Preventing another winter weather crisis: FERC and NERC issue final report on winter storm Uri

The Federal Energy Regulatory Commission (FERC) and North American Electric Reliability Corporation (NERC) recently released a joint report on the energy system impacts of Winter Storm Uri, which caused widespread outages in the South Central United States in February 2021. The report stated that generator outages, derates or failures to start were primarily due to freezing or fuel issues.

The report provided recommendations for owners and operators of generation facilities, transmission facilities or natural gas facilities, among other market participants, administrators and regulators, to better prepare for winter operations. If mandated, some recommendations would place requirements on generation owners, including identifying and protecting “cold-weather-critical components,” performing annual training and developing corrective action plans.

Notably, the report included a recommendation to allow generator owners “the opportunity to be compensated for the costs of retrofitting their [existing] units to operate to a specified ambient temperature and weather conditions,” and that the opportunity for compensation may come “through markets or through cost recovery approved by state public utility commissions.” If mandated, the relevant market administrators and public utility commissions could each take different approaches in developing such cost recovery mechanisms (if they are developed at all).

FERC has the authority to order jurisdictional market administrators to implement such cost recovery mechanisms, but ERCOT appears to be on its own path. The Public Utility Commission of Texas (PUCT) has issued short-term requirements in preparation for the 2021-2022 winter season, but longer-term requirements for generation owners in the Electric Reliability Council of Texas (ERCOT) market are still under development. If no compensation mechanism is developed for generation owners to recover costs to retrofit existing facilities in preparation for future winter weather conditions, reliability concerns may persist.