The Economist: The Freeze

The recent extreme winter weather is unprecedented in Texas. Records were shattered, and the cold lingered for a spell. Most people had to deal with power outages (sometimes for days in freezing temperatures) and millions had no water (again for an extended period). The resulting stress and suffering defies measurement, particularly coming on the heels of a year of COVID-19.

It will take some time for a full understanding of the damages and economic cost of the storm, but there is no doubt that it will be massive. We will track and assess information on an ongoing basis. Based on what we know at this point, we estimate the net loss in gross product over time will exceed $100 billion, with personal income losses of $70 billion and hundreds of thousands of lost years of work. The effects will almost certainly exceed those from Hurricanes Harvey and Ike, by far the most expensive weather events in Texas to date. Unlike a hurricane or tornado, the damage and business interruption has touched every corner of the state. All industries are affected, and supply chains have been disrupted. Much of the state business complex came to a standstill, affecting everything from consumer spending to manufacturing, oil production, agriculture, and beyond.

The reasons for the power outages are many and complicated. A common practice right now is to oversimplify and place all of the blame on the Electric Reliability Council of Texas (ERCOT), wind turbines, competitive power markets, failure to adequately winterize, past legislative decisions, natural gas pipelines – you name it! The bottom line is that virtually everything that could go wrong did go wrong, and there’s ample blame to share.

Texas is a place where summers tend to be long and hot, but winters are shorter and generally mild for many parts of the state. It’s natural that our infrastructure is attuned to dealing with the problems we face most often. On a hot day, a typical home might need to be cooled 30 degrees compared to outside to be comfortable, while the recent cold was so extreme that 70-degree (or more) differentials were common. Needless to say, the demands on the power grid were exceptional, and when brutal conditions took down about 40% of generation capacity (wind turbines and conventional plants alike), disaster struck.

Clearly, the primary objectives should be learning valuable lessons and avoiding a repeat of what was an extremely disruptive and at times even tragic few days. The solutions will involve improvements in several areas (more on that later). The modifications require careful evaluation, not knee-jerk reactions. Identification and remediation of the underlying issues rather than band-aids on the symptoms is the best way forward. Stay safe!

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 2,500 clients over the past four decades.