Texas in Crisis: Energy Industry Braces for Perfect Storm

Texas continues to brace itself for another winter storm after already being debilitated by ice, snow and cold. Snow blankets the roads making visibility difficult, and thousands of flights in and out of the state have been canceled. For the first time in Texas history, all 254 counties are under storm warnings, temperatures in Dallas register weather colder than parts of Alaska, and up to 400 record cold weather conditions are predicted over the next week.

The Electric Reliability Council of Texas, the overseer of the majority of the state's electrical grid, said last week that widespread power outages may continue for an unknown amount of time as millions of residents remain without power.

As expected, the energy industry will be hit hard. The winter storm has already resulted in natural gas shortages, frozen wind turbine blades and forced generators offline. This has interrupted the available supply of electricity and resulted in oil, natural gas and electricity price hikes that will impact U.S. consumers going forward.

When seeking to address and deal with the power and gas outage in Texas, please be advised of the following:

• McGuireWoods offers significant legal acumen in dealing with the type of joint FERC/NERC inquiry that has already been announced and will likely include the Texas Reliability Entity, an area in which firm lawyers are also skilled.

• The firm’s track record includes advising on the 2010 FERC/NERC cold snap inquiry and subsequent cold weather event inquiries, the results of which likely will be a major feature of the current inquiry. In those inquiries, the regulators did not penalize involved entities, but instead issued a series of recommendations for winterizing facilities to deal with what was, at that time, characterized as a "once in a hundred years" cold weather event. One recent inquiry resulted in an effort to develop mandatory standards relating to cold weather events, which is ongoing. The current inquiry will likely involve looking back at those prior recommendations, as well as more enforceable NERC Standards.

• In addition, companies engaged in energy trading and hedging should be on alert. FERC and CFTC will likely be looking at any trading around this event for anomalous behavior, another specific and complex area of practice in which McGuireWoods offers a deep bench of legal experience.

Firm lawyers are already actively advising project owners, developers, QSE providers and trading parties in connection with the market implications related to these unprecedented weather events, as well as actively assisting multiple clients evaluating the opportunity to acquire energy assets at very attractive valuations.

The consequences of this year’s Texas winter storm have only just begun.