Bill Magness Speaks With Jack Fink On What Went Wrong And Fixing The Problem
JACK FINK: Bill Magness, CEO of ERCOT, thank you so much for joining us. Appreciate your time. What is the latest? How many households in Texas are without power right now, and what is your best guess on when all of this will end and everybody will be back online?
BILL MAGNESS: The latest is we estimate that over 2 million Texans still remain without power in their homes, and the effort to restore that power has been ongoing. We have been able, this morning, to reduce the number of outages, authorize the utilities, like Oncor, to restore power in certain places. That has been an ongoing process.
And what's really driving what's going to complete the process and get everybody's power back on, which is our number one priority and all we're working on, is to get sufficient generation on the grid that can match the power needs. Because basically, this is a question of supply and demand. The demand remains very high, given the cold weather and the continuing high demand on the system because of that, and the generation, much of which had a lot of difficulty when the storm blew in, particularly early Monday morning, and caused us to have these outages. Unless we get that supply-- in balance-- in the outages, we're going to have to continue to have some of the outages.
The reason for that, the reason we call these outages at all is that the fundamental job we have is to match supply and demand. And why does that matter? On an electric system, if the supply and the demand get too far out of balance, you can have a catastrophic failure of the system. Now, I'm sure, after these days of no power, it feels very catastrophic to most people who are suffering from the cold and not having lights and all the problems that's caused. But the problem we're trying to prevent is one where the grid could go down in a way that it could be out for an indeterminate amount of time. And--
JACK FINK: Well, what exactly is being done right now to get these power plants back online that are needed?
BILL MAGNESS: The owners of those power plants are in communication with us constantly. They're out-- they have people out working on whatever the problems are. Sometimes the problems have to do with things that broke during the storm coming in. Sometimes they have to do with fuel supply, and so they're working with their, like, natural gas supply providers to get that fuel to them. Some of this is still inhibited by the difficulty of travel, of getting expert service people, or getting fuel to the sites where the generators are. And many of the generators have been able to, you know, bring their units back up and put them on the grid again but then have a subsequent problem and have to come back off.
So it's been somewhat of a moving target. But whenever we get enough generation on the system to confidently reduce the number of outages out there, that's what we're doing. And that challenge of finding that balance so we avoid the catastrophic blackouts we're all trying to avoid, that's really what's driving the timing of when we can get everybody-- everybody in Texas back online.
JACK FINK: And you know, I keep hearing that this is a Texas-sized failure and that people are saying this is the number one energy state. How is it possible that such bad energy policy would allow this to happen? That's what people keep saying.
BILL MAGNESS: What we're seeing is the results of a catastrophic natural weather event. This event caused the demand on the electric system to exceed even the most extreme forecasts of where it has ever been. This week, we were using nearly the amount of electricity in the winter that Texas uses in the summer, which is-- we've never gotten close to that. And so the extraordinary nature of the event caused the demand to go very, very high, and we anticipated that the demand would go very high.
But then the nature of the storm-- the ice, the freezing rain, the precipitation, and the frigid weather-- disabled some of these generating units, which caused the supply side to go down. And that goes from freezing wind turbines to solar that can't work because of the cloud cover for several days to high winds and frigid temperatures causing problems for fuel supply, as well as for the generation units themselves. So it's the extraordinary nature of this historic weather that is driving these things in the wrong direction and getting that high demand out of balance with the supply. And that's what we're pushing and pushing to get back in balance so everyone can get their power back.
JACK FINK: We spoke with an energy expert from the SMU Maguire Energy Institute yesterday who said, ERCOT needs to do a better job of winterizing the power grid. And even back in 2011, the Federal Energy Regulatory Commission recommended that ERCOT do a better job of winterizing the grid. So what happened?
BILL MAGNESS: You broke up a little bit there, Jack. I heard you say that you spoke with an expert from SMU?
JACK FINK: Yes, I did.
BILL MAGNESS: And something was recommended that--
JACK FINK: Winterizing the power grid. And this was warned back-- recommended by the FERC, the Federal Energy Regulatory Commission, back in 2011 when this happened. And so my question is, why didn't this happen? Why is the power grid not winterized enough to prevent this?
BILL MAGNESS: The last time we had rotating outages in ERCOT was in 2011-- February 2 of 2011. And after that, there was a tremendous amount of effort at the state level, as well as the federal, to look at those winterization issues and make sure those were being done better. And a lot of work went into that. And actually, we had weather in 2018 that was similar to the weather we saw in 2011 in the winter, and we saw much better performance. I think the winterization had a big impact.
So this event is so much more extreme than what we saw in 2018 or 2011. There may be issues we're going to find that have to be delved into further, but there certainly were efforts to make winterization a priority. And obviously, there were some challenges that weren't met this time. But you know, right now, we're focused on getting the power back on. We're going to-- you know, we, along with [AUDIO OUT] leadership, regulatory leadership will be examining every moment of this event to determine, you know, decisions being made, whether things were done wisely, whether they can be done better in the future. But right now, the effort has to be focused on getting this power back on, and that's what we're doing.
JACK FINK: Is there anyone at the agency that did a risk assessment about the extreme weather?
BILL MAGNESS: Every day at ERCOT, we were examining the supply and the demand expectations on the grid with very sophisticated modeling, forecasts of demand with forecasts of wind and solar generation. So that is a, you know, day-to-day process that we're doing here. And we saw the storm coming and issued notices beginning February 8 to our generators, to our other market participants to be ready for a severe storm.
And I think there was a lot of attention paid to it, you know, late last week. As we saw, Governor Abbott declared a disaster declaration. There was a lot of media attention focused on it. We asked on Sunday for conservation to try to help bring down the demand side. So certainly, the risk assessment, as far as what we were seeing in the storm, was done and was, you know, we believe, communicated.
JACK FINK: I think a lot of people really want to know is how much is this going to cost ERCOT and the state to better winterize the system and the power grid? And are-- people are going to have to be willing to pay that extra cost.
BILL MAGNESS: Well, the number-- at the moment, our number one priority is getting everyone their power back and ensuring that the steps are taken as quickly as possible to restore demand on the system so that more customers can be back with power and back with power as they were last week, back in a normal situation. So that's what we're up to now. There are going to be a number of examinations, I'm sure, by governmental authorities, regulatory bodies, and the industry itself looking at, you know, what happened.
I mean, if there were issues that were caused by a lack of winterization or issues that were caused by seeing such an extreme weather event that, perhaps, had not been contemplated in certain places, those things are all going to be investigated. Exactly how those play out and what the results are I think is down the line. So I couldn't really speculate about that. But you know, for now, the challenge is, you know, we know that things have problems. We need to fix them immediately and get people back online.
JACK FINK: There's been a lot of conversation whether, you know, the state relies too much on renewables to provide cheap power or not. And I think there is a lot of debate going on. What is the answer to that? I mean, does the state rely too much on wind and solar at the expense of having a better supply of natural gas and coal plants?
BILL MAGNESS: Well, right now, we're working to repair-- to bring back online-- the generation companies are bringing back online wind, solar, coal, natural gas. I mean, because this storm was so extensive and so unprecedented, all types of generation are having difficulties and are working extremely hard to get back online. I think the policy questions around, you know, what kind of mix-- generation resource mix-- we have, whether investment in different resources is wise, certainly one that is welcome, once we get the power back. But right now, we're working with generators of all types to recover from the extraordinary storm and get all those different types of generation that we do have now that can provide the power we need today back in action.
JACK FINK: You spoke before just about the fact that, you know, obviously, the storm was forecast. You guys have your own meteorologists and know. And so I'm wondering, you know, a lot of people are asking, why was ERCOT's predictions of peak use so far off?
BILL MAGNESS: Well, the predictions of peak use, I wouldn't say, were far off. We estimated that we were going to have demand-- peak use-- higher than anything we'd ever seen in the winter, rivaling what we see in the summer, which is when Texas usually has its highest electricity use. So we were communicating out that we saw an extraordinary event coming. We knew that Monday morning was going to be challenging, as far as keeping supply and demand in balance, and Tuesday morning as well, yesterday. And as the cold weather continues, you know, we continue to see those challenges.
But we saw the very, very high demand. In fact, Sunday night, we broke our winter all-time record, as the storm was just beginning to come in, and broke it by over 3,200 megawatts. Later that evening, it was continuing to grow and growing towards that forecast when the system was getting out of balance because we saw so much generation have to come off. That's when we called the rotating outages.
So the ultimate demand on the system was reduced because we had to reduce it in order to keep from sort of trailing towards a blackout. While this is a horrendous situation, one we got to get corrected immediately, if we had let this drift into a catastrophic full blackout, we might not know when we will be back. It could be months. It's impossible to know because of the physical damage that happens if you allow the system to go in a blackout.
So the forecasts were trending towards those records that we were communicating and that we saw, and I think we would have seen them if we had had a generation to serve that demand. But that's when the generation started having trouble, and we had to get the supply and the demand back in balance.
JACK FINK: What's your reaction to the fact that Governor Abbott has called this a total failure by ERCOT and some lawmakers are calling for resignations?
BILL MAGNESS: Oh, I think, as we get through this, there are going to be-- and there should be, absolutely-- investigations, assessments of what happened. Right now, my number one priority and the number one priority of the company is to get power back on for Texans. Once that power is back on and we've eliminated the need for these outages, we'll have lots of discussions about what comes next. But all I'm focused on right now is the efforts that are being undertaken by ERCOT, by generators, by transmission companies, the entire industry to get all Texans back with full power.
JACK FINK: Two other quick questions-- I know you've got to get going on some other interviews. But are there-- the fact that there are so many electric vehicles on the road now and some homes operating completely on electric, there's more electrification in the economy in Texas. And is that-- has that been considered, as far as adding capacity? In other words, there's so much more relying on the electric grid, and we haven't been keeping up with that demand, as far as the capacity is concerned.
BILL MAGNESS: Well, as the demand grows we continue to see investors come to Texas and build a new generation. And you know, the highest demand we ever have-- or ever had on one day-- was in August of 2019. It was higher than anything we ended up seeing this week. But the system had sufficient capacity to handle that with some to spare. So there is sufficient capacity to handle extraordinarily high loads, and I think investors are seeing the opportunity, as Texas grows, to continue to add new generation to serve that need.
The challenge we saw this week is that it wasn't an insufficient capacity. It was that a lot of the capacity had issues because of the extraordinary, unprecedented weather situation. And we'll see, as we-- once we get the power back on, which is what we are focused on now, there'll be examinations of how those numbers add up and what that might look like for the future, as electrification continues to grow.
JACK FINK: And my last question, why is-- why are there board members who live out of state and even out of the US?
BILL MAGNESS: The ERCOT board is made up of a group of Texas companies that operate within the ERCOT market, but it also includes directors that are unaffiliated with any company in ERCOT. So I think, historically, to find people who have sufficient experience in the electricity industry to understand the issues and participate effectively, often, it is more difficult to find people in Texas because so many have affiliations with companies at ERCOT.
I think, traditionally, that's why we've had directors from Texas. We've had independent directors from other states. And we just try to find qualified people who understand the issues we're facing and can help with our governance. And I know-- if that issue needs to be reviewed in the future, that's fine as well. But today, we've got to focus on getting the power on.
JACK FINK: Bill Magness, ERCOT CEO, thank you so much for your time today, really appreciate it.
BILL MAGNESS: Thank you.