Two Years After Devastating Winter Storm, What Can We Say about the Isolated Texas Grid?

Overview

In February 2021, Winter Storm Uri swept across Texas, causing widespread power outages and leaving millions in the dark and cold for days. The frigid temperatures broke water supplies and challenged normal operations of industry, business, and home life. Ultimately 246 individuals lost their lives as a result of the storm.

In the weeks following these tragic events, pundits, politicians, and the public were quick to blame the isolated nature of the Texas grid for its catastrophic failure. They attributed the unique status of the Texas Interconnection to politics and the state’s notorious penchant for independence. But a closer look at the last century of electrification in Texas suggests that dwelling on Texas exceptionalism as the primary reason for maintaining an isolated system obscures the legitimate reasons power companies chose to stay in intrastate commerce in the past — and limits consideration of the real opportunities and challenges of building new interstate links today.

This brief provides an overview of the many historical factors that explain Texas’ isolated grid and outlines considerations for policymakers. It draws from a research paper published in 2022 by the Baker Institute for Public Policy that takes a deeper dive into this history.

Texas’ Isolated Electric Grid

Electrification in Texas is exceptional in several ways. The Texas Interconnection, which provides electricity to 90% of the state’s electricity customers, is one of three that stretch across the continental United States. The Eastern Interconnection and the Western Interconnection are the other two. Each is a synchronized alternating current (AC) system in which all devices must operate at 60 Hz – a complex and technically challenging process.[1] All three are connected through direct current (DC) transmission lines that can transmit relatively small amounts of power on a scheduled basis. The Electric Reliability Council of Texas (ERCOT) operates the Texas Interconnection under rules established by the Legislature, with oversight from the Public Utility Commission. The North American Electric Reliability Corporation sets and monitors reliability standards for all the nation’s bulk power systems, including within Texas.

In addition to its isolated grid, the Texas Interconnection is distinct in other ways:

• It boasts the highest installed capacity of and generation from renewable energy resources in the U.S.
• It has uniquely structured competitive wholesale and retail markets, as well as postage-stamp style cost recovery for transmission.
• It includes legislated transmission lines for wind development.
• It was the last state to regulate its power companies in 1975 (whereas most other states regulated theirs by 1920).

Yet electrification unfolded in Texas much as it did across the country. At the end of the 19th century, investor-owned companies competed for urban franchises and vied with municipally owned companies for the right to light up streets and electrify homes and businesses. By the 1920s, Texas companies, like many elsewhere, built links with each other to manage energy resources, enlarge markets, achieve economies of scale, and, importantly, to provide backup power during planned and emergency outages. Many – especially those close to the edges of the state – linked with other companies across state lines. And most investor-owned companies operated as subsidiaries of national and international holding companies. Notably, in Texas, investor-owned companies were beholden to neither state nor federal regulators, and instead negotiated franchise and rate agreements at the local level to build their systems.

In 1935, Congress passed legislation that fundamentally restructured power markets across the country. The new laws required holding companies to integrate contiguous subsidiaries in multiple states into power pools or dissolve, placed interstate wholesale power transactions under regulation by the Federal Power Commission (today’s Federal Energy Regulatory Commission), and authorized the commission to order interconnections when it was in the public interest. Investor-owned utilities in Texas, just like others across the country, responded by either removing themselves from interstate power exchanges or continuing with those links as part of interstate power pools. The latter, of course, traded autonomy from federal regulation for the many benefits they gained from interstate interconnections. Texas utilities that had adequate access to energy resources, customers, and backup power within the state generally elected to avoid federal oversight.

Power demands during World War II led the Texas utilities to both organize intrastate power pools and participate in interstate power exchanges. The utilities helped provide electricity to major defense manufacturers in Arkansas and elsewhere but withdrew from this activity as soon as the war ended. In the meantime, the newly formed power pools within the state enabled the utilities to provide each other with backup power as needed. In 1967, the utilities consolidated the pools into the Texas Interconnected System (TIS, now the Texas Interconnection) and in 1970 organized ERCOT to coordinate planning and reliability for the system.[2] Midway through the decade, Central and South West Corporation, a holding company with subsidiaries in Texas, Oklahoma, and Louisiana, challenged the autonomy of TIS through a surreptitious action called the “Midnight Connection.”[3]

On May 4, 1976, system operators at one of Central and South West’s subsidiaries “performed a midnight wiring of electrical circuits” with a subsidiary in Oklahoma, entering all the members of TIS into interstate commerce.[4] Two of the largest companies immediately withdrew from TIS, and a slew of lawsuits ensued. The now reduced TIS operated interconnected with Oklahoma for another six months, but with significant stability problems. By the end of the various hearings and court proceedings, Central and South West had terminated the interstate interconnection and TIS resumed operation as an autonomous, Texas-only grid, with all of its original participants. And state and federal regulators approved the installation of DC ties between TIS and utilities in other states, allowing the Texas companies to avoid federal regulation. The notion of Texas isolationism as the driver behind the state’s grid emerged through the comments and characterizations of various participants in this episode.

Policy Considerations

As this brief historical recap illustrates, the Texas isolated grid resulted from numerous individual decisions made by utilities over the course of decades, not a single-minded dedication to independence. Looking ahead, policymakers should consider additional findings from the past:[5]

1. Recent studies of nation-wide AC connections between grids tend to bypass Texas. At the same time, past studies of AC links between Texas and other states focused on potential economic benefits, but inadequately addressed stability, reliability, and the technical challenges involved. Future studies must address these aspects in order to determine the best steps forward for the Texas grid.
2. Regulators have approved DC links between Texas and other states without placing the Texas Interconnection under federal regulation. Future studies should also carefully assess the opportunities offered by DC rather than AC links.
3. Recent technical studies suggest that the future may hold more “islanding” of small grids within a larger interconnection, an alternative to expansion of existing grids.
4. New links, whether AC or DC, will require buy-in from regulators, transmission competitors, local organizations, and landowners across multiple states.
5. The isolated Texas grid has benefited the state in certain ways – for example, simplifying the path to wind development and centralizing operating control under a single entity,  ERCOT – without requiring coordination with other system operators.

Conclusion

To rationally tackle the question of whether and how to end the isolation of the Texas grid, engineers and policymakers should look beyond Texas braggadocio. The exceptionalism of the Texas grid has served its stakeholders well in many ways for many years, but broader considerations related to the public good and public acceptance, environmental need, and economic sense are what will determine whether Texas will embrace a new scenario for its electric power future.

Endnotes