In February, severe winter storms knocked out power to more than 4.5 million homes and businesses in Texas for several days. The root cause of the outage was found to be frozen natural gas lines and equipment, which had not been weatherized to withstand winter temperatures.
The situation has drawn a great deal of anger from the affected Texas consumers as well as calls for investigations by politicians, who are questioning whether the Electric Reliability Grid of Texas (ERCOT) and the Railroad Commission of Texas (RRC) acted in the best interest of their respective mission and vision. This article will take a look at whether these two organizations acted in accordance with their mission and vision and then will take a look at how you can take lessons from this event to look at your organization and how you look at bureaucracy and regulation in the context of fulfilling your own mission.
Unlike the power grids in other states, which are linked into regional networks, ERCOT operates separately and is regulated by the Texas Public Utilities Commission rather than the Federal Energy Regulatory Commission. Similarly, the RRC has separate regulatory oversight of the state’s natural gas pipelines. This system of regulation was set up in the 1930s, when Texas opted to make the free market economy the main driver of its energy-related decisions.
So, did Texas’s decisions work to uphold the regulators’ mission and vision? The short answer is yes, or at least maybe. Let’s look into it.
ERCOT’s mission statement is “We serve the public by ensuring a reliable grid, efficient electricity markets, open access, and retail choice.” In effect, ERCOT takes the supply of energy received from producers and distributes it based on user demands.
During February, primary energy sources like natural gas and coal as well as secondary sources like wind were all hampered by the cold, which simultaneously drove up power demand to peak levels. ERCOT faced the possibility of full-scale grid failure if it did not act quickly.
“The one thing we have to ensure is that we don’t have a catastrophic blackout,” said ERCOT president and CEO Bill Magness at a news conference. “The reason we took this action (earlier this week) was to prevent that type of blackout.”
Even though ERCOT’s actions left millions of Texans without heat or water, the regulatory group did ensure a reliable power grid in the long term. In concert with retail providers, the rolling blackouts allowed critical services such as hospitals to keep their power on, and also let other parts of the system come back online as more supply became available.
ERCOT’s core function balances meeting the fundamental power needs of the citizens of Texas with taking advantage of a free-market structure that can deliver both low energy prices and continued energy industry profits. That risk management game hits a roadblock, though, during an event like the February winter storms. And that’s where the RRC comes into play.
The RRC’s mission statement is “to serve Texas by our stewardship of natural resources and the environment, our concern for personal and community safety, and our support of enhanced development and economic vitality for the benefit of Texans.” Two of those phrases—“personal and community safety” and “enhanced development and economic vitality”—can be contradictory.
Cutting off power to millions of consumers when energy supply was unavailable adheres to that personal and community safety clause as well as current Texas state statutes and regulations. But what about the actions that led up to the recent power crisis? Texas’ cultural and political dynamic leans toward less regulation, instead allowing free markets to determine what happens. With the aim of keeping development costs (and consumer prices, low, the Texas system made the choice to not add weatherization components that would have protected its energy infrastructure from risks like February’s frigid temperatures.
The recent weather impacts on the citizens and companies of Texas demonstrate what can happen when the desire to maintain free markets with minimal bureaucracy and regulation comes up against a high risk of failure in critical infrastructure and fulfilling the mission. The RRC did not necessarily uphold its mission to protect personal and community safety. With ongoing climate change and the unpredictability of future weather events in general, both ERCOT and the RRC must take into account the likelihood of an extreme weather risk happening again.
So, with this story in mind, here are 3 things you can do as a leader in your organization to be able to go and make certain that the levels of bureaucracy and regulation within your business support your efforts to be able to go and obtain that mission in the face of various risks.
1. Review the bureaucratic and regulatory guardrails you have in place.
Are the guardrails you’ve set up keeping you from achieving the mission and set to be able to help people keep their jobs and have certain power? Or, are they facilitators to help drive innovation and empowerment?
2. Do you need some guardrails because communication and creativity that you have going on all over the map?
Some well-placed guardrails may put some blinders on people so they can focus and say, “Oh, this is the direction that you’d like us to be able to go and consider? That helps us a lot!” It will take away a lot of wasted energy put into ideas that go nowhere, causing frustration. Honest conversations can be had with proper guardrails, regulations and bureaucracy to fulfill the mission.
3. Revisit your risk management plan.
Determine if there are new risks to examine (extreme weather, for example), and what would be the implications of the choices you make if that risk came to pass. How hazardous would it be on your operation, on you fulfilling your mission and vision? Could it be catastrophic for you? Then, make those hard decisions of whether or not you need to make some adjustments and incur some costs to be able to make sure you are covering critical bases.
Texas authorities chose to deny the risks and it cause great harm to the state and its people. They can survive it. Can you? Make certain you look forward at these risks and decide if you have the proper bureaucracy and regulation to mitigate them as well as drive your mission.