At the end of last year, as winter approached and energy companies prepared for cold weather, utility regulators handpicked by Governor Greg Abbott decided that they no longer wanted to work with a nonprofit organization they had hired to monitor and help Texas meet the state’s electrical reliability standards.
The multi-year contract between the Public Utility Commission and the obscure monitoring organization, Texas Reliability Entity, has been destroyed. In the months that followed, until the paralyzing storm that plunged millions of Texans in the dark and cold, the state agency that oversaw the energy industry operated without an independent monitor to ensure that energy companies followed state protocols, which include protection guidelines against weather.
The decision by the Public Utility Commission in November to terminate its contract with the Texas Trustworthy Entity did not cause the historic network failures that this week turned Texas into an underdeveloped country, leaving large areas of the state without power or water while temperatures they fell and remained below freezing. A PUC spokesman said the agency still has ample protection to ensure that energy companies follow state rules and guidelines.
On Thursday, Governor Greg Abbott called for a state law requiring that power plants be better protected from the weather. However, during the past quarter of a century, state leaders have refused to demand that companies prepare for the harsh climate, even with storms that happen once in a lifetime with increasing frequency.
Critics say the utility commission’s decision to remove a regulatory layer, especially with the potentially harsh climate approaching, was just the latest example of the light and consistent touch that Texas politicians have used to oversee the complex industry that generates and distributes energy.
“It is surprising to me that PUC would disband the independent trust entity with no plan to replace it,” said state deputy Rafael Anchia, D-Dallas, who is on the Texas House Energy Resources Committee. “No staff, no reliability supervision.”
Anchia said he will require responses from PUC chiefs as an independent monitor next week, when members of the Chamber will hold a hearing to investigate the factors that led to the Texas blackout.
A spokesman for Abbott, which appoints the three PUC members, did not immediately respond to a request for comment on Friday.
In the meantime, the move highlights a little-known regulatory corner of an energy sector that came under intense scrutiny last week, as the Texas power grid proved anything but reliable.
FERC: Federal Energy Regulatory Commission – regulates electricity and natural gas in interstate commerce
NERC: North American Electric Reliability Corporation – a non-profit organization that develops and applies reliability standards for the electrical network in the United States, Canada and parts of Mexico. Supervised by FERC.
Texas RE: Texas Reliability Entity: One of NERC’s six regional arms; only one whose jurisdiction is confined to a single state
Texas Reliability Monitor: Part of Texas RE; hired by the Texas Public Utility Commission to oversee compliance with state energy rules and protocols
PUC: Public Utility Commission of Texas – a three-member panel, appointed by the governor of Texas, which oversees electricity, telecommunications, water and sewage utilities. Supervises ERCOT.
ERCOT: Electric Reliability Council of Texas – operates the electricity grid and manages the flow of electricity to more than 26 million customers in Texas. This represents about 90% of the state’s electrical charge.
RRC: Railroad Commission – the oldest regulatory body in Texas, administered by three commissioners elected across the state, with primary jurisdiction over the oil and gas industry and surface mining of coal and uranium. It doesn’t supervise more railways, despite the name.
Texas RE CEO earned $ 561,000 a year
Until relatively recently, energy companies worked together voluntarily without federal supervision to achieve network reliability, said Julie Cohn, an energy historian affiliated with Rice University and the University of Houston. But after a blackout that affected cities in the northeast, Congress gave the Federal Energy Regulatory Commission authority to oversee the network’s reliability in 2005.
The federal agency delegated the work to the North American Energy Reliability Corporation, which in turn divided the country into regional reliability organizations, such as Texas RE. Organized as non-profit organizations, local organizations typically have budgets of less than $ 20 million.
Its executives are generously compensated, according to tax records. The chief executive of ReliabilityFirst, who oversees energy companies in the Great Lakes region, won $ 948,000 in 2018, the most recent report available. The head of the Northeast Energy Coordination Council raised $ 765,000 in the same year.
According to the most recent public filing, in 2019 the then Texas RE chief executive, Lane Lanford, earned $ 561,000 in salaries, bonuses and benefits. He’s already retired.
Texas RE’s main task is to ensure that local energy producers, carriers and retailers follow federal guidelines, said Matthew Barbour, a spokesman for the organization. “We are constantly checking for compliance – always in assessment mode.” It also conducts training.
In addition to its federal role, Texas RE, in recent years, has also served as a state reliability monitor, a supervisory duty under state law. In 2015, the Public Services Commission hired the organization to ensure compliance with its own reliability rules and laws and those governing the Texas Electric Reliability Council, which operates the state’s power grid.
It is unclear exactly how vigorously Texas RE controlled state power companies while acting as a PUC reliability monitor. The materials presented at the board meetings show that around 220 inspection actions were necessary in 2019, the majority of which were self-reported by companies and considered “minimal” risk.
According to its most recent contract, the state Reliability Monitor was “responsible for monitoring, investigating, auditing and reporting to PUCT regarding compliance with ERCOT protocols related to reliability”, as well as “conducting investigations of specific events related to reliability ERCOT network, ”among other tasks.
Commission ‘lost confidence’ in monitors
Some of these protocols require energy companies to complete and submit weather and emergency operation plans, which must be analyzed by PUC and ERCOT.
Even so, regulators have little to say about how Texas energy companies prepare for extreme weather conditions. After 2011, when low temperatures caused millions of residents to lose power amid blackouts, a federal report found that many of the state’s plumbing and plants had failed because they were inadequately isolated and ill-prepared for the extreme cold – the same conclusion that regulators came to follow a devastating freeze in Texas in 1989. Still, the state left the decisions about on-site weather to each company.
Last year, North American Energy Reliability Corporation began drafting federal winter readiness rules for energy producers. The process is time consuming, however, and can take months or more to complete.
Last fall, PUC commissioners were publicly complaining about Texas RE’s performance. The organization was mismanaging money, was not transparent with its operations and paid exorbitant wages for little regulatory return, they said.
At the September Public Utility Commission board meeting, agency chairman DeAnn Walker noted that Texas RE had received only $ 150,000 in fines, which was nowhere close to the $ 5.366 million the commission was paying for its services over four years.
“The commission had lost confidence in its performance,” said PUC spokesman Andrew Barlow.
Barbour, a spokesman for the Texas Reliability Entity, declined to comment on the organization’s work for the Public Utilities Commission.
The decision to dismiss the external independent monitor caused a rare dissent in the three-member committee. Commissioner Shelly Botkin was concerned with getting rid of the independent monitor before the agency found a replacement.
“I think my main concern with the cancellation was to have nothing else in place, or at least to have a plan,” said Botkin.
But in November the commission and Texas RE agreed to terminate the four-year contract that PUC had renewed just a year earlier. Months later – just two days before the arrival of the polar storm – the utility commission formally decided to take care of the reliability monitor’s tasks on its own, rather than paying an independent external entity.