incentive deals melt away like the ice of our winter storm.

Could Williams switch companies?

When his power company sent him a $17,000 bill and suggested he switch companies to avoid more like it, Ty Williams found it impossible to make the change.

”It was useless because no one wanted to take on the burden of a new client, when they're paying top dollar for power,” he said.

Leisha Gray of Killeen showed 25 News how her bill jumped from dozens to thousands of dollars within a day or two.

Power consumers and even power generators and distributors got stuck with big bills in the Texas' deep freeze, so some experts have begun to call for big changes in the Texas power business.

”Texas is going to have to step in and make some things right. The things that it made wrong in the first place, it can undo,” said Dallas engineer and attorney, Chrysta Castañeda.

Right now, just about every Texan that can fog a mirror will get stuck paying for this crisis through higher rates and possibly higher taxes.

"It was a loop of failure that if we had a competent regulatory body sitting over this all would have been figured out, we would not have been in this hole, if we just had good governance,” said Castañeda.

She says only Texas-sized changes can help, like doing away with the Railroad Commission that oversees pipelines, oil and mining and the Public Utility Commission.

”We need a comprehensive agency to take a look from A to Z and figure out what went wrong. What could go wrong, and look around the corners, because our systems ever evolving. Right, we're going to have a different mix of energy sources, 10 years from now, and somebody's got to be looking out for that, somebody has got to be managing all of our energy production, and electric distribution and electric rates. Somebody needs to be looking for out for all Texans, and planning for what Texas needs not only today, but in the future, so that we don't have a failure like this again,” she said.

She says starting out with a clean slate will give Texas its best chance of avoiding another utility disaster.

”No agency exists that has the scope of authority that I'm suggesting we need in order to prevent another failure like this.”

Because as Ty Williams will tell you, not only has this disaster sent companies into bankruptcy, it's breaking bank accounts of average Texans too.

”This can happen to people,” he said.