Jack Money| Oklahoman
Grid problems that briefly put hundreds of thousands of Oklahomans in the dark and spurred a humanitarian crisis in Texas during last month's brutal deep freeze are putting new scrutiny on systems that bring power to homes, businesses and industries across the country.
Oklahomans were spared the disaster that unfolded in Texas, in large part because utilities and other power providers here participate in a system that oversees the delivery of power across a 14-state region. Texas, on the other hand, is supplied by a grid where less regulation happens on the state level and more reliance is placed upon free market principles.
As for what happened in Oklahoma, a top regulator in the Corporation Commission's Public Utility Division asserts the grid overseen by the Southwest Power Pool (SPP) worked as designed.
While rolling outages SPP ordered are the first it ever had to impose to keep the grid from collapsing — an event that would have created outages that would have taken days or longer to restore — he and SPP officials credited consumers' willingness to conserve energy as a key to helping save the day.
Still, February's storm was the worst that has been seen in modern memory, and it is likely that changing weather patterns could mean more high-powered storms, more frequently.
The outages are likely to further heat up debates across Oklahoma and elsewhere about ways to avoid February's crisis again as local, regional and U.S. regulators take hard looks at what happened.
Questions already are being raised in Texas about allegations of price gouging, and regulated Oklahoma utilities incurred billions of dollars in additional costs that prompted them to file cases at the commission that aim to recover those added expenses from customers.
Power providers have argued in past rate cases that diverse generation options allow them to provide needed power in challenging conditions, countering environmentalists' pushes for them to rely more upon renewables.
Those arguments have intensified across Oklahoma and the nation the past couple of decades, particularly as the U.S. Environmental Protection Agency first tightened, then relaxed and now is expected once again to tighten emissions standards for power providers.
Meanwhile, development of renewable energy sources has exploded, especially across the Great Plains, and cheap fuel costs and compatibility with renewables has made natural gas-fired generation an easy option for power providers to embrace as increased fuel costs and associated regulatory burdens have accelerated early retirements for many coal-fired systems across the country.
So, what is a grid and what does it do? How did free market principals help create today's grids? How did the SPP respond when the weather got bad? And what have we learned?
What is a power grid?
Until the mid-1990s, transmission power grids operated as thousands of smaller systems of lines owned and operated by electric utilities, municipal electric systems and electrical cooperatives.
Each owner was responsible for building, maintaining and optimizing the transmission end of a power system that ultimately provided electricity to its industrial, commercial and residential customers.
The entities were described as being fully integrated, meaning they created, moved and sold a product — in this case, electricity — to consumers without that product’s ownership ever changing hands.
Over time, system owners realized they could increase reliability if they interconnected their systems with their neighbors’.
That way, one system operator that ran into a problem could be bailed out by a partner (or partners) to keep power flowing across their grids.
That’s how SPP got its start in 1941, when 11 electric utilities banded together to create a reliable source of energy to power an aluminum plant at Jones Mill, Arkansas, because the plant needed an uninterrupted power supply so it could continually produce war materials to help defeat the Axis coalition.
Free market arrives
The way U.S. power delivery systems operate changed over time after entrepreneurs realized money could be made through the purchase and resale of electricity and natural gas.
First, Congress deregulated the nation’s natural gas markets through a series of laws eliminating price controls and creating markets where the commodity could be freely bought and sold.
Then, the Federal Energy Regulatory Commission (FERC) gradually opened up electric transmission systems the same way.
FERC issued Order 888 in 1996 to allow for creating an Independent System Operator (ISO), aiming to promote wholesale competition within electric energy markets by creating open-access, non-discriminatory transmission services across broad groupings of smaller systems joining the ISO.
Later, it modified the rule to enable ISOs to implement rules for members to follow that were intended to ensure the safe and efficient management of power generation and transmission systems across grids they managed.
FERC approved Order 2,000 in 1999, which advanced the ISO concept to create regional approaches to energy trading and operations activities through coordinating and planning programs implemented by Regional Transmission Operators (RTO).
Individual system operators don’t have belong to ISOs or RTOs, but those who don't are missing opportunities to optimize their reliability and efficiency, leading to higher costs for those operators and their customers.
Today, seven grid networks managed by ISOs and RTOs cover entire regions of much of the country.
But no system is perfect.
An electricity crisis within the ISO operated by California Independent System Operator in 2000 and 2001 was caused in large part by market manipulation that created an artificial shortage of energy. A key player in that scandal was Enron, a major energy broker within the state. Rolling blackouts impacted both homes and businesses and forced Pacific Gas and Electric Co. to declare bankruptcy.
Even during this year's storm, incredibly high spot prices for energy (both electricity and natural gas) in California, across Texas and even in Oklahoma have placed some power providers in dire financial straits.
At least one energy provider in Texas has announced it will seek bankruptcy protection, while Texans who were lucky enough to keep their power throughout the storm received sky-high bills for that service.
Here in Oklahoma, regulated utilities that provided Oklahomans with natural gas and electricity also encountered historically high costs to acquire what they needed to keep energy flowing.
Oklahoma Gas and Electric Co., Public Service Co. of Oklahoma, Oklahoma Natural Gas and other entities all have made filings with regulators that state they spent billions of dollars more than they had planned to keep energy flowing during the February storms.
Each has started legal proceedings that seek to recover at least some of those costs from customers. As part of their requests, testimony and data related to their expenses and whether it was prudent for them to spend those dollars will be evaluated. Other costs may be recoverable with the help of special legislative appropriations or some other kind of targeted relief.
How SPP works
A good way to think of an RTO is to imagine it as being an air traffic control system for electrons. It manages its grid operations by working with local, state and federal authorities and system participants (power generators, power marketers and utilities and other power providers) to coordinate services across a power transmission system covering parts or all of 14 states from Oklahoma to the U.S./Canadian border.
Its 66,892 miles of transmission line gets power from 753 generating resources available on its system to more than 5,000 substations, putting electricity on electric distribution systems serving 17.5 million Americans who live across 546,000 square miles.
As part of that work, it administers transmission service tariffs, which allow various market entities to move power from where it is produced to where it is needed with streamlined costs and works with members to plan future transmission upgrades to reduce balancing and congestion-related issues.
Its strategy is to assure the grid 24-7 availability through maintaining optimized operations.
As of January 2020, 40% of SPP’s generating capacity involved natural gas-fired units. Coal-fired generators represented 25.9% of its capacity, wind represented 24.8%, while hydro, nuclear, fuel oil, solar and other miscellaneous systems represented the remainder.
Dependence upon those different sources varies from day to day, based on weather conditions and energy needs.
In 2020, wind-generated power supplied the majority of the electricity that flowed onto the system for consumers inside of its area to use, edging out coal for the first time in SPP’s history.
Over time, the addition of renewable sources and work SPP and its members have undertaken to improve the system’s performance through a day-ahead market that balances anticipated need with supply has lowered electricity costs across the region.
In 2008, wholesale power prices across a smaller grid SPP managed averaged nearly $70 a megawatt hour, or the equivalent of energy that could be used to power 330 homes for an hour. In 2019, wholesale power prices across its grid averaged less than a third of that.
In the third quarter of 2020, the U.S. Energy Information Administration reported that SPP had the lowest-cost wholesale energy in the nation, at $29 a megawatt hour.
SPP states that it provides its members $2.2 billion in benefits annually, saving a typical residential customer who uses about 1,000 kilowatt hours of electricity monthly about $7.63 on each bill.
February's storm
February's storm, which deposited a stubborn, extremely cold mass of air across the central U.S. from Canada to the Gulf Coast, presented incredible challenges to power providers across the Great Plains.
As it settled in and its intensity strengthened, it rocketed consumers' energy demands higher and made it harder for providers to keep power flowing.
Renewable sources, which generally produce less energy during peak winter and summer months than during the spring and fall anyway, were not spared.
Solar arrays mostly were unavailable, given persistently cloud-filled skies and snow-covered solar panels that were a norm for most of the storm. Wind generation facilities also were unavailable for much of the time, either because of icing issues or because of calm conditions.
Operators of natural gas-fired systems that put electricity across SPP’s grid also faced constraints.
Wells across Oklahoma and Texas were shut in by freeze-offs — situations where water in the energy stream froze and blocked wellhead systems — cutting the amount of natural gas flowing into processing plants, despite efforts of some oil-field operators to keep the fuel moving.
Bill Berry, CEO of Continental Resources, told analysts recently that it managed to keep about 50% of its normal natural gas production from wells in Oklahoma flowing during the fiercest parts of the storm by working around the clock and bringing in special equipment.
“It was a real challenge, but as the largest gas producer in the state, we felt that this was something that we just needed to put every bit of effort possible we could into making sure we could load all the gas possible,” he said.
Not all companies achieved similar success.
The U.S. Energy Information Administration reported that production of dry natural gas across the nation fell to 69.7 billion cubic feet per day (Bcf/d) on Feb. 17, a decline of 21% from average daily amounts during the week ending on Feb. 13.
Natural gas production in Texas alone fell almost 45%, and it fell by a similar amount in Oklahoma.
Additionally, frozen gauges forced natural gas processing plants to take some downstream pipelines offline at times, said Robert Hefner, an energy entrepreneur who owns Hefner Energy.
“When your instruments freeze, you are flying blind with pressures that are very high. You can’t risk potentially blowing up a pipeline and causing deaths. So, when in doubt, you shut down,” Hefner said, adding that a frozen sensor in Texas even forced a nuclear power plant offline during the height of the storm.
And as those things were happening, demand for natural gas from downstream users, including consumers who use the fuel to heat their homes, also ballooned.
The American Gas Association, which represents more than 200 downstream natural gas distribution companies across the U.S., reported delivering nearly 152 billion cubic feet of the fuel to customers on Feb. 14.
Of that, nearly 70 billion cubic feet was delivered to residential and commercial customers, while another nearly 40 billion cubic feet was delivered to power generators. The remainder was delivered to industrial users or exported south to Mexico.
“Natural gas companies are able to reliably deliver for their customers, even in the most challenging circ*mstances, due to thorough preparation and a dependable and resilient delivery system,” said Karen Harbert, the organization’s CEO.
But wholesale energy costs spiked across the central and Western U.S. during the storm, and that has caught the attention of federal and state lawmakers and regulators who vow not only to examine allegations of price gouging within certain markets, but also to explore whether climate change played a role.
Federal Energy Regulatory Commission (FERC) Chairman Richard Glick already announced his agency will be examining market manipulation issues in the wake of natural gas and electricity prices that soared during the days-long event.
SPP's storm response
Most days throughout the year, the SPP functions under normal operating conditions where it orders generation to meet anticipated needs, keeping federal-required reserves available to be tapped, when needed.
As temperatures began to plummet, however, SPP alerted power generators, marketers and power providers to husband resources to ensure supply could safely meet demands.
At 5 a.m. on Feb. 15, it declared a Level-1 Energy Emergency Alert, letting its participants know that it had scheduled all available resources to meet firm load obligations and asking them in turn to ask their customers to conserve energy.
From there, conditions worsened quickly, prompting SPP to issue Level-2 and then Level-3 emergency alerts the same day. The Level-3 alert told participants the RTO was having to use at least some of its reserve capacity to keep power flowing across the grid. The Level-3 alert also told cooperatives, utilities and other power providers to implement controlled interruptions of service, when necessary.
Controlled interruptions were ordered just after noon the same day, with providers shutting down circuits as needed to keep cascading failures from happening. Most interruptions were brief, although some power providers had to do additional work to return some customers to service after the outages were executed.
That first order mandating controlled interruptions only lasted a couple of hours, but Lanny Nickell, SPP’s chief operating officer, noted later the organization wasn't out of the woods, yet.
“Things change. ... We could very well be in this situation again, and in and out of it through Thursday morning,” Nickell said. “A lot of different factors play into it, but ultimately, the question we must answer is whether we have enough load to meet demand.”
More controlled interruptions were ordered just before 7 a.m. on Feb. 16. That order was lifted about 11:30 a.m. the same day. The grid remained under Level-2, then Level-1 Energy Emergency Alerts until 9:30 a.m. on Feb. 18, when it was returned to a normal operating status.
The rolling outages affected about 250,000 customers of OG&E at one time or another, based on information it supplied.
Grid officials including Barbara Sugg, SPP’s CEO, thanked consumers for their efforts in helping to conserve power on the grid.
“It has been a trying week for all of us. I am very proud of our team — and all of you — for stepping up to help and minimizing potential problems,” she said.
And this week, she also announced SPP's board has authorized a comprehensive review to evaluate how the system performed during the storm.
“We’re very proud of our ability to minimize the impacts of this historic winter storm, but not so proud that we don’t think we can learn from the event,” Sugg said. “We will learn, adapt and be better prepared for the future. Continuous improvement is part of our culture, and it extends beyond operations.”
Strained, not broken
Brandy Wreath, director of the Oklahoma Corporation Commission’s Public Utility Division, said he has no doubt that still-to-come evaluations will reveal changes that need to be made to improve future responses.
“But the system did what we needed it to do, did not fail and did not result in uncontrolled, widespread outages as our neighbors (in Texas) experienced,” Wreath said. “Our all-of-the-above approach really saved the day. There were times where each of those resources — wind, solar, gas and coal — experienced problems, but there were times when each of them made the difference to keep the system stable.
“This isn’t a time to point fingers at a generational source’s problems. This is a time to be thankful that we had all of them.”
Harold Hamm, executive chairman of Continental Resources, echoed Wreath’s thoughts.
"A dependable and reliable grid is essential to human safety and well-being, but it isn’t possible without a significant natural gas (component) powering that,” Hamm told analysts. “A science-based approach to producing a reliable grid is imperative for today and the future, instead of a heavily subsidized governmental mandated wind and solar dependent system.”
