OVERVIEW

In many ways Alberta is the envy of the world in terms of reliability and quality of electric service, but the assumptions that underlie the provision of this service were fundamentally shaken during four frigid days in Texas in February 2021.

While this shock to the system was felt across North America, the lessons to be learned from Texas are particularly germane to Alberta because of the similarity in deregulated electricity market frameworks. Texas and Alberta are the only jurisdictions in North America to utilize an energy only market design. Given the unique similarities, the obvious question is: “What happened in Texas and could it happen in Alberta?”

The Canadian chapter of the Energy Bar Association recently invited four distinguished speakers to provide insights into the crisis. Pat Wood III and Joe Kelliher, former FERC Chairmen, spoke to the circumstances in Texas while former AEUB Chairman Neil McCrank and former AESO President Dale McMaster joined the panel to discuss the Alberta implications. The complete program is set out in The Panel. A video of the debate can be found at lawlectures.com.

All four speakers were integral to the transition in both Texas and Alberta over the past two decades from heavily regulated gas and electric sectors to today’s restructured approach where competition and markets operate together with a modern regulatory approach.

THE TEXAS ENERGY CRISIS

The historic polar vortex that hit the southern United States in February inflicted a severe cost in Texas — nearly 200 lives lost and property damages over $200 billion. The sub-zero temperatures caused two events that were not anticipated by state regulators:

1. Failure of thermal generating plants due to lack of winterization and limited fuel supply.
2. Unprecedented surge in electricity demand.

Inadequate winterization caused freezing of gas supply and control instruments and, in a system with a winter peak of 66 GW, about 30 GW were unavailable. In its worst case planning, based on the “Groundhog Day” blizzard of 2011, Electric Reliability Control Council of Texas (ERCOT), the system planner and operator, had anticipated a loss of 14 GW of thermal plant.

While wind resources were initially accused of causing the crisis, in fact, even though they experienced some storm related outages, ERCOT had anticipated these outages in its planning and wind resources performed as expected.

Texas natural gas production dropped 45 per cent from 21.3 Bcf/d in the week prior to the crisis to a low of 11.8 Bcf/d during the crisis. Gas supply was impacted by freezing conditions, however the bigger supply disruption was caused by power being cut to wells, processing plants and compressor stations.

At the same time that electricity supply was failing, demand for electricity surged as Texans turned up their thermostats. A large portion of Texans rely on low efficiency resistant electric heat in poorly insulated homes and the demand surge caused by the frigid conditions increased demand by 20 GW — roughly one-third of winter peak. Again, this demand surge was not anticipated in the state’s extreme winter planning scenario because planning was based on the 2011 storm.

The large drop in supply together with the surge in demand made it impossible to balance the system without controlled outages. ERCOT requested controlled outages for about 20 per cent of the system. These actions avoided a more catastrophic state-wide blackout.

Over the four days of the crisis, the shortage between supply and demand averaged 10 GWs. The deficit was so large that the distribution companies could not rotate the outages due to inadequate control systems. The inability to rotate outages was devastating as it left two-thirds of Texans without electricity and water for up to 70 hours.

WHAT CAUSED THE CRISIS?

While other factors have been identified as playing a contributing role in the crisis including planned outages, lack of interconnection capacity to other grids, and energy only market/lack of capacity mechanism, these factors played a minor contributing role, if any.

The key insight is that the gas and electric systems in Texas are deeply integrated and while all units went offline (wind, gas, coal, nuclear), the largest loss was from natural gas production. As more renewables are added into the grid in the future, the reliance on natural gas during shortage events will increase.

GOING FORWARD

Texas will need to change the way it plans for extreme weather events. The current practice of planning based on historic worst case may be insufficient due to the unpredictability of extreme weather events that cause multi-point, systemic failure. Better coordination across responsible regulatory agencies may also be required. Integrating planning and enforcement responsibilities across PUCT, ERCOT and Texas Railroad Commission will ensure winterization of infrastructure and identify critical gas infrastructure that would not be subject to load shed.

Improved coordination would address the issue of gas production and processing equipment that use electricity being cut off during rolling outages which then cut gas supply leading to generator outages.

Operationally, the outage management system must be overhauled to allow for rotation of controlled load sheds.

Lastly, improved communication with the public would likely have led to a smaller demand increase and less loss of life if the public was made aware of emergency procedures. For example, citizens were operating generators or cars in garages to stay warm.

LESSONS FOR ALBERTA

The main lesson for Alberta is a functioning market under normal conditions is not a substitute for emergency preparedness and rigorous system planning. The similarities between the Texas and Alberta markets is striking. In both markets natural gas fuelled electricity met approximately half of the total consumer demand. Gas is the dominant resource and will remain that way for many years. A combination of coal retirements and coal to gas conversions will further increase Alberta’s reliance on gas generation by 2023. Unlike Texas however natural gas, not electricity, is the primary source of heat for housing stock. Nevertheless, the deep integration of gas and electricity increases the risk that gas supply outages could severely impact Alberta’s electricity generators.

While energy markets by design omit the central planning role, the Texas crisis underscored the need for proactive, forward looking planning and emergency preparedness in Alberta, particularly to address extreme weather events.

CONCLUSION

The Texas crisis highlighted the critical importance of communication during a crisis in order that Albertans are prepared when electricity, gas and water may not be available for an extended period. Regulatory oversight in Alberta is similarly fractured and greater clarity in roles and responsibilities was recommended to address the increasing interdependence of markets.

Alberta’s natural gas system is winterized but may not be weatherized. Facilities are designed for cold temperatures. For example, gas wells may have alcohol injected to alleviate freeze-offs and compressors are located inside. Less clear is whether system planning in Alberta takes extreme heat or wildfire risk into account. Regardless of the cause, managing multi-point failures in the gas and electricity systems is critical as climate change and extreme, unpredictable weather events threaten infrastructure more than ever.

The Texas electricity crisis is a wake up call for all jurisdictions, not just Alberta. The session provided valuable lessons in the hope that the Texas energy crisis is not repeated — anywhere.

THE PANEL

IS ALBERTA THE NEXT TEXAS?

ENERGY BAR ASSOCIATION, CANADIAN CHAPTER

June 22, 2021 (EDT)

The polar vortex in Texas sent shock waves into the electrical system that are being felt in Alberta and throughout North America. The lessons to be learned from Texas are particularly germane to Alberta because our deregulated electricity market framework is called an energy only market and Alberta and Texas are the only two jurisdictions in North America to have structured their electricity sector in this way. Given the similarities in market design, the obvious questions include, what happened in Texas? Can it happen in Alberta? How can Texas fix it? What are the lessons for Alberta?

Moderator

Bob Heggie, Chief Executive, Alberta Utilities Commission

A recording of the webinar can be access here: https://regulationlectures.com/2022/05/13/1-erq-the-video/

Bob Heggie

Bob Heggie was appointed Chief Executive of the Alberta Utilities Commission in January 2008. In his current role, Bob is responsible for leading the implementation of overall organizational strategy and day-to-day operations to ensure achievement of the Commission’s organizational objectives.

He is the co-chair of the Energy Law Forum, the CAMPUT Energy Regulation course and the Energy Regulatory Forum. He is a contributing author to Canadian Energy Law and Policy.

Neil McCrank, Q.C.

Neil recently retired from senior counsel to Borden Ladner Gervais (Calgary office). Prior to his retirement, Neil’s practice primarily focused on oil and gas, energy and litigation. With a wealth of insight into Alberta’s regulatory regime, he provided strategic advice on major provincial energy projects, including northern development and the oil sands and electricity generation and transmission.

Neil served as Alberta’s Deputy Justice Minister from 1989 to 1998 before chairing the Alberta Energy and Utilities Board from 1998 until 2007. Since then, he has served both provincial and federal governments in different advisory capacities.

Dale McMaster

Dale McMaster joined the Versant Power board of directors in July 2020. Dale has over 40 years of system operations, transmission maintenance, generation planning and market experience, working both in Canada and internationally.

Dale was previously Executive Vice President, Power Supply and Delivery & Chief Operating Officer for ENMAX Corporation. During his time at ENMAX, Dale was accountable for strategic direction and oversight of ENMAX’s regulated transmission and distribution (wires) businesses, power generation and wholesale markets, regulated market services, safety and environment and security.

Prior to his time at ENMAX, he served as President and Chief Executive Officer at the Alberta Electric System Operator, President of the Transmission Administrator of Alberta and Chief Operations Officer for the Power Pool of Alberta. Dale also gained valuable utility experience during his time at SaskPower and while consulting with SNC and Acres International. Dale graduated from the University of Saskatchewan with a Bachelor of Engineering (Electrical Engineering).

Joseph T. Kelliher

Joe Kelliher is the former executive vice president for federal regulatory affairs for NextEra Energy Inc. As executive vice president, Kelliher was responsible for managing regulatory issues for NextEra’s two principal subsidiaries, NextEra Energy Resources and Florida Power & Light Co. before federal agencies.

From 2005 to 2009, he served as chairman of the Federal Energy Regulatory Commission (FERC), where he managed 1,400 employees and a $260 million annual budget. Among the highlights of his chairmanship was the efficient implementation of the Energy Policy Act of 2005, the largest expansion in FERC regulatory authority since the 1930s.

Kelliher has worked on energy policy matters in different capacities for the federal government and private sector. He holds a B.S. from Georgetown University’s School of Foreign Service and a J.D. from The American University Washington College of Law.

Pat Wood, III

Pat Wood is the past Chairman of the Federal Energy Regulatory Commission (FERC) and of the Public Utility Commission of Texas (PUCT).

Pat is currently CEO of Hunt Energy Network, which develops power systems that integrate into competitive power markets. Pat also serves as a Director of SunPower Corporation and the construction firm Quanta Services. He was recently appointment to the Luma Energy Board responsible for overseeing the Quanta-ATCO joint venture to operate the Puerto Rico utility system.

During his four years at the helm of the FERC, under President George W. Bush, Mr. Wood led the responses to the 2000–2001 California energy crisis, the bankruptcy of Enron, and the 2003 North American power blackout. By the end of his term, over two-thirds of the nation’s economy was served by the reliable, organized wholesale power markets FERC championed. Pat holds a B.S. degree (civil engineering) from Texas A&M University and a J.D. from Harvard Law School.

Mary Anne Aldred

Mary Anne Aldred is the Former Chief Operating Officer & General Counsel, Ontario Energy Board. Prior to retiring in April 2021, Mary Anne Aldred was Chief Operating Officer & General Counsel of the Ontario Energy Board.

Mary Anne is a seasoned lawyer with over 25 years of experience in the energy sector. She was responsible for leading all aspects of the organization’s corporate operations and providing legal counsel, policy advice, leadership and guidance on government relations, administrative law and civil litigation. Mary Anne joined the OEB as General Counsel in 2006 and in 2015 she was appointed Vice President of Strategic Policy and assumed the additional responsibilities of strategic policy development and overseeing the establishment of the Registrar’s office.

Prior to joining the OEB, Mary Anne was a lawyer and regulatory affairs advisor for over 12 years with Hydro One and the former Ontario Hydro where she held the roles of Assistant General Counsel, Senior Legal Counsel and Director, Transmission Regulation. Mary Anne obtained her Law degree at the University of Western Ontario and was called to the Bar of Ontario in 1986.

* Bob Heggie is the Chief Executive of the Alberta Utilities Commission. He is also co-chair of the Energy Law Forum and Vice President of the Canadian Chapter of the Energy Bar Association.