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Hill Vaden: All right. Welcome back to EnergyCents. This is Hill Vaden. And I am here as always with Breanne Dougherty to discuss topics that lie on the intersection of energy and finance. Breanne, how are you?

Breanne Dougherty: I’m perfectly fine, Hill. The more important question is how are you? Hill lives in Houston, everyone, if you aren’t aware. So, how are you doing? How are things for you?

Hill Vaden: We’ve had better weeks. Obviously, it was cold. We’ve got -- I’ve been without water since Tuesday, I think, without running water. JJ Watt announced that he’s leaving the Texans on Friday, so that kind of kicked all things off in the niches.

Breanne: So, what’s interesting, I mean it’s terrible and when I found out Hill didn’t have water, for all you listeners, so I thought Hill didn’t have water. I mean, he can’t help but feel sorry. The one thing I will say that when I think of families that that might be able to handle the situation pretty well. I think Hill and his family because they, I mean you guys do your long trek hikes through the Appalachian Mountains. I mean, your kids…

Hill Vaden: Yeah.

Breanne: I mean, you guys know how to hunker down and make things work is what is least the impression I get. So, I feel like maybe they’ve taken this out as an adventure.

Hill Vaden: They haven’t but my wife was smart enough to leave town on Sunday. So, its me and the kids this week, and we’ve got subzero temp sleeping bags that there was a period where without power and heat and so the house got rather cold and then we got headlamps. So, we’ve been having dinner in the dark and using all sorts of camping know-how to get through this. So, it has been I guess that that there’s been some practical learning of that.

Breanne: So, very practical learning. And those vacations have more than paid off?

Hill Vaden: Yes, yes. Well, so today, we’ve got three guests. We’ve got a crowded room. So, Mike Pickens, Wade Shafer and Doug Giuffre but Wade and Doug are longtime participants in EnergyCents. Mike is new, new to the podcast this week. So, welcome all three of you.

Male Speaker: Thank you.

Hill Vaden: I was thinking but before the call just about how kind of we’ve got a crowded group here and Dr. Teeth and the Electric Mayhem. Are you guys Muppets fans?

Male Speaker: Oh, no.

Hill Vaden: No, that’s not ringing the bell. Dr. Teeth and Electric Mayhem are the bands in the Muppets, where Animal is the drummer. And I know you guys are all on the same team. And I think as what North America powers something, which has much less of a ring to it then the Electric Mayhem.

Male Speaker: [Indiscernible] [00:03:41]

Male Speaker: Under rebrand.

Breanne: I like it. I think that actually has a nice silver ring to it.

Male Speaker: So, you can make that happen.

Hill Vaden: Dr. Doug and the Electric Mayhem.

Breanne: Perfect. That sounds fantastic. Just think of the people that we collaborated to your sessions.

Hill Vaden: Yeah, all sorts of Muppets, which the Muppets have also been on my mind because the beaker, the other Muppet who never says anything, right? Because [Indiscernible] [00:04:14] with it. I keep hearing people as I’m talking to them in grocery stores when people just give their, you know, hello over it, but they’re all mess and just like…

Breanne: Yeah, it’s just not fall off, that’s basically what is happening.

Hill Vaden: I have no idea what they are saying. But we are here to discuss Electric Mayhem in Texas.

Breanne: Not surprisingly considered the event considering the events that have gone on over the last -- what are we? Five days, five days, four days past?

Hill Vaden: Four days, like, yeah, four days feels like longer.

Breanne: Yeah. [Indiscernible] [00:04:49] in week.

Hill Vaden: It has. So, Mike, I think you’re the of the group here, you’re the closest to this in terms of or record knowledge. Can you give us a little bit of a breakdown of what happened and where we are now?

Mike Pickens: Yeah, thanks Hill for inviting me. I wish we were under better circumstances. But I think the good news, first of all is that, you know, as we’re talking right now, the grid has returned to normal operation. So, we have to, we’ve reached a turning point. And now it’s time for us to start looking back and trying to identify what happened. Right now, it’s really a story of two extremes. One extreme really was the demand that the particle blast brought into Texas. In fact, the grid operator was expecting to reach an all-time record demand, because of those extremely cold temperatures. In fact, the demand number they had projected far exceeded what they had gotten over the hottest summer days in 2019. So, we’re really talking about some really extreme cold winter weather that was driving up electricity demand.

And at the same time, we had another extreme, which is around the supply, where those cold temperatures resulted in a number of power plants coming offline, in really short order. And we’re hearing from the grid operator that they were minutes or within a very short timeframe of actually having to where the grid was exposure for collapsing. And if they didn’t make this sudden decision to curtail part of the load, it could have resulted in an entire system going down, which I know this has been a horrible week for everybody. It could have been a lot worse, where we could have had outages for weeks, if not a month or more. So, this was really a story of two extremes happening all at one time. So, I think that’s the picture that’s been painted so far.

Hill Vaden: And how does this is the second time in 10 or 11 years that there’s been winter disruption like this? Is that correct?

Mike Pickens: Yeah, yeah. So, we had a winter weather event back in February of 2011. But it was nowhere near as extreme as what we’ve just gone through this week. So, just for a couple, I’ll toss out a couple of numbers that may be helpful. Back in 2011, we had to shed about 4000 megawatts of load. Now, that compares to about 18-and-a-half 1000 megawatts this time. Another important metric to keep in mind is just the amount of time that they had to have involuntary load curtailment. Back in 2011, the tire outage lasted about four hours. This has been days and days and days. So, this stands out from all the other previous extreme weather events that we’ve had in Texas, it’s really a watershed moment for this power market.

Breanne: I think, and naturally, I come from knew very much a lot of my background is in the gas world. So, I have to say I was very surprised by the gas component of this story that we’ve the events that we’ve seen happen in the last four days. Is it fair that I’m surprised? Or was this something that people were aware of the vulnerability potentially to the gas system around weather?

Mike Pickens: Yeah, that’s a good question. So, I think one of the terms that we’re all going to be learning more about in the coming days is winterization. In Texas, it doesn’t tend to get that cold during the winter months. And so, power plant owners are trying to make this calculated decision about how much winterization they perform on their power plants. And also, the natural gas suppliers too how much winterization did they do on some of their equipment. But this wasn’t a surprise. This was one of the findings that came out of the 2011 situation where the Federal Energy Regulatory Commission performed – after action study and one of the themes that came out of there was around winterization and whether we were properly winterized back in 2011.

And sadly, to say, I’m not sure that we’ve made tremendous progress since 2011. And a lot of the situation we find ourselves in today was really around this winterization, winterization around the power plants, winterization about getting natural gas, fuel to the plants. So, it’s going to resurface and we’ve actually seen the governor step in and issue an executive order to begin mandating some of this winterization. So, I think that’s going to be one of the low hanging fruits in terms of market reforms. But I think there’s a lot more that’s going to occur over the next coming months and years above and beyond just stronger winterization mandates.

Breanne: How -- I’m going to go to, Doug, here for a second, though. So, can you should I be comparing it to the PJM crisis of the polar vortex should? Are these totally different storylines, because they both have a gas component to them, which is what made me want to like initially, that’s where I wanted to connect the story, will get to wave on the on the California side of it, because I feel like these things have been happening in and around this or caught event that ring very familiar. But maybe I’m being a little bit naive there. How does this relate or not relate to PJM crisis?

Doug: Yeah, I don’t think it’s naive at all. In fact, Mike and I wrote a short inside for clients. Yesterday, just kind of describing the situation and some of the insights or takeaways, things to watch for in the days and weeks ahead, that I think will be relevant. And there will be comparisons to PJM. There are going to be people that question or cots market design. And this may get a little too far into the weeds. But quite simply, our cot has a model where the general thinking this is oversimplifying it, but the general thinking is allow electricity prices to rise to very high levels when conditions get tight. And when you have periods like that, it should send a signal to the market that, you know what, we should invest in generation technologies here. We can take advantage of these high prices in the future. That has been their plan. And over the years, they’ve escalated the cap on how high electricity prices can get. They can get up to $9,000 per megawatt hour in Texas that is far higher than any other market in the United States.

Markets like PJM, on the other hand, use a capacity market where they essentially pay different resources, generators, demand response, et cetera. A monthly payment to make sure they’re in the market to give them incentive to keep themselves available. Now, PJM had that market in place, when the polar vortex hit there in 2013, 2014. They had a lot of coal stocks that were frozen, gas generators, they were unavailable, they’ve had to go, this point they’ve done it but went back to the drawing board and said, we need to tighten up performance incentives within these markets, just having the capacity in place is not enough, you need to create the right incentives so that they are doing things like winterized and keeping fuel, solid fuel available, having firm fuel contracts.

But one of the points I’m making the papers that in PJM, the penalty for being unavailable is something on the order of 30 $500 per megawatt hour. It’s not at all clear to me why that’s a better incentive than leaving $9,000 per megawatt hour on the table, if you’re a generator and archive, and you’re not producing. I mean, those that were available this week are having significant profits and earning significant margins, those are unavailable, leaving a lot of money on the table.

In theory that should create enough of incentive for them to make those winterization investments. The practical matter or the evidence is clear that many of them have not made those investments. And that’s an assessment on their part that the likelihood of events like this are so low that they wouldn’t justify making the winterization investment. And what’s really interesting, when Mike and I wrote this paper was prior to the governor asking the legislature to go ahead and demand winterization of the power fleet and to have cost recovered through a regulatory mechanism. That is a really interesting step for Texas to take, which has historically been somewhat laissez faire, allow the prices to rise, the Markit will take care of it. That’s proven that they haven’t made those investments. And so, maybe we’re seeing a bit of a swing and the pendulum away from just very deregulated allow the market in more to a regulated environment. How far that swings will be very interesting?

But, you know, it’s either get to go back to your question relating this to PJM. I do think it’s similar PJM struggled in the polar vortex then they’ve since changed the Markit rules. They released the press release talking about how well their fleet performed this week. In fact, they have such extremes excess of supply that they set records for exporting electricity. But on the other hand, they didn’t have the extreme whether the Texas had. So, I think PJM is approach and New England’s approach still have not yet been tested. We’ll see when, if and when we get another extreme cold snap in the northeast, how will they perform?

Hill Vaden: So, it sounds like there’s not a clear model to Texas to look to, for if we’d only done this, we would have been in a better situation?

Doug: Yeah, I mean, I think it’s not about market design and model. Because you can, generators they’re making very rational decision. If they truly believe that the potential for an event like this is so low, the winterization costs may not be justified by potential profits. And again, if this only happens once every decade, you’re talking about a generation fleet that is already very concerned about a lot of wind in a growing amount of solar on the system, that it depressing the revenue they’re going to earn. And so, for them to take on additional investments in winterization, they may be making a decision that it’s just not in our best interest, it may very well be in society’s best interest that those costs are incurred. And that’s why I think this action by the governor is very important, because they’re saying, it’s probably insufficient to just help the generators make the investment on their own, we need to mandate it. And if we’re going to mandate it, we probably need to allow them cost recovery.

Hill Vaden: Do we have any ideas what that means to consumers? I mean is this an extra dollar a month or an extra $100 a month?

Doug: I don’t have good numbers on that. But I think it is pretty clear. One of the things we’ve been talking about and doing a bit more digging is that much has been made about the wind turbine performance this week in our, and turbines being frozen. Wind turbines operate in very cold conditions and throughout North America, in Alberta, they’ve got wind that operates in quite cold conditions across the upper Midwest it happens. There are investments you can make and winterization and de-icing keep those turbines, it’s probably wouldn’t make sense to do that in our thought normally. But if you are concerned, especially in the future, as wind becomes a much larger part of the mix, assuming we continue down this decarbonization road, it will likely make more sense and maybe those costs would be justified. What those costs are I don’t have great numbers on that.

Hill Vaden: Okay, so then I mean, to bring Weigh into this when we spoke this summer, it was about the California Electric Mayhem. Are there? I know we’re different seasons, one is hot, one is cold. California and Texas are also different in many other ways. Are there any similarities here looking at this from more of an objective kind of policy perspective?

Male Speaker: Yeah, I mean, the recent events in California around the summer before I talked about that, I mean, I was sitting here seeing the news and the devastation in Texas. And [Indiscernible] [00:18:08] is going off telling me that there’s alerts in California and asking generators to cancel maintenance and be available. So, even in California, I mean, there’s concern around the winter. And there’s a little difference, I mean, there is electric heating demand does go up. But the gas system, again, is kind of the stress point. And I think we’re all familiar with the environmental regulations, the move the decarbonize California, so many part of it is the gas system can be tight on sort of peak winter days. And so, it leaves questions about, you know, is there enough gas to go around for the power generators and everyone else who needs to heat their buildings? So, it’s very similar to Texas.

But on the other hand, I mean, part of it’s also due to Aliso Canyon in the failure of that facility and restrictions around its operating levels. And they do let it operate above sort of regular levels in an emergency. So, that helps bring relief. But I saw, I mean, even in California, when, you know, this is on summer on heat, winter is also something to keep an eye on and even this week, the power, the operators were really looking at it even though the conversation is all around summer. So, but I can talk about summer and similarities there as well. I mean, I guess what’s similar is that it’s a weather event, right? In California, and the blackouts that happened there in August, it was extreme heat, sort of beyond what was expected and historical, I think historic records of high average temperatures across such a large portion of the state and across the whole region, Western US, it’s, I guess, what’s different is the magnitude, right? So, at the time it was the worst was a gigawatt for two hours on a weekday evening, and then the power came back. And that in hindsight, looking at the devastations in Texas, I mean it’s a bit of a blip. As far as system failure, I think the one thing to keep in mind is that if, it could have been a lot worse than California, it could have been five times worse, it could have been five gigawatts later that week, if customers didn’t respond and cut their electricity consumption drastically, later in the week when it was still very hot.

And so, in that sense, California kind of skirted by without, without experiencing the devastation that Texans have suffered. In California, I mean, it was generators, bore a lot of responsibility. And in the media, like in Texas, there’s media discussions about renewables fault and solar fault. But really, I don’t think anyone expected solar to be there at night, when the sun was setting. And it’s really a question about all the other resources that combine to make up the portfolio of generation resources and meet reliability requirements. And so, one of the weaknesses in the supply side was gas generators and when it’s really, really, really hot out, right, the power plants are in the outdoor environment, they’re heating up to. And when it’s really hot out, they can’t run it quite the same level as they do when it’s sort of a normal cool day. And so, you had a lot of gas plants in California not operating at full capacity, and so all that adds up.

And in California, it wasn’t an astronomical amount of outages, right? Like what Mike talk through. I mean, it was 20 gigawatts or something of gas plants are close to that. We’re offline at one point in California was more like, three to four, something like that. And I mean, it’s, so it wasn’t astronomical, it’s certainly reasonable in history, it’s a question of okay. It was really hot supply side, sort of reasonable things happen, as expected, why did the Markit not have enough power to keep the lights on? Why do we have to cut off electric to the people? And then that raises questions about really the policy design, the Markit design, what risks are being planned for, and now California is scrambling to recalibrate what risks society demands the power system to plan around. And so that’s changing the way the grid operator and really the power community at large is planning reliability in California now heading into summer 2021.

Breanne: I think and, correct if I’m wrong, Weigh, when we had this conversation about California as well, one thing, one of the takeaways was sort of the increased importance, or at least, people looking at a little more closely increased connections with neighboring grids and the ability for import of a power drain in some of these situations. Mike, can we -- and obviously, Doug, you spoke about how PJM prides itself this year, for instance, on our ability to export power? What about -- my understanding are cot runs still low here, right? There isn’t that ability to import? Or am I not understanding that correctly? Was there just no ability for them to maybe leverage off of some neighboring grids?

Male Speaker: Yeah. No, you understand that correctly. I mean, there’s really limited interconnection with the rest of the country in Urquhart. They can import some from Mexico really small. They can import some from what’s called the Southwest Power Pool. They import some from what’s called a Miso market. But really, they’re almost isolated in and of themselves. And I think that’s partly what contributed to the grid operator making their decision to shut low because there isn’t an ability to really bring in large amounts of power to meet this sudden, unexpected demand. There’s going to be conversations about there should, or could be more connected to the broader country. And those are going to be some policy decisions that I think are going to be, you’re going to hear more about in the coming days.

But right now, they are pretty much interesting. If you look at Texas as a whole, though, I mean, Texas as a whole is actually connected to all the power grids. So, for instance, El Paso, Texas, is actually kept connected to the Western interconnection. If you look up at the Texas Panhandle, that’s connected to the eastern interconnect. If you look along the Louisiana Arkansas border, that’s connected to the eastern interconnect. So, in Texas, it’s unique. It’s got this real mix of most of us pretty well isolated, but you’ve got some of the surrounding areas that are connected to the broader power market, so…

Breanne: And maybe this is, maybe it’s an unfair question, because I know we’re still waiting for data to come in. And it could be just a speculative. So, it might be an unfair question to you, but what if it helped? I mean is that?

Male Speaker: No.

Breanne: Okay.

Male Speaker: Not to this degree. I mean, the scale that we’re talking about here, is enormous. So, for instance, when our cot put together their final winter outlook, you know, and under normal weather, they were expecting about 58 gigawatts of electricity demand at the highest hour. In an extreme case, it would have had another nine gigawatts on top of that. But the day before the shed load, it got up to almost 74,000 megawatts. I mean, these are the difference between what they forecasted and what they started to anticipate the day before, the gaps just so large that you wouldn’t have been able to bring in additional power from neighboring market and solve this problem. It was just too big.

Breanne: [Overlapping Conversation] [00:25:41] it would have made a difference for the gigawatt potentially, in the California crisis, so.

Male Speaker: In California, I mean, in California, I mean, I know again, a lot of people in the media and industry have been really are hitting an imports, and said imports are probably problem too. But honestly, looking at the data, the imports performed as expected and actually exceeded expectations. So, utilities in California can contract imports, as part of their overall strategy for having enough power resources to meet demand. And they actually got extra imports. Now, they didn’t max out the interconnection. The interconnection, which is the actual lines that connect California neighboring markets. I think when you get in these crisis, these like, are caught as well, you hear a lot of folks talk about, oh, we could have gotten all this extra power from everyone else. But in reality, everyone else needs their power too. I think [Indiscernible] [00:26:31] a lot of other systems were stressed in California in the summer, the heat waves tend to hit the whole West Coast. So, everyone is in the same boat dealing with extreme climate, extreme weather, everyone’s using all their infrastructure. And in the case of California, they actually used more of the infrastructure than they contractually secured ahead of time. And it certainly helps, I guess, it helped make the crisis from being worse. But I don’t think you can wire your way out of problems on a climate problems by just increasing the amount of wires going to your neighbor.

Hill Vaden: Just real quickly on the unexpected demand surge is that we just underestimated the number of space heaters that we’re going to be plugged in at one time, or how do we miss it by that big of a mark?

Male Speaker: Well, I think that its store is so severe that it was, you know, temperatures were so much colder than what they use in their, what they call extreme scenario. In your extreme scenarios, more like 2011, whether this was a lot colder than even that. So, [Indiscernible] [00:27:39] was much greater.

Hill Vaden: Just to add, if I could just add very quickly. I think, both on imports and on demand, planning and projecting, to me this is a story about shortcomings, really across the board. So, with increased imports alone have saved the day unlikely. But because this is a problem, or there were issues across the board, solutions going to have to be widespread and across the board. Now, take our cuts demand forecast. And there are extreme cases, Mike said, was based on 2011, that’s probably too conservative, clearly was too conservative, and maybe need to begin thinking about more extreme weather and how that could impact. The supply side outages, we talked about 30,000 megawatts, 35,000 megawatts for people listening, that may not be a tangible number, think about the entire New England power grid, their entire generation fleet is about 35 or 36,000 megawatts. That’s what was lost here in our cot in terms of power plants forced offline. That is a significant amount of the fleet that is just unavailable.

And so, that’s why imports alone would not have solved this problem and as Weigh pointed out, they were cold weather events going on in neighboring regions. Maybe if you could tap into Far Eastern markets, they would have been some assistance to come. But the solution is going to include projecting demand and assuming more extremes or potential, doing something on the supply side to insulate the generators, working with a natural gas industry for them to winterize and also potentially increasing imports. But it is important to remember that Texas likes limited connections with neighboring Markits, and they don’t want to expand and be fully too connected to the extent that that would bring a regulation from the Federal Energy Regulatory Commission. They’re very happy historically have been to be regulated within the state.

Hill Vaden: So, looking ahead on some of this, there’s been a lot of finger pointing in the news. There’s been all sorts of, whether it be editorials or Twitter or just conversations on the sidewalk. Looking at the weather and looking at what, whether it’s wind, whether it’s gas, as we’re looking forward that kind of possible solutions, you know, Doug, to your point, and in a sense to winter, where’s the positive opportunities? And what’s involved in winterization? Is that an opportunity for the marketers, for the grid, for a whole another firm or type of firm? What do we see going forward? And how quickly these pieces kind of get put together, policy? You’ve seen this was not going to be a quick policy fix. Maybe Mike, start with you.

Mike Pickens: Yeah. In terms of just the winterization, I think that’s going to be one of, that’s going to be one of the minimum outcomes to this process. It’s interesting, I’ve actually been following this market since after the 2011 extreme weather events. And what’s interesting is that at that time, the conversation had a very small group of people. You have the generators, you had the regulators, you had the large industrials. What’s different about this time is you now have the voters, and you have the policymakers, and you have the governor, the circle is much, much bigger. And so, I think we can expect a much different outcome, because you’re broadening that conversation. In the past, this state legislator said, look, we’ve made our decision about the market design. In fact, when the regulator’s tried to consider a capacity market, one particular state legislator drafted a law that prevented them from even talking about it.

Now, you’ve actually got state legislators that are going to begin positioning themselves as a solution maker. And when you start entering politics into this bloodstream, you really never know what’s going to happen. One of my concerns is that out of this, as you may get some short-sighted decisions that may not be best for the market, because you’re making some short-term political decision. We think about how we got here, you know, [Indiscernible] [00:32:33] started to deregulate Texas. And it was a really long and methodical decision-making process. We had years of preparation and studies, right?

One of my concerns is that this may be a very short-term political situation, or policymakers may be more interested in politics than protecting the grid and the power market. So, I think that’s one risk to at least be mindful of as we start hearing these conversations. The hearings start next week. Next week, our cot before its regulator, the Public Utility Commission of Texas. And at the same time, I think they’ve got a meeting scheduled with some of the State Energy legislators, and there’s going to be a lot of politics that into this bloodstream, and it’s going to -- we just don’t know the outcome at this point.

Breanne: And NERC won’t enter it all, right? They’re going to be completely uninvolved because this is a state regulated. Is that, am I right there? You don’t have to -- nobody should be watching the Federal space for policy that might be…

Mike Pickens: Yeah, yeah, the Federal, I mean, we’ve got the, we’ve got NERC, who’s going to -- who does have a voice in this conversation. But I think a lot of the movement we’re going to see is, we’re going to see a lot of state action. So, I think that’s where you’re going to see a lot of the conversation. Doug, did you want to say something?

Doug: Yeah, I think Commissioner or Chairman Glick of the Federal Energy Regulatory Commission, has already said that they will launch an investigation. I imagined, just as they did after the 2011 event, there was a investigation done by first staff alongside NERC staff. NERC is the North American electric reliability a coordinator. And they had a lot of findings and recommendations about weatherization across the south powerfully. I imagine that they’ll find, have similar findings here. It certainly seems like we are beginning to understand exactly what went wrong. We don’t have many of the details yet. As I recall, after that last event, there were some NERC standards that were discussed, but were not implemented. We may see something here that’s implemented certainly seems like the governor wants to push for that. But towards lacks jurisdiction to mandate actions within our cot. So, we may…

Breanne: So, they just make observations and recommendations.

Doug: That’s right.

Breanne: But they can’t really do anything.

Doug: Right. Like, so for instance, go back to PJM, they, Federal Energy Regulatory Commission can tell PJM, we find your current tariff is that, you know, unreasonable. And you need to adjust your market to accommodate XYZ, you know, whatever the issues are, they lack that jurisdiction in Texas.

Hill Vaden: Is that you [Indiscernible] [00:35:32] Okay.

Mike Pickens: Yeah. Yeah, I mean, just the images that you’ve seen on television, I mean the voters are going to want to pound the flesh.

Breanne: Yeah.

Mike Pickens: I mean, that’s what makes this completely different than the last time because last time it was this conversation between the generators who were wanting more revenues and industrial customers, they didn’t want to pay too much. This is different. I mean, the voters have just lived through a week of hell to be candid, and they want accountability and they want change. And then you enter that [Indiscernible] [00:36:13] when you enter the political dimension, you never know what the outcome may be.

Breanne: Sorry. Go ahead.

Doug: I was going to share my observations of seeing California a little further down the road. And then granted, it wasn’t as severe as the impact on the California people was not as severe in magnitude as it has been in Texas. So, it is interesting. Right now, California is responding by buying every power plant they can find that’s available for the summer, regulators are telling utilities to buy all the capacity they can find, what does that mean? It means people’s retail bills are going to go up, because now they’re paying for more power plants. It means that gas power plants on the coasts that harm marine life are going to stay around longer, and continue to have a negative environmental impact other policies trying to solve, it means that maybe carbon emissions don’t go down as quickly.

And so, there’s already sort of the environmental interest group response, sort of challenging this quick pivot in the other direction of, really, we need every resource we can find. And sort of, you know, I guess, protecting and protecting against the worst case scenario that maybe people haven’t fully quantified, or what is that worst case scenario and fully quantify the optimal way of insuring against that worst case scenario. And so, right now, it’s a scramble to protect the summer, if there’s an extreme heat wave, or whatever, the summers mild, what happens if it never gets above 90? I mean, people have short memories, and things I talked to. I think if you’re in the market, and you own power plants, or invest in infrastructure, today’s crisis is tomorrow’s excess. And you could be on the losing end, if we don’t have another extreme heat wave and policymakers and the public forget. Now, Texas, I think is going to be a lot harder to forget, the devastation people are dealing with. But in California, you can, I’m already seeing the pendulum swing back and forth. And it’s hard to tell where it’s going to stop and land.

Hill Vaden: I think that’s a good point, Doug. I think this event, and as we saw with California, people are going to use these events to support all kinds of different positions. So, we’ve already kind of seen the governor of Texas and others kind of criticize renewable energy, saying if this represents what the green new deal would mean, it’d be a terrible deal. The facts are that, our cot wasn’t expecting much from the wind fleet. But nevertheless, that argument will be made. I think there will be those who are critical of thermal fleet and fossil fuels pointing out the natural gas really struggled here. And they’ve historically said this a very resilient fuel, we need these fossil fuels in the industry. They may, folks may argue that this undermines that that point.

I also think we are talking about longer term, electrifying significantly other sectors, in an effort to decarbonize and when you have widespread outages like this, it’s natural to wonder what would that mean, how can these other sectors be impacted, to the extent you are electrified and you lose power for multiple days here. So, there’s a lot of questions, there’ll be, again, a lot of different angles taking on this in the weeks and months ahead.

Breanne: I think what you raised there, Doug, and probably a good note to end on is, I mean, there were these US events, but in January, Japan had an event as well, where they had their own power crisis. This isn’t just the US problem. This is definitely something that we’re seeing creep up in global markets. And you point to the electrification and it’s just higher and higher demand every single day our demand is going up because we’re electrifying everything.

I have to think that from a planning perspective, as we look to these new energy sources, be they batteries or be the new types of technology that are potentially that has to be becoming a greater part of the conversation as to how these technologies will respond to various weather events and the potential reliability that they could be bringing to a grid. So, I think there’s a lot, a lot to come around that and this might sound like a shameless plug, but I’m going to do it anyways. Our A-Team Power Team is going to be obviously discussing all of this and more. On March 5th on Power day for CERAWeek, so I feel like I almost sounds like that was rehearsed. And I should have a little music go on in the background. But it’s important to remember that we’re having this conversation, we’re having this conversation on Friday, February 19th.

So, four days after the crisis hit, we’re talking about what we know, you guys are doing a fantastic job of explaining as to what’s happened in the data that we’ve seen so far. But as you said, there’s going to be so much discussion that comes in the days, in the days to come. And I think you said the legislators are going to start talking about it next week event.

So, as we look at that, what is it that you guys think? March 4th? Let’s imagine this conversation happen in March 4th with all of you guys. Where do you think the conversations? What do you think the conversation is going to be dominated about? Is it going to be about policy? Or is it going to be about the actual technical aspects of how we fix the system from a physical standpoint?

Mike Pickens: I think on March 4th, it’s still going to be politics, it’s going to be theater. And, and then once that’s over, we’re going to have to sit down and really think through this from a technical standpoint about how do we prevent this from ever happening again? And I think that’s when the real work begins. After the cameras are turned off, at these legislative hearings and the politics calms down, and all of the smart and brilliant people get together and figure out how do we prevent this from ever happening again? That’s when the real work begins.

Doug: I think people will be grappling with the uncertainty, grappling with what world do we live in? What world will we live in a year from now, five years from now, 10 years from now? And I think the important thing to try to keep in mind is, you know, as we recover and heal from trauma, and the crisis that happened is just, there are solutions, it’s more question of society, determining what risk is acceptable, what cost are people willing to pay to insure against those risks? And I think, really, just realize that we’re on the beginning edge of just a technology driven revolution that has the potential to usher in a lower carbon future. And then there are technology solutions.

And one thing, you know, analytics and responding on the demand side, because I look at California, even though the lights went out, collectively, all of California cut, you know, four or five gigawatts of electricity demand and kept the lights going out later in the week. And if you could use analytics to automate all that to scale it up and to manage it all through technology, you know, it can really help protect against a lot of these risks and perhaps a reasonable cost way. So, I think even though, you know, something traumatic just happens, even though there’s a lot of fear that could happen again, I think there also needs to be a healthy dose of bravery and realizing there are solutions and technology enabled solutions and that we can figure it out and figure out how to move forward.

Hill Vaden: And I would just kind of echo that. I think there’s going to be a lot of discussion about how we need to plan more effectively and plan for more extreme scenarios. I think that’s true for both what happened in California. And what’s happened in Texas here was maybe an under appreciation for how extreme weather can impact the grid, both on the demand side and the supply side. So, there’ll be rethinking that. And then there’s going to be a frank conversation about what are the costs involved in ensuring the system against this type of event? And is there a willingness on consumer side to incur those costs?

I mean, I think at this point, it’d be hard to think that the cost of this event would not justify some investment. But as we go forward, this begins to fade in people’s memories. Are they going to be willing to accept higher electricity bills to minimize the risk of this happening in the future? Well, time will tell.

Doug: Yeah, and I think also, there’s some just sitting in here in Houston, I mean that there’s some bigger things outside of the immediate focus on power were mentioned to you guys earlier the day that I went to the grocery store last night, and there was nothing there that there was all the fresh food, it was gone. I couldn’t even get a frozen pizza. And so, there’s bigger in a sense or not bigger but there are other challenges in this. And when I walk up and down my neighborhood, every third or fourth house has water pouring out its driveway, because the cots around the building hadn’t addressed the idea that your outside pipes are going to freeze. And so, we’ve got the degeneration issues and the demand issues. But there’s other things that if this becomes in every 10-year event coincidentally, JJ Watts [Indiscernible] [00:45:40] 2011, last time of this event. So, maybe this is all tied with his…

Breanne: This is all tied with JJ Watts.

Mike Pickens: [Indiscernible] [00:45:50] schedule.

Breanne: Ever retire.

Doug: [Indiscernible] [00:45:55] that’s the rumor.

Breanne: I think the judge were asking for, weren’t they? Feel like [Indiscernible] [00:46:02]

Doug: [Indiscernible] [00:46:04] to go to a contender.

Breanne: All right. Well, needless to say this was a timely conversation. And we really appreciate all three of you who have been swamped this week, especially Mike, I can’t even imagine. And also, a great appreciation out to Hill who’s managed to make another call even with no running water, and for the electricity. So, [Indiscernible] [00:46:27] to you as well. Thank you all for being here. And I think it’s pretty safe to say this conversation is going to be revisited frequently over the months to come, if not years to come. So, it won’t be the last one here for you guys. But thank you very much for joining us.

Mike Pickens: Thank you.

Doug: Thank you.

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