The Power Hungry Podcast

J. Paul Oxer: Independent Power Developer, on Enron, ERCOT, and the Texas Blackouts

March 02, 2021 Robert Bryce & J. Paul Oxer Season 1 Episode 38
The Power Hungry Podcast
J. Paul Oxer: Independent Power Developer, on Enron, ERCOT, and the Texas Blackouts
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The Power Hungry Podcast
J. Paul Oxer: Independent Power Developer, on Enron, ERCOT, and the Texas Blackouts
Mar 02, 2021 Season 1 Episode 38
Robert Bryce & J. Paul Oxer

The roots of the Texas Blackouts were planted in the early 2000s during the push to deregulate the state’s electricity market. In this episode, Robert talks to J. Paul Oxer, an engineer who has 45 years of experience in the electricity sector, about his stint at Enron before it failed, how ERCOT works, why the grid should always be ready for “two black swans,” and what Texas should do next. 

Show Notes Transcript

The roots of the Texas Blackouts were planted in the early 2000s during the push to deregulate the state’s electricity market. In this episode, Robert talks to J. Paul Oxer, an engineer who has 45 years of experience in the electricity sector, about his stint at Enron before it failed, how ERCOT works, why the grid should always be ready for “two black swans,” and what Texas should do next. 

Robert Bryce  0:04  
Hi, and welcome to the power hungry podcast. It's still blackout week here on the podcast. And so my third guest for over the last few days to talk about the blackouts is my friend, longtime friend Jay Paul oxer. Jay Paul, welcome to the power hungry podcast.

J. Paul Oxer  0:22  
Hey, Robert, good to be here.

Robert Bryce  0:24  
So I met Jay Paul 20 some odd years ago, when I was working on my first book on Enron called pipe dreams. And Jay Paul, I could give you a long intro. But if you don't mind if our custom on this podcast where we talk about energy, power, innovation, and politics is to have the guests introduce themselves. So if you have 30 or 45 seconds, you've just arrived at a dinner party. Tell us who you are, please.

J. Paul Oxer  0:49  
An independent contract consultant or power developer got a background in engineering, lots of experience in international project development, finance, normal way around utility projects, power projects, renewables, water utilities. You know, most of the time the last 20 years, I tell everybody, I've spent those last 20 years getting kicked over a cliff and being expected learn how to fly on the way down.

Robert Bryce  1:12  
So you've been you've been in this sector for 40 years?

J. Paul Oxer  1:17  
Yeah, 40 plus 40 plus years. Okay. That's it. 40 is enough to give you that gives you some some chops in this.

Robert Bryce  1:25  
Good. So now To be clear, one of the things we didn't discuss was, you know, when I have an author on I said, What's the call to action? You're not selling anything, you don't have a book out you're not have

J. Paul Oxer  1:34  
a book don't have a book to sell? Don't have any don't have any, you know, I'm just a simple cowboy and off the trail trying to make a day's wages.

Robert Bryce  1:42  
Well, let's jump in. So thanks for that introduction. And I'll start with one of the questions I've asked the couple of other guests we've had during blackout week. Why are we seeing more blackouts and potentially catastrophic ones, like we saw here in Texas, but really in Texas, and California, Texas, kind of was gleeful that last summer about seeing the Texas politicians, including Ted Cruz, the republican from cancon, making fun of making fun of California over their blackouts. And now there's some Humble Pie being eaten here. Why are we seeing blackouts in Texas and California?

J. Paul Oxer  2:19  
Oh, I mean, and my guess is that for most systems consultant, you know, that doesn't have to be electric systems, but electric system, any any sort of structural system like that, when you put a certain amount of when we started the renewables, you know, the renewables have been going along here for you know, years and years and years, we had wind power 50 years ago, we didn't have a lot of it. And we didn't have it connected to the grid much. But we did have it. So as it becomes a larger and larger percentage of the total operating fleet. So as an example, when we have an RPS renewable portfolio standard here in Texas, which was intended to make renewables, mostly wind at the time when we're thinking about it, but now solar, since it's become so much more cost efficient, we had an intent was the goal was to have 15% of the renewable of the generation fleet be from renewables. And so as you move from, you know, a negligible percentage up into a larger and larger percentage of the generating fleet is made up of renewables because of what's called intermittency. You know, renewables, renewables have this this characteristic, particularly wind and solar, not geothermal, which I happen to know a lot about. But wind and solar, particularly are intermittent, which means you can't tell them to come when you need them, you have to catch them when they're coming by, okay, you can't call it out, you can't dispatch it, you can't ask for it, you actually have to capture it when it's available. Because what we're really doing with renewables is harvesting energy, we're not generating energy. And so that energy is just

Robert Bryce  3:56  
you know, that's a great idea. You know, I thought about this a long time I've written a couple of things, harvesting energy instead of generating it, that's a really interesting and you can't harvest all the time you get,

J. Paul Oxer  4:07  
you can only harvest at harvest time. As it turns out, it's harvest time for the sun for solar energy sounds got to be up, you know, harvest time for the wind, it's got to be blowing. And so the in on anything that's fuel based, and that's differentiated from geothermal, which has its own issues associated in which we can compare to later if you like, but on anything that's fuel based like coal or or natural gas, carbon based fuels, even even biomass, okay. What you get what you do is you convert that energy from stored potential in the fuel to functional in the in the electrons that it pushes out, versus simply harvesting and when it comes by on a wind farm, so, you know, if you compare the latest, the latest blackout, you know, there was there was something that caused the blackout. Okay, something that caused the wind turbines to stop And they stopped for whatever reasons you can get into the politics and who and why, but those the wind turbines stopped. If you remember, was it seven, eight years ago in 2014, I think there was a quote, The Great still out in, in West Texas in the middle of August, we got the tightest demand possible because Texas is a cooling environment, okay, means we use more air conditioning. And we do heat typically, even though it's it, we had it, we use a lot of heat for electric heating during the last week. Typically, temperatures are more moderate during wintertime. And so we're a cooling environment, which means you spend more of the energy to bring the temperature down and to do to bring it back up. Okay, so in an occurrence or condition like that, you'll have all that wind, all that wind out in West Texas for which those cruise lines are competitive renewable energy zone, transmission lines were built to be able to move that that wind energy that was harvested there, and move it into the load centers, San Antonio, Austin, Dallas, Houston, and in as many places as needed along the along those trails, lines. And so when it goes when it stops, if you've got, say, 10%, you know, some say back then say 10% of your energy, and energy, not just power, but energy, the kilowatt hours are coming from that wind, and everything else is running full speed, because you're at maximum demand. When that stops, that means everything else, the other 90% has got to go up by 11%, which is the extra 10 over the 90 to be able to make up for the 10 that got lost. So you can't harvest it, you have to take it when it's available. So even in cool period, cooler, more pleasant periods. And you don't have that high demand, if there's energy coming by or they're gonna be buying the wind, the archive tends to dispatch that first or capture that call that toll that first, rather than totaling the fuel because the fuel can be saved.

Robert Bryce  7:04  
Well, and that's one of the things that's been in fact on the on the phone on the briefing on Wednesday that bill Magnus, the CEO, and president of Urquhart gay, he talked about that requirement for ercot to be continually monitoring and doing all this forecasting and everything else to accommodate the variability of wind and solar. Right. So that was interesting, because I'd heard him talk about some of these issues before, but it seems like it's front of mind. Well, so

J. Paul Oxer  7:32  
for anybody that's operating any of the it's called the ISOs. The Independent system operators which are caught is ours. Okay. And then you have the western grid, the eastern grid, and then connected, not connected, but on the edges of us to the to the east of us is me, so Okay, middle makonnen. In north of us is a southern power pool, just west of west of us and which to which El Paso is connected? Is the West West energy. Yeah, yeah, the interconnect, okay. Anyway, all of those are independent system operators, okay. And the larger the percentage of the total generation capacity within those systems that the renewables represent, the more closely they have to watch out for it because the reserve or the margin capacity, that is not it's not a reserve margin in terms of operating, it's just the some of these some of the turban some of the the power plants, you can override them, you know what I mean? Okay, so if they're running, it's like a 500 500 megawatt coal plant, you can run maybe the 510. nuclear plants, you can run them up, you know, maybe 768 percent. And so in the, as an example, when the big still happened those years, eight or so years ago, you know, arcot, goes out just sends up a flag, it says, send us everything you got. And so everybody was running overspeed, over time, you know, trying to meet that demand. And even then they had to have rolling blackouts to shed some of the load. Because if you have more load, or more demand, then you have supply. Ultimately, you have to balance those two. And it's not like balance those two, you know, day to day, it's like minute to minute, and that's what our cot does. And if you don't do that, there are really bad things that happen to the system. And while I'm, you know, with respect to the to the recent blackout, what happened was, the event was a cold event that stopped, you know, the generation goes down and snapped off. They were 185 power plants that tripped off in a matter of a couple of hours. Well, you can't recover all that because they're freezing. So now you've got them got to get them back on. But if you don't share the load that goes with it, what's called a frequency imbalance, right and ultimately that frequency imbalance will will damage the entire transmission and substations in Connect transformers. And if you think it was going to be a week for us to get back up after what happened in the coal, if that had happened in that frequency imbalance and had a major, major fault for for not doing, it would probably be may before we were back up and running again.

Robert Bryce  10:17  
Well, let me follow up on that, because that that is one of the things that I've been thinking about quite a lot and started writing a piece I haven't quite published yet, but that, that Magnus said during the the board meeting that was called the urgent board meeting on Wednesday, he said it would be weeks and talking with other people about the difficulty of going from black the grid blackout complete 26 million Texans without power, that you have the ability to restart the system. Or as my friend Peter Grossman said, This system was never meant to be turned off and correct getting it started again. And you're saying you think it could be two or three months,

Unknown Speaker  10:58  
and the knock on?

J. Paul Oxer  10:59  
Well, not just me starting back up, it would if there had been the if it goes down and just starting it back, it has to be started up and you can't start it up in pieces and you know, make me have to start up, you have to start the one next to it to have the frequency balance for each one of those so they match match frequencies. Okay. Now, I'm not going to tell you that I'm an electrical engineer, that's for somebody far more educated in that sector than me. But I do know that going off frequency is one of those things that from electrical standpoint, electrical system standpoint, don't do that. Don't do that. And so the

Robert Bryce  11:33  
magnets made a key point and saying, well, they were down to 59.3. And that below wrecked. And they were there and another four minutes that they would have said a cascading loss of generation correct. And not

J. Paul Oxer  11:43  
just to cast any loss of generation but cascading loss of generation because it damaged the power plant.

Robert Bryce  11:50  
Yeah, and I've heard conflicting things about some of those plants would shut off themselves before they damaged. But nevertheless, there was also one thing that came out of the hearing yesterday in the Texas House hearing on this was that the head of history said that the Comanche peak plant, the new the other nuclear plant up in Glen rose, he was three minutes away from tripping off,

J. Paul Oxer  12:09  
right? Well, I want to have each of those power plants. Because of this, they have what's called a voltage and frequency limiter. So if they're they're pushing in, or they're delivering into a system where they're running at a 60 hertz frequency, and the voltage goes down in the frequency goes, it goes down to 59.3. Normally, they'll trip off, I'm doing some work up in PJM. And it'll trip off at 59.7. So if all these what it this is pure speculation, I'll admit this is pure speculation. But what happened is when they dropped all this load, a couple of these came off, then the cascade occurred because the frequency drops. So it started tripping all those plants off because the frequency the voltage and frequency limiter tripped them off. And then because it was so cold, it took a while to get them back on and they probably froze. Like, there's one report that one of the coal plants, the coal pile, the coal pile just froze solid. Yeah, okay, well, you can't can't shovel all the coal in and got to keep rolling, you know, right. So, in what happens in much of the of the natural gas network that we have, irrespective of where it is and how much it is, most of the compressor stations as a consequence of a first interest, some 20 years ago, the minimize the emissions that were occurring from combustion based engines that were running the compressors, at the time, they changed those compressors of the compressor agents over two electric compressors. So when the electricity goes down, the gas goes down and then you're really then you can't get gas to the natural gas plants. So when they have their fuel starved or voltage starved or the frequency goes down, there are a number of things that will trip them off and then you have to load all this back up.

Robert Bryce  13:54  
Right and when you say that it just it you know, I've been thinking about these issues for a long time and but the electric it reinforces the centrality of the grid to everything that absolutely correct and the power system itself is dependent on the grid right which seems kind of silly to say but no but the move that gas to pump the crude unless the question so because I've been thinking about this and if Texas had gone dark if the did the blackout had occurred or cut goes black what would happen to the ripple effects throughout the rest of the US economy just looking at say energy and transportation

J. Paul Oxer  14:34  
well they from the from the electric standpoint, there's a whole bunch of the gas going out most of that is is compressed like when we ship gas off through from the Henry hub and we went through there it goes up to the gas pipelines and that sort of thing.

Robert Bryce  14:49  
Okay, I think mines or

J. Paul Oxer  14:50  
interstate lines they go out mainly

Robert Bryce  14:52  
mainly east and north right?

J. Paul Oxer  14:54  
Yeah, cuz Those were the Those were the gas load centers are everybody needed gas and then they found the Marcellus Shale, they found So much gas out there, like Rich kendor was building smells, I forget the name of the pipeline, but it was, it was like the one of the Express pipelines, they wound up having this Yeah, one of the Express pipelines. So he wound up going in and redoing it to run the valves the other direction. So that pumps it south, because suddenly, there's so much gas out there, he puts it into the middle, to the middle of the Midwest, moving towards Chicago. But one of the things that would have happened, even though there is most of the power that runs the refineries is grid based, they all have reserved power, okay. It's like the wastewater treatment plants, water plants and wastewater treatment plants. For the most part, they have, you know, some time ago as well, they have standby systems, but the whole point is to keep them from being like a wastewater treatment system, you don't want it foul air failing, you know, then untreated sewage going into its discharge. Okay, so they have diesel based reserve generators that every once in a while you just fire those up, just keep them going anyway, sure, in a knockin tell you a story about that on managing a demand charge, and the demand charge and power and energy environment. So that demand charge is in demand project or demand, tariffs is set in to 15 minute increments. So those 215, the highest to 15 minute increments sub total together, that would be the percentage that would be the demand that the power company had to meet for you. So they would charge you as that as a percentage of their total generation fleet. Okay, so you were paying for chunk of there, but we don't have that in Texas. And so when it comes down to it, what we have here is an energy based non capacity based tariff system.

Robert Bryce  16:45  
Right. Okay. And how much of that is to blame for all of this?

J. Paul Oxer  16:49  
Well, you know, when you when you get back down to it, the some of the issues that caused these plants to be tripped off, could have been solved or addressed or because, you know, while this is one of those things that happens every once in a while, it still happens every once in a while. It's not like this is the first time that's ever happened. And as it turns out, if you're looking at Black Swans, you really take the take last week into account. We had two black swans flying back to back one after the other. Because the first one of the what were those? They were two separate storms that came in. Okay, okay. So as it turns out, it was the to storm. So if you like, in my house, we got down to the 16. Monday morning. And it was 14 Tuesday morning and came up Wednesday, he was 32. And then by Thursday night, it dropped down to 21. Again, that was a second storm coming through. Alright, as I say, you know, everybody who thinks a black swan is an event that doesn't doesn't happen, it doesn't occur very often. If you're into risk management and dealing with emergencies like this. My assumption is that black swans fly in flocks.

Robert Bryce  17:59  
And ercot just wasn't written and

J. Paul Oxer  18:02  
well, it No, it ready. It wasn't necessarily archived. Okay. So if you think in one of the the senators was was, you know, beating up or caught yesterday, rightly so. But they were they were they were trying to say, Who exactly is responsible? Well, there are a lot of responsibilities for this. Okay. Some of the the wind turbines, you know, the wind turbines weren't the ones that were totally responsible for this. Neither was the gas. Neither was the turbines or compressors. Neither were any of these. It was the whole system is not built for an extraordinarily cold event like this. The problem is, that's a risk management approach. Okay. And risk, while we're looking at risks, what is the risk, if it gets cold melt, it gets cold, the probability that getting cold is such and such, you can look at that statistically. But the issue on risk is not the probability of occurrence is the probability of occurrence times the times of the coincidence or the whatever occurs the magnitude of the occurrence, okay.

Robert Bryce  19:10  
So it's it's the, it's the possibility of bad things happening, and then multiplying the cost of that bad thing. To compete insurance against a scrape, you need an insurance against, you know, a head injury or

J. Paul Oxer  19:24  
I mean, when I talked about I talked to talk to folks about risk management, you know, the, say, what's the, what is the what is the you have insurance? Well, I will, yeah, that says, Well, why? Well, in case something happens, okay. So, like, what? Well, like the worst thing you can imagine happening, okay, if it happens that what's the, what's the, what's the outcome of that? If it's the worst if it's the very low probability? So environmental risk management, which I did spend a lot of time in risk was the probability versus the toxicity. Okay, so the toxicity is what think of it is the probability of occurrence versus toxicity. Okay, so what if it's a 10%? The 10% chance that you're going to drink too much water? Well, too much water is not that bad for you. But what if it has a point 111 1,000th of a percent times drinking cyanide? Right, or arsenic, okay, different impact could be the same risk, a different probability occurred. So what we looked at what, what appears to have happened on several fronts was they didn't eat the turbans, you know, they're not built for cold weather here, right? Never the they weren't weatherize, the wind farms. You know, wind farms, wind farms operate fine, cool weather. Look at Michigan, look at Iowa. Look at Pennsylvania. Okay, they run fine. They cost a little more to equip them for the weatherization.

Robert Bryce  20:54  
But wasn't it true, though, that some of them were coated with with Eisen right up in Oklahoma, and you can weatherize something all you like, but if it's covered in ice, it ain't going nowhere.

J. Paul Oxer  21:03  
Well, that's true. And as it turns out, that that's right. And in this particular case, if you compare the difference in, say, the ice in Iowa versus the ice that we were getting last week, okay, because it wasn't just a cold front that came through it was an ice storm, right? Okay. So rather than getting this smooth sheet of ice along these turbine blades, which have little to no effect on the aerodynamic effect of the blade itself, what they what happened was it froze over and they got like something that look like cottage cheese that had been smeared on it, which completely disrupts aerodynamics, and that knocks out and that knocks out the performance of the blades by about 80%. And that's once they get to a certain point they stop if they go down. It's 70%. You know, around 70% because they in you slowed them 80% they'll lock in and stop.

Robert Bryce  21:54  
And you've worked on you've worked on project development in with wind projects. Have you done?

J. Paul Oxer  21:59  
Yeah, I helped get the permits for the the the Milford wind corridor project and se or sorry, Southwest Utah, which was the Sage 300 megawatts It was the first new project put on BLM property in 20 years, it was the first one that was permitted under the Argonne National Laboratory programatically is for when it was the first one on new BLM for first new project on BLM property, as you know, in 20 years

Robert Bryce  22:28  
so your your Are you agnostic then on how you develop projects on what types of power that your power projects you develop? It sounds like you've done different kinds.

J. Paul Oxer  22:39  
I've done I've done an energy efficiency projects, wind power projects, gas fired projects, I'm working on a couple of gas fired projects up in up in Pennsylvania. I've done coal fired small coal fire projects, done a couple of boiler projects and worked on a sugarcane by gas, you know, the big assc that refuses left after they crush the cane for syrup down in Florida. You know, and I've worked. I didn't work on a nuke plant. I observed one and did a lot of did a lot of research on it. But yeah, I've done it. Oh,

Robert Bryce  23:14  
yeah. Yeah. It was it was his transmission. Is that the biggest issue? Now I've saw a report that it did just two months ago talking about the difficulty of transmission getting to some of these projects that are waiting in the queue. Is that is that one of the biggest hurdles in turn facing in facing transmission or facing large scale deployment of renewables?

J. Paul Oxer  23:36  
Well, no, I mean, I think it's fair to say we have large scale deployment of renewables now here in Texas, because it's, you know, fully 15% of the fleet is, is, is renewable. So it's mostly when to start and then because of the price drop in, in solar, I mean, it costs less now to produce solar that does produce a conventional gas fired, in most cases, when it's on when it's going. Right problem continues to be that the quote intermittency, which means that it's only it's only intermittently available, okay, we're back to this dispatch and dispatch service did not generate it, right. Okay. And so if you think then one of the one of the ways I tried to explain this to somebody was graphically, if you look at, look at the graph of solar power, okay, over here, you have, there's a diurnal curve to it goes up and goes down like this. So when the sun comes with dark, there's no solar power, sun comes up, the sun is hitting the solar power module at an angle, and the higher it gets during the day, the more power it gets, because it's the more direct and then it goes back down goes the other side that stops overnight and does the same thing next morning, very predictable, okay, in terms of the power output, and the energy is generated. And once you can think of under that curve, the power output is the height of that curve. And the energy is the area 100.

Unknown Speaker  24:57  
Okay,

J. Paul Oxer  24:58  
so What happens on on 444? solar particularly, it is particularly susceptible to cloud cover, obviously, because that intercepts. So if you have a big cloud, you got a big huge, so you got 100 megawatt solar power field is running at full, full tilt, middle of the day, cloud comes over and goes, before we get in the sun, he goes from the top of that curve and slams straight to the bottom and stays right there until the till the cloud comes gums off, or gets out of the way. And then all of a sudden, it goes straight back up. So what you have is a variation in the voltage and the the voltage and the amperage that are coming off of that power, and the reactive power that has to be there to back up the system, when it drops, so suddenly. So it's the reactive power not to transmission that tends to be the problem for solar.

Robert Bryce  25:56  
Gotcha. Okay. So,

J. Paul Oxer  25:58  
at least in my experience,

Robert Bryce  26:00  
right, so I want to shift gears here because we met when I was working on on pipe dreams, and I've forgotten now how we got acquainted. But it was a long time ago.

J. Paul Oxer  26:07  
So I can tell you who introduced us, but we'll talk about that over some adult beverages, whatever.

Robert Bryce  26:13  
So so there's been there's a lot of focus on deregulation, and the whether this whether the whole push for deregulation on the electric market was a good one. You worked at Enron for a long time. How long? How long were you there? And how did how, what was Enron's impact on Texas not just Texas, but on the deregulatory effort broadly in the United States, including natural gas?

J. Paul Oxer  26:41  
The the the deregulatory deregulatory efforts started with natural gas because natural gas was essentially bottled up. Okay. And Ken Lay God blesses fast on soul, you know, was was having worked at the Department of Energy, looked at an economic study saying they would be more valued, you can extract from that natural gas in an open market, it would also open up innovation to look at new ways to use it, make it available to other customers, it wouldn't be controlled by the feds to say okay, you can only get so much at this price. So, you know, we don't work in a plan that we don't work in a planned economy. Okay. So what that did was,

Robert Bryce  27:20  
and this was happening in the powerplant, industrial fuel use active memory serves to pass it was passed in 1978.

J. Paul Oxer  27:28  
Yeah, yeah. I mean, this was a concept was going on in the 70s. You know, I think, you know, limited

Robert Bryce  27:33  
prohibited Interstate and much interstate movement of gas, right. And so what happened during the Reagan years was with with lays lay was part of this, but it was this push for deregulation of the gas market so that their insurance could come in and that there'd be more interstate commerce with gas, but also more production.

J. Paul Oxer  27:54  
Correct. And, and I think the evidence of that is Once there was a, you know, an opportunity and incentive to go search for gas. I mean, think about that, when George Mitchell developed the horizontal directional drilling to the point that we explored and experimented with that to be able he was looking for gas, okay. And that, that ultimately led to the fracking boom, which led to us having a surplus of gas. That's what that's why the Marcellus Shale, that's why we know so much about it. Between that and the, the, the, the Barnett and the other Barnett, shale and Haynesville and gravel wash all the ones down here in Texas, but also the Utica shale that underlies the lender underlies the Marcellus Shale. But it's fair to say that pursuing that made that gas available made that as an energy source, which, which, you know, if you hearken back to the 70s, I remember doing energy efficiency conferences, speaking it, you know, in a series I was doing for the governor's office and for governor Busby and in Georgia, you know, speaking on energy efficiency and how to reduce how to reduce your energy use be more efficient with the way you use it? Well, one of the things that this did was increase the amount of energy that was available not just in oil, but looking at natural gas, because natural gas had had had applications in the gas turbine business given or coming from the, the the aviation fleet, where were those fuels, you can take those turbines, which they did at least aviation derivatives, Aero derivatives, they call them and turn those into power plants. Okay, so you could use those for power plants. And so it became much more cost efficient, it was cost effective. It didn't have the emissions it didn't have, it didn't have the materials management problems in a coal in a coal fired plant. Most of the staff most of the population, most of the labor that you have in a coal fired plant is going to be involved with moving the coal into the plant, burning it shoveling the ash out and doing something that you know, doesn't take but a handful of guys to move

Robert Bryce  29:58  
big a big fleet of people that you need to move stuff where you don't with gas, you just

J. Paul Oxer  30:01  
pay with gas gas, you just plug in the pipe, you know, and it goes straight in, it's pressurized. So I mean that change the change the logistics change the operating mechanics, they will, they'll spin up a little faster. You know, they're and they've developed since then they've developed so they have flex plants, which have a lot more capability to load follow, as I call it, without losing heat efficiency.

Robert Bryce  30:24  
So so let me toss in one quick fact, when Enron failed, the year it failed 2001

J. Paul Oxer  30:29  
December 3 2001. a day that will live in infamy. Here, here in Houston. Certainly.

Robert Bryce  30:35  
I was standing outside the Enron building that morning, I was

J. Paul Oxer  30:38  
standing in it that morning. So

Robert Bryce  30:41  
when Enron failed in 2001, the US was burning about 5 trillion cubic feet a year of gas in the power sector. Now, we're over easily over 11 more than 20 years. Right. But that deregulatory push of Enron, Enron also was, it was a very powerful company, politically powerful, politically influential, and they were pushing deregulation, but they were also part of the what was theirs play? How did Enron affect the wind industry in Texas?

J. Paul Oxer  31:10  
Enron had a group in Ron wind that was based out into hatchapee, California, and they were developing projects looking at all over the place. And then ultimately, with you know, the, the sort of details of how to get there, they wound up with with G turbans, and then on some projects out in West Texas, and ultimately, they traded those. So that, that those GE projects GE and then later on Enron projects, if I recall correctly, wound up going to FP nl, which is now named next era, I'm sorry, the next step next era, next year, next decade, next decades, an LNG project I'm working on or have worked at. So the

Robert Bryce  31:49  
Ron when became GE when the GE bought in Ron's turban business, and then some of Enron's portfolio projects became one of the bases of next eras. But yeah,

J. Paul Oxer  31:59  
so there's, I mean, the the provenance the, you know, the, the history, you know, the history of all this, where these pieces come from, you know, the, the wind business is pretty big. But even so, there were some some key players in it. And it was known for, in my estimation, you know, when one of the one of the criticisms that I had from Enron, that you and I talked about, what, 20 years ago now, yeah, now, Enron had the had the history of had the, their approach was to make the deal. Okay? They didn't necessarily make the deal work. Okay, so.

Robert Bryce  32:42  
But the deal makers got rewarded for making deal makers got rewarded, and they're implementing the order sheets are,

J. Paul Oxer  32:48  
right, because like, I think they got paid, you know, they got paid on as a percentage of the NPV on the deal when it got inked. Okay, my solution to that, would you give them 40% of that. And then for each of the three years following that the deal actually hits the projected milestones, give another 20%. But if it doesn't, don't give them anything,

Robert Bryce  33:07  
and NPV net present value, so right, what they were going to estimate the future cash flow or future future revenue from a project. Right. So and you were at Enron For how long?

J. Paul Oxer  33:17  
four plus

Robert Bryce  33:18  
four plus years? And is there

J. Paul Oxer  33:22  
as I say, it's like, it's like going, being in the Marines that it in several places, you know, going into Marine, you can spend a lifetime there in one weekend, you know,

Robert Bryce  33:35  
so does that penalty

J. Paul Oxer  33:36  
that comes to mind. Right.

Robert Bryce  33:38  
So the deregulation effort, though, that was that Enron was part of Do you Is it fair to connect that with the deregulatory efforts in electricity markets in the in Texas was that

Unknown Speaker  33:49  
Yeah, and

Robert Bryce  33:50  
I think all in that era when that this Oh, well, we'll just read it we'll just electricity is just a commodity. We'll sell watt hours like we sell hamburgers, which missed the importance of electricity as a service is that how do you see that actually

J. Paul Oxer  34:02  
miss the quality of the hamburgers too, but that's a miss the quality of the hamburgers also, but but the the deregulation of the power business had been coming for some time because in regulated utilities, they own everything from you know, from the the power plant through the poles and wires to your house to the transformer to the meter on the side of your house. Right. So when something went wrong, you call them say, hey, you have the power company, Georgia Power is example comes to mind because they're part of the Southern Company. They're based in Atlanta, that's Georgia Power, only a couple more utilities. And so they have more power available, there was the demand or the movement to break all that up. You know, break all those those those pieces up and deregulate that or decouple it. Okay, so the generation was separate. Then you had somebody who manages the poles and the wires, and then neighbors or distribution group on one end, and then there was the whoever was, it could be an aggregator that was gathering Independent customers and managing buying power from various sources is just moving on the wires. Okay, so that what that did was it, the intent was to force some efficiency into the power plant for merchant power plants, because you can build a power plant, great, go build one, you got a permit, but it's your problem if it's not economically viable. Right, as opposed to having that loaded entirely into the tariff for a monopoly utility, so that you had whatever it costs he just kept, kept, kept having to pay it. And that was partly a product. I think, the nuke business that went out, because some of the new nukes and the big ones up in what was a Connecticut Yankee, and went for what 12 years, you know, tried to get permitted for 12 years, never did they shut it never turned it on. There were there were there were two, if I recall those, but like that, but billions of dollars spent, and they didn't get anything out of it. And so it puts the risk based folks that are entrepreneurial, to figure out how to do this economically and efficiency to build power plants. gas is one of the fuels that was available to them to to make that make that make those power plants operate. So

Robert Bryce  36:11  
let me jump ahead then. So now we have about a week in Hi, looking back. Yeah. Right. It just counts.

J. Paul Oxer  36:20  
Yeah, just like anything

Robert Bryce  36:22  
is obvious now. So

J. Paul Oxer  36:24  
it didn't work. You know, part of it didn't work. Something didn't work.

Robert Bryce  36:26  
Okay. Well, so is. And that seems to be the case now, where everybody's looking around saying, oh, who's gonna get the blame? And they're well, yeah, there's tears and who's gonna be left standing here? All right, who's who deserves Is there any way? We can we only say, oh, is the system it was a badly constructed market. What's the way forward now?

J. Paul Oxer  36:46  
Well, one of the ways you know it back to our insurance side, okay, there are ways to ensure that, that there is capacity, okay. I mean, PJM, there's a, quote, capacity market, meaning there's availability of power, that they hold on reserve, and they pay for certain power plants, they may be just sitting there idling, Okay, ready to go. But it keeps them where they have that reserve power, the and I'm gonna say Pat wood, who was the former chair of the firm, and also former chair of the Public Utility Commission of Texas, and Julie parsley, it was former chair of the Public Utility Commission at Texas also wrote an article I'll see seven and a half years ago, about the need upgrade, the the current political policy and operational policy guidelines build change that environment, so the policy look more at not just making power available, but making it reliably available available. Now the, you know, the our inner code stands for reliability, okay, which has got to be sort of a joke these days, you know, the last week. But the whole point was, her cot is not a regulatory BART Board, it is an operating company. Now, it has certain regulatory certain characteristics that look like an operating company and certain that look like a regulatory. So what they do is they dispatch the power. But if they asked for the power, ask for the the power generators send it out, we need this, here's what the balances, here's what the load is. But if that power is not available, they can't force somebody to do it. And if they've been only been if the power power company that generates the power doesn't have that capacity, there's no penalty for not being able to, okay, so there's no financial, you have the opportunity to bid in to sell power into the grid. But there's no penalty for not being able to if you don't know all of this can be changed. It's like, what happens if you, you know, it's like buying an insurance car, or, like we were talking earlier about, like buying an insurance policy for something that may not happen? Sure. Insurance seems really, really expensive. But God, we have to do this. right up to the time you need it. It's like, holy cow. That was the smartest decision I made 10 years ago. Sure. Well, yeah. Okay. So what it does,

Robert Bryce  39:14  
reminds me of South by Southwest, the big festival here in Austin, right. Right after the pandemic. You know, they started in the conferences in March, and they had to announce a word

J. Paul Oxer  39:25  
in February Yeah.

Robert Bryce  39:27  
canceling the whole thing. And they looked at their insurance policy, and it didn't cover them for pandemic, right. You know, they had business interruption of some kind of insurance but they weren't prepared for a pandemic. And remember, Roland Swinson was quoted saying, Yeah, we should have that in the coverage, because they ended up having to furlough or layoff a whole lot of people for the for the conference. But so you're saying that it because there's been an argument that deregulation didn't help the customer? Let me ask that question. Well, no, it didn't help consumers.

J. Paul Oxer  39:56  
Yeah, deregulation did because overall long term, you know amsa driving off this cliff, you know, most of us we were doing okay. Wait a minute. Okay.

Unknown Speaker  40:07  
Great.

J. Paul Oxer  40:07  
It's all great, right? Do we rode off this cliff before we went airborne and right, but the problem was we didn't have a stop sign up there. Okay. Now, Paul, I'm just in front of that cliff, we didn't say we didn't know. So the point is that there are things you can do to improve the current environment that we're in, that don't require. Now, you know, somebody says, you know, if you ask somebody, do you have insurance? You have life insurance? Yeah. Why? in case something happens? Well, then expensive way to do it, it's worth it. Okay. Well, there's certain things you can do to make sure that the power is available in conditions like these and we can predict when those conditions are going to be, you know, you look back, had one here in 2020 21 had one in 2011. had one and 89 had 183 had one and 7073. Before that. I remember the one and I was living in Dallas. It's diamond 183. Got down. I was living in Bedford got down to six council six degrees. You know, I grew up in the Everglades, you know, 40 degrees above zero is the dead of winter for me.

Robert Bryce  41:09  
Okay. Okay, well, so run me You run me through three things is weatherizing the equipment. Is that one of them? Well, weatherizing? Yeah, when rising, costs get allocated. And that's going to require legislation, right? I mean, Erekat can't just say, we, you know, go do this, they don't have the authority, right. So it's gonna require the legislature to do something to cure this.

J. Paul Oxer  41:30  
Yeah. And where I was getting to, if you go back who's responsible for this, okay, and when it really gets down to it, and then just to put this on entirely in context, I would like to point out, there been, what 47 deaths here in the metro Houston and the counties around us, okay. And I think that's what the number that's it that's the the latest count the numbers of the people that died as a consequence of, of this, this, this blackout, and the freeze, and that sort of thing. And it's a tragedy, and it's, um, you know, I couldn't be sorry for those people, because it didn't have to happen. The same thing can be said true, during the heat waves they go through. And also, the same thing can be said, the Hurricanes come through, okay, we can prepare for hurricanes, but certainly, there's gonna be some of them that come through, we can't, can't manage all that damage, okay, it's just gonna do certain things. The coal comes through, they tripped off certain amount of power plants didn't get back up. But the environment that we were in, then was life threatening. The main the climate, or the physical environment we were in was life threatening, where the heat might have been uncomfortable. And that wasn't necessarily life threatening during a summer event, okay. So that's one of the risks that you know, that risk is the probability of occurrence times a consequence, if it does. You know, one of the, one of the questions that was asked, If I heard it correctly, yesterday was, you know, how often does this occur? It says, Well, you know, what do you do? Somebody asked, what, what do you do if this is going to occur again? Well, it doesn't occur that often. And I thought to myself, I didn't ask how often it occurs, I asked, What are you going to do when it does happen? And so that's the buying the insurance part.

Robert Bryce  43:09  
And so and so what I'm so if I, if I was gonna make you the chairman of the committee, that's gonna make it, it's gonna fix this or make sure this doesn't happen. happen again, because there are a lot of people looking around saying, Okay, well, how do we do this?

Unknown Speaker  43:22  
Well, first thing,

Robert Bryce  43:22  
what are the top three things?

J. Paul Oxer  43:24  
Well, well, let's, let's now, I'll get to that. I don't know if I have three, but I can tell you a couple anyway. Okay. The The one thing that's happening right now, because we're in the, you know, we're in an elevated emotional time, because people are angry, you know, if you think they're not angry, he listened to some of the hearings going on in the Capitol. Okay. And the people that are trying to answer the question is over, they're trying to give, to give data and information to answer an emotional question. Okay. Now, it's not unreasonable ask who is responsible? And then the question is, we keep trying to solve the problem. And I'm willing to bet just having been in problem solving and doing that sort of thing for a long time. The root cause of the problem is not a single root cause, okay, there were probably three or four or five things. And so before we get into saying what we need to do, we need to define the problem these days, everybody, if you look at somebody whose resume if you're hiring people who say I'm a problem solver, okay, everybody says that what makes you different from everybody else? Okay. Well, magnitude impact and in this particular case, problem definition, because if you can define the problem, then you can solve it. And so right now we're in the post mortem, trying to gather the facts figure out actually what went wrong. Why did all 185 power plants trip off at one time? Okay, why did it and it could have been that there was no var support, voltage, voltage, voltage, amperage and reactive power support, put voltage amperage, reactive power support out in certain locations, so it doesn't trip those power plants off. That could be one of them. But in a financial, the requirement for if you're going to bid into the, into the system to provide power, then you have to commit to provide that power. Okay, so there's a financial incentive. So if somebody is sitting there on a financial requirement to provide the power, you can't say, Well, I'm not going to weatherize a case, you know, they'll make sure they weatherize their plants so that they can do it can provide the power during a during a climate event, like a weather event like this.

Robert Bryce  45:28  
And so, you know, they're they don't, and if they don't, and they're facing, and

J. Paul Oxer  45:31  
there's a financial and there's a financial penalty for which they're comfortable. Okay. And there's a lot of people say, Well, you know, we the capacity market, okay, maybe, you know, we need to have more capacity to, to store, you know, more battery capability of storing wind and solar. Yeah, that would help too, right now, that's where the thing is so expensive, that it's hard to do on a grid scale. It's getting easier,

Robert Bryce  45:57  
and in particular, last for six days.

J. Paul Oxer  45:59  
Right? Right. Because most of the time, most of the time, what you get is a most most is a four hour shift, so that you can shift sunlight, you know, sun, the solar power, to about four hours after dark to smooth out that production curve.

Robert Bryce  46:13  
Right. And that's one of the things that you know, is there been a lot of talk about Oh, batteries, and we'll do that. But for a situation like this, where batteries don't like cold? The idea that

J. Paul Oxer  46:22  
if you think if you think the wind power had trouble in cold, what do you say what a battery does?

Robert Bryce  46:29  
So, so you're saying, Well, if I'm hearing what you're saying is, we need more regulation?

J. Paul Oxer  46:35  
Well, it may be regulation, and that's probably true, we need some some regulation. And the reason is largely because, you know, the I can recall, this is, you know, good two decades, maybe three years ago, just doing some, some ballparking and talking so I was working a lot with with Georgia Power and Southern Company back at the time. And we were talking about Yes, the renewables businesses coming online solar power and gotta do all this wind and wind was expensive, and there wasn't much of it. And so they were looking at the the scope of the system perturbation impacts of wind energy. Okay. So if you've got wind, you know, is the is the wind comes on and becomes a larger, larger percentage of the of the fleet, like we were talking earlier. Yeah, the potential impact of that in terms of disrupting the system becomes larger. And it's not, it's, as it turns out, it's not a linear progression, it's compounded. So the more the higher the percentage is, it doesn't get if you double that percentage, it doesn't get twice as big, it's four times as bad. So the

Robert Bryce  47:41  
two that volatility in in, in managing the grid to manage the volatility of the swings in supply, and therefore, frequency, and price becomes more

J. Paul Oxer  47:51  
becomes more important to be able to manage those those grid stability components. Okay. Now, one of one of the things that as an example PJM, does they have, you have capacity payments up the area of energy payments, for support and voltage acting, or voltage amperage, reactive power? And it could be this what's called a synchronous condenser, you know, it's just sitting there, maintaining the the frequency, you know, it's just running, just spinning, it's not producing power is just keeping the frequency correct. Right? Okay. So then that's going to be something that's more important, when you get the sudden that it's called a slam, you know, once you get a solar slammed, where the thing is running at full speed, cloud goes over, it goes to zero, it goes back up to 100, then comes back down, that sort of slam on the system. Now, the impact on the system is not something that you're going to get out of the thermal plant. And so we're having to build in more capability to respond to things that happen that are that are unique to the solar arc to the renewable side, you know, one of the other things you can do on it is, I really do believe that ultimately will come down and break down to more micro grids. So rather than managing this, like all of Houston, it'll be broken up. So there's storage and generation in smaller pieces, you know, and it's particularly useful.

Robert Bryce  49:11  
It's interesting you say that, because one of the things that was mentioned on Wednesday, and I think Jackie Sargent from Austin energy brought it up was the ability that arcot was limited in their ability to implement blackouts, they either had to do, you know, whole sections of Houston or none, because, right, and I think, you know, what the, what was implied was that they just simply didn't have the switching capability to do well,

J. Paul Oxer  49:33  
they didn't have that they didn't have the granularity in the decision making, okay, where you could take it out a neighborhood or something like that, or physical

Robert Bryce  49:41  
switching that would allow them to do it as well.

J. Paul Oxer  49:43  
And that's, I mean, that's the that's the point. I mean, that's the granularity. They didn't have it down where they were there were cut offs, then for each, you know, they need more switches were broken up into smaller zones. As an example, you know, when when you take the account To judge for Galveston County. Okay, Mark, I think I'm in a second. I'm sorry, I can't remember right now because I just mentioned it. But anyway, all of Galveston county went out. Okay. Well, he's like, okay, is that fair? I don't know. And it may not have been, it may not have been a decision that's based on fair, it was something that had to be done based on what whatever power plant maybe had been down there, that tripped off that they only had one switch, they could load unload that zone, right. Okay. So to shed that load. So having this with more, more optionality in the in the, in the capacity to share this load could add a lot of, he could have changed a lot of things last last week. Sure. Okay, so

Robert Bryce  50:43  
when I believe

J. Paul Oxer  50:44  
it, but in the end, I couldn't get the power back up. And it was on once it was off, there were too many things, were still freezing, and going in mobile and not able to come back up.

Robert Bryce  50:53  
So what I've heard you say, and I want you to correct me if I'm wrong. If I was going to put you in charge of this, you're going to require that the generators have more, more resilience overall, that that allows them to dispatch more with more confidence that they will dispatch so well, I mean, there's several SD market. Yeah, there's regulatory scheme that is going to, I guess, I'm just talking about basic resilience. Well, I

J. Paul Oxer  51:21  
mean, here's an example. Here's an example. And it's that it's exactly what you say it's a resilience, okay? So, since we're bidding in their bidding into an energy market, okay, when they need the power, they bid the minimum in terms of the of the the cost, okay, so the lowest cost energy goes onto the market first. Okay? So if you add weatherization into your cost and your to weatherize your plant every year, that raises your cost slightly. Okay. So that would put you behind somebody who's bidding ahead of you. So, but the if, in rather than having a capacity market, which is for you to stand by, what you could do is have, as an example, require the weatherization because for CAD guidelines, or weatherization, near CAD guidelines for North American electric reliability Corporation, you know, those will eventually come out with rules that all the power plants will have to meet the new york rules on, on weatherization for things like this. And what's happening is, if you look at the full spectrum, in the end of the possibility, the the, the context and power plants are operating, so I'm really, really, really, really cold. They're really, really, really, really hot. Okay, you know, Texas has about as wide a spread on that as you can get because it was minus two and it's minus two in Dallas got like 1215 below zero, the hottest temperature recorded in Dallas was 113. Okay, so take 100 degree swing on that what's happening is the point along it, if you take 100% of that, and there's 5% on each end, where it's difficult to operate, okay, but everything else the middle 90% it functions well functions fine. Okay, because of some of these other quote perturbations that come in, and these these forceful weather events, okay, harsh weather events, that area, that zone within it within which it operates, optimally is getting there is shortening, and there is more of a peace out on each end. Because of because of just the way the system is now I'm not trying to blame it on when I blame it on solar, I blame it on gas, none of it. Okay. It's just that there's, it's a more complex system now that has to be managed more individually at these extreme weather events.

Robert Bryce  53:33  
And so what is what is it going to do to prices?

J. Paul Oxer  53:37  
It will it what it would do is it would raise prices slightly, you know, and you can put you can you can manage that price, Pat would was saying that there was there, there's a way you can do that financially so that that it has a minimal impact on the day to day retail user.

Unknown Speaker  53:56  
Uh huh.

J. Paul Oxer  53:57  
You know, I mean, there are ways to do this. So you can put the prices you can, you can load the prices on the larger users, you can load the ones that use like a residential, small residential meter, they don't have to have to pay so much of that. But yeah, it's gonna go up. Otherwise, you willing to pay the price for running the risk of it going out?

Robert Bryce  54:15  
Well, and that's one of the things that to me is amazing. That's the trade off that we're hearing you know, we've heard over and over the wind and solar are cheaper Well, okay. But maybe they're only cheaper until they're not.

J. Paul Oxer  54:27  
And and when what you're what you're looking at is the production is is cheaper to reliability is not. If you're buying reliability, the production is cheaper. But if you're buying the reliability of the coal and the gas are cheaper,

Robert Bryce  54:42  
well, let's talk about gas because there's been a lot of talk about that and I have my bias on it. There was a lot of talk about gas being out available freeze offs, etc. But when I look at the at the graphs on what actually came into the market, and particularly during crunch time, I saw I was cooking, it was being it was natural gas and gas was dispatching. And that, in my estimate, it was, in my estimation gas saved the day. Am I wrong?

J. Paul Oxer  55:10  
No, I think that's absolutely correct.

Robert Bryce  55:13  
And we hear that, well,

J. Paul Oxer  55:17  
there's a political media component dimensioned all of this that, you know, your your listeners are free to, you know, consider at their own at their own pace, you know, but, you know, I just think that there's, you know, the being having a background in engineering Numerix, finance, this kind of stuff. I can take a really cold hearted Look at this. Okay. Well, and it's, and it's off, its off putting to some people who say, Well, we've got to get this because the climates, okay, I got that. But if you're not going to use gas, you can't use renewables to get to where we need to go for climate change. You can't use only renewables, renewables will be there. But eventually, you know, it's going to be it's going to take all of these working together. Okay. When the when all of these go down,

Robert Bryce  56:06  
organized, who am I hearing you say that we can't use renewables at scale without natural gas?

J. Paul Oxer  56:14  
Absolutely correct.

Robert Bryce  56:16  
So that is that, but there seems to me to be the problem, right? That and we've invested a lot I mean, there are different numbers about how much spending has gone to renewables in Texas and and and estimates, and I've seen anywhere from 30 to $60 billion. Is that malinvestment, though, are we spending the money on the wrong things? And Shouldn't you know, Austin was thinking about building a couple of new nuclear reactors? Has that is, is it fair to characterize all of that spending on renewables as not being the best for the consumer because we couldn't rely on them when the chips were really down in the verge, the grid was on the verge of collapse?

J. Paul Oxer  56:54  
Well, if you're buying reliability that has a has a component of the physical component of the answer, yeah, the reliability is critical. Think for a second like this. Okay. Imagine you're the Baytown East Midtown East freeway you go out there the chevron Texaco, Baytown refinery, okay, you go into the styrene line, okay. styrene, plastic, you know, precursor plastic and make beads. Okay, it's basically little tiny plastic beads, but this is glop, that goes to these things. Okay? He's for bottles. Is everything, okay? And so now, you're going out there and the power goes down. Okay, let's just imagine that you're in, like, I was looking at a project and the down the Ship Channel, some years ago, there was this particular location. And it was transmission congested, because the wires are only so big, and they can only push so much power down there. And so they built their own power plant, just for this styrene line. Because if that styrene line goes down, and it's in, it's not what they call cold stopped, if it's hot stopped, meaning is running, and they just turn the power off, you got six hours that you have to get that moved out of there. Otherwise, you spend the next six weeks chipping all that plastic out of the process components because it solidified and all that. Now, what's the risk of the power failure in that location? I don't know. But I ain't paying for six weeks, we'll learn the last production, like six weeks of it to me, it would be worth having the small power plant there, just to make sure that didn't happen. Okay, so that's insurance. That's just the insurance against that. Okay. So the question is, if we see, or if we think or the guess is, or if the risk in terms of the the probability of occurrence times the, the nature of the consequences of the event, like we just had is such that we don't want to ever go through that, again, we don't want to ever go through that again. Okay. What are you willing to pay to keep that from happening?

Robert Bryce  58:58  
And it's gonna be something more than what we're paying now.

J. Paul Oxer  59:01  
Correct.

Robert Bryce  59:02  
And that, that, ultimately, you're saying it get might not fall to the consumer. But I also heard during the call that any of these companies that default that go bankrupt and can't pay their bills, all those costs are going to be socialized among all of the members. Right? It sure looks to me like that a lot of these costs are going to be socialized, which, you know, I joke about by default,

Unknown Speaker  59:22  
if they if they don't

Robert Bryce  59:24  
realize the profits and socialized the cost, right, that's the way and

J. Paul Oxer  59:26  
that's and, you know, it could be you know, the, the policy is that as developing it, you know, I'm, I'm, I'm really good at engineering, okay, but I'm a student of economics and history and I'm trying to find any policy, you know, economic and financial policy that you can put in place and have it lasts forever. Okay, every so often you need to have a re correction course correction on that change the policy, improve it, to represent the conditions that exist, as we see them as we expect them. To be an insert so many more years, take another look at it. I think that's what what Pat and Julie were looking at in the in the paper, they did an article they wrote seven and a half years ago. about, Okay, it's time for a policy review on this to see if we're if we're taking into account because now we've got other things that have come in to the into the play, okay, into the into the mix to be able to that that policy has to be adapted to meet the current context.

Robert Bryce  1:00:26  
Sure. Well, so last thing, we've been talking for about an hour here, and I've just been looking at the numbers, potentially, in terms of the overall costs of this debacle. Only a week, we're only a week past it. Right. And but I think the numbers that I've seen estimates are that the amount of revenue that was expected or because of the the electricity consumed last week alone was worth on the order of $50 billion. Well, in 2020, total electricity sales in Texas for the year in 2020, were 35 billion. So in a week, we had electricity sales that in theory, anyway, were one and a half times our total annual consumption.

J. Paul Oxer  1:01:08  
Me that just says there's a there's a there's a mismatch in the equation, the how we calculate all those. Okay, there's, there's, there's, there's and that's back to my original original point about quantifying the problem, we got to figure out what the problem exactly is, yes, they estimated those we have any numbers to back that up? I don't know. Do we

Robert Bryce  1:01:31  
have those estimates? And I and I can't answer that. But

J. Paul Oxer  1:01:34  
nobody. And the point is nobody can right now. And there are a lot of people that are out there, just you know, you're working like rascals to try to figure this out and gather the data to be able to quantify the problem, because the last thing you want to do is solve a problem. That's not the right one.

Robert Bryce  1:01:47  
Sure. But it seems to me the problem overall in the market structure, and this is what I want to ask is that the system was designed to reward crisis and high prices and not to reward stability and low prices, and forget it, and it's as critical as electricity, it just seems like a fundamental flaw in the way the market was set up and, and demands that the market be rejiggered for for not for crisis, but for stability and reliability.

J. Paul Oxer  1:02:17  
The and what you're probably referring to is the $9,000 per megawatt hour cap on the Okay, and then like the one before that was 4500 nothing It was 2000 before then 1000 that kept getting jacked up. Okay. Right try in the in the intent was because there was a continuously escalating and projectable demand or increase in the demand for power, okay, in Texas. And so the folks that will be building those side of things would say, Well, you know, we don't have any capacity market, we have no way to figure out how we're going to do this. If we build a Mercer plant, you know, we will base it on, what, 16 hours, 18 hours in the summer, you get $9,000 a megawatt hour can't do that for big, you can't build a new nuke plant on that without having some unless you've got a really large balance sheet. And you can do it on your own. And so the intent, while it turns out, it It looked like just what you said the intent of that was to continue to raise that amount to be able to provide an incentive for folks to buy to build power. And the the misc disconnect in my mind, and this is my perspective. Okay. I kept trying to get people to build power by changing the energy price, and there are two different things.

Robert Bryce  1:03:33  
Right. Well, that's a great point. So just build that out a little bit. And then we'll quit. But that was, but see, but that seemed to me that that and even implied on Wednesday in the in the in the urgent board meeting with her cot that that bill Magnus implied well, even at $9,000, there were people that just couldn't get the there was just no way that you could have a million dollars and they couldn't get you out.

J. Paul Oxer  1:03:55  
Okay, imagine imagine you're imagine you've got a 500 megawatt gas fired plant that because of the early cold, what was going on? trips off? Okay, now you got a frozen valve, not enough gas in there. You see the price going up? Do you really think that any any cell phone respecting power plant provider power provider, okay, is going to sit there? And by choice be out of the market? When the price hits $9,000 a megawatt hour?

Robert Bryce  1:04:25  
Well, no, I mean, they'd want to exactly

Unknown Speaker  1:04:26  
they want to be in it.

Robert Bryce  1:04:28  
But But the question is, would they be able to even have the power plant in the because I've also heard that the way the market was structured, there just weren't enough people that were willing to take such a big bet, that they're going to be those few hours a year when they can run and make them

J. Paul Oxer  1:04:41  
and that's the point. But if you have one, if you have the power plant and you're there and it tripped off last week and you can't leave, you're fighting to get back in and the price goes up. What that price represent is the short term demand on the it's like the price or the supply the demand curves changing and run that price up to the point that they were trying to get everybody Could to get more. But if you've got, if you've got something there that if you have, let's say you've got a display of 500 megawatt power plant or gas fired power plants, it's going to cost you 500 million million dollars a megawatt, it's not unreasonable, okay? Just as a round number, okay. So if you put that out there, if unless it's a merchant plant where there's a high probability, you got constant demand on it, and you don't have capacity payments, which means that you're providing the power. Okay? You can't get any, if you can't get financing for it, unless you've got a reliable amount of, of revenue coming into it, of off take which moves provides you the revenue. That's why nuclear plants, which is you and I have talked on a number of occasions, totally clean, you know, in terms of emissions, the small, smaller footprint, they got modular plants, I have to say one of the things that the the French did, particularly well, let's get their nuclear electric production regulation, down to a science. Okay, if I recall correctly, they have a they have a standard design of 600 600 600 megawatts for nuclear? Do you need 500 megawatts? Good, you're going to build a 600? Well, we only need 300 goods your problem, figure out what to do with the other 300? Well, we need 900 then you're gonna build two sixes, okay. Because they know how to do it and know what the risk is and how to build them. And they're, they're cookie cutters. Now, there's practically every one of the nuke plants in the US was a one off? Sure. Okay, so they're practically impossible. Well, I was going where I was going with that is, unless you can, unless you have the capacity to finance out on your own balance sheet, you can't get project financing for it. Because you don't have reliable off take

Robert Bryce  1:06:43  
for the for the gas fired power plant that's going to be able to meet that 9000 or whatever it is to meet that right to potentially play in the in the, in the casino where you get a maybe jackpot. Right, right.

J. Paul Oxer  1:06:54  
So you know, and then, you know, if you've got three days in the summer, where you're, you're running $9,000, down $1,000 a megawatt hour, let's face this, yeah, to the quarter, or 225,000 bucks, more or less, you know, every day, right, you know, day after day.

Robert Bryce  1:07:12  
So So the bottom line is here that that system is going to have to change and it's going to have to be skewed toward reliability, resilience efforts that are ultimately are going to be required, they're just not going to be any elective anymore. Is that well there? Is that a fair assessment?

J. Paul Oxer  1:07:28  
I think it is. And I think the reason is because we now knows that reliability has value.

Robert Bryce  1:07:34  
And and with that, in the end, the lack of the reliability has a high cost has

J. Paul Oxer  1:07:37  
cost is high cost, right. And so your cost a cost, benefit cost ratio, if you look at that, you know, in my, in my estimation, one of the reasons that in my house, you know, we have certain things that we put in here. And now it's like, well, I just answered cost per square foot. Yep, you're absolutely right. It does no question about it. We're also I sleep pretty well at night, too.

Robert Bryce  1:07:59  
Right. Gotcha. Well, then let's stop. On that note. Jay. Paul. With your time we've talked for about an hour. folks out there, Jake, Paul oxer is a independent power developer. He has over 40 years of experience in this business. So he knows a little bit about what he's talking about. He's been a good friend of mine for a long time. And you've I hope you've enjoyed what he had to say, Jay Paul, thanks for coming on the power hungry podcast. I'm sure I've enjoyed it.

J. Paul Oxer  1:08:26  
Thanks so much, Robert. See you in Austin.

Robert Bryce  1:08:28  
And all you in podcast land. Thanks for tuning in. We might have yet another guest on the power hungry podcast in blackout week. Which I'm not celebrating. But this is been a key event in Texas and I was blacked out for 45 hours. So I don't like it. I'm adamantly opposed to blackouts. But we'll be talking about these issues on the power hungry podcast for a long time to come. And hopefully have guests like Jay Paul to help explain it. So thanks again, Jay. Paul, thanks to all of you for tuning in. Tune in next time for the power hungry podcast.