A firm hired to monitor Texas’ power markets says the region’s grid manager overpriced electricity over two days during last month’s energy crisis, resulting in $16 billion in overcharges.
Amid the deep winter freeze that knocked nearly half of the state’s power generation offline, the Electric Reliability Council of Texas, known as ERCOT, set the price of electricity at the $9,000-a-megawatt-hour maximum — standard practice during a grid emergency. But ERCOT left that price in place days longer than necessary, resulting in massive overcharges, according to Potomac Economics, an independent market monitor hired by the state of Texas to assess ERCOT’s performance. In an unusual move, the firm recommended in a letter to regulators that the pricing be corrected and that $16 billion in charges be reversed as a result.
Potomac isn’t the first to say that leaving electricity prices at the $9,000 cap for so long was a mistake. Plenty of power companies at risk of defaulting on their payments have said the same. But the market monitor is giving that opinion considerable weight and could sway regulators to let companies off the hook for some of the massive electricity charges they incurred during the crisis.
The Arctic blast that crippled Texas’ grid and plunged more than 4 million homes and businesses into darkness for days has pushed many companies to the brink of insolvency and stressed the power market, which is facing a more-than $2.5-billion payment shortfall. One utility, Brazos Electric Power Cooperative, has already filed for bankruptcy, while retailers Griddy Energy and Entrust Energy Inc. defaulted and have been banned from participating in the market.
“The market is under quite a bit of duress,” Kenan Ogelman, ERCOT’s vice president of commercial operations, told Texas lawmakers Thursday. Moody’s Investors Service downgraded ERCOT one notch from A1 to Aa3 and revised the grid operator’s credit outlook to “negative.”
Retroactively adjusting the power price would ease the financial squeeze on some of the companies facing astronomical power bills caused by the energy crisis. EDF Renewable Energy and Just Energy are among those asking the Texas Public Utility Commission to reset the power price for the days after the immediate emergency while others have also asked regulators to waive their obligation to pay until price disputes are resolved.
“If we don’t act to stabilize things, a worst-case scenario is that people will go under,” said Carrie Bivens, the ERCOT independent market monitor director at Potomac Economics. “It creates a cascading effect.”
The erroneous charges exceed the total cost of power traded in real time in all of 2020, said Bivens, who spent 14 years at ERCOT, where she most recently was director of market operations before becoming its watchdog. “It’s a mind-blowing amount of money.”
Although prices neared the $9,000 cap on the first day of the blackouts, they soon dipped to $1,200 — a fluctuation that the utility commission later attributed to a computer glitch. The panel, which oversees the state’s power system, ordered ERCOT to manually set the price at the maximum to incentivize generators to feed more electricity into the grid during the period of supply scarcity. The market monitor argues that ERCOT should have reset prices once rotating blackouts ended because, at that point, the emergency was over.
It’s asking the commission to direct ERCOT to correct the real-time price of electricity from 12 a.m. Feb. 18 to 9 a.m. Feb. 19. Doing so could save end-customers around $1.5 billion that otherwise would be passed through to them from electricity providers, Bevins said.
But power generators that reaped substantial profits from the high prices during the crisis week are likely to push back. Vistra Corp. on Thursday submitted comments to the utility commission arguing against repricing. During a Texas senate hearing the same day, utilities South Texas Electric Cooperative and the Lower Colorado River Authority also voiced opposition.
Texas Competitive Power Advocates, a trade association representing generators, said retroactively changing prices could discourage future investments in Texas’ electricity market. “Changing prices after the fact creates additional instability and uncertainty,” Michele Richmond, the group’s executive director, said in an email.
Bloomberg writer Mark Chediak contributed to this report.
