Adjusting Texas’ electricity prices could make things worse, experts fear - The Texas Tribune

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Companies and entities at every level of the Texas energy supply chain are anxiously waiting to see whether the Texas Legislature will retroactively adjust the price of power in the state’s electricity market during the February blackouts in which more than 50 people died.

Some have said they would benefit from a decision to readjust the market, while others have said they would be hurt by such a move. But who would be helped or hurt, and by how much, is unclear — and lawmakers and regulators have not said how they would retroactively change the state’s electricity market more than a month after those prices settled.

Republican Lt. Gov. Dan Patrick has pressed regulators, lawmakers and even Republican Gov. Greg Abbott to readjust what happened in the market during the winter storm. In doing so, Patrick has turned the conversation about repricing into a political battle between the three most powerful people in Texas government.

Experts inside and outside the Capitol described this debate about repricing the market as a political sideshow about an issue that does not impact a majority of Texas electricity consumers and would do nothing to protect Texans from the next time extreme weather hits the state.

“I think it might actually do more harm than good,” Joshua Rhodes, research associate at the Webber Energy Group at the University of Texas at Austin, said of the prospect of repricing the market.

In Texas, where private companies — as opposed to government — are largely the ones who invest in the energy space, Rhodes said: “If the rules change after the game, that may have a chilling effect on companies wanting to come in and invest money in Texas.”

Rhodes said there would be fewer companies wanting to invest money in the Texas energy industry where the regulatory process is uncertain — and repricing would create great uncertainty.

The Electric Reliability Council of Texas manages the state’s power grid and controls the prices power generators charge to retail electric providers, such as power companies and city utilities. Facing widespread outages during the storm, ERCOT set the price of electricity at $9,000 per megawatt-hour — the highest amount allowed.

Power generators typically sell electricity for much lower prices, sometimes even at a loss. The average wholesale price for energy last year was $21 per megawatt-hour, according to Daniel Cohan, an associate professor of civil and environmental engineering at Rice University.

The real profits come during a handful of hours each year — usually in the summer — when a large demand for energy pushes the price toward the $9,000 limit, Cohan said.

“Just like lottery tickets that don't pay off, most of the time the power that the companies are selling is almost worthless,” he said.

The controversy stems from a 32-hour period during the freeze when prices were left high, even though ERCOT was no longer forcing outages due to a limited energy supply. An independent market monitor found that ERCOT erred in keeping the $9,000 cap in place, resulting in $16 billion in unnecessary charges to power companies and others. The monitor recommended energy sold during that period be repriced at a lower rate, which would allow ERCOT to claw back about $4.2 billion in payments. Outgoing ERCOT CEO Bill Magness insisted the high prices were necessary to incentivize generators to send power to the grid and to keep big customers from turning their power back on and increasing demand.

The power to reprice the market is in the hands of the state’s utility regulator, the Public Utility Commission. The agency is run by a three-person board of directors appointed by the governor, and only one member — chair Arthur D’Andrea — remains after multiple resignations. Even he submitted his resignation to Abbott this week, but committed to remain until Abbott names a replacement and the state Senate confirms them, so the agency doesn’t go without at least one commissioner.

The PUC oversees ERCOT, and while Abbott aimed his criticism in the aftermath of the blackouts at ERCOT, Patrick and many lawmakers have been zeroing in on the PUC.

Most of those who favor repricing have offered no public thoughts about how to actually carry out the proposal. It’s not as simple as lowering the price of wholesale electricity. Prices are set based on supply and demand and are pegged to specific dates and times.

“In practice, it's not as easy as when it’s, ‘I’m a consumer, you overcharge me, I dispute a credit card charge,’” said Caitlin Smith, an energy adviser in Austin. “It’s repricing a market.”

Patrick, according to a spokesperson, said the price should be changed to what it would have been at 11:55 p.m. on Feb. 18, when ERCOT was no longer forcing outages.

Already, companies and entities at every tier of the state’s energy system have been impacted. Some have lost large amounts of money and filed for bankruptcy, such as Brazos Electric Power Cooperative, which supplies electricity to 1.5 million customers. In filing for bankruptcy, the Waco-based company cited a $1.8 billion debt to ERCOT. Brazos is one of an unknown number of electricity companies facing enormous charges in the aftermath of the blackouts — and the company could benefit from the state retroactively reducing the price of electricity.

Experts are skeptical that repricing the market would actually save companies like Brazos from bankruptcy. D’Andrea and then-Commissioner Shelly Botkin voted in early March against repricing, making a similar argument. The financial pain has already been felt among companies and entities, a result that would be wiped away by repricing the market, said D’Andrea.

“You don’t know who you’re hurting,” he said. “And you think you’re protecting the consumer, and it turns out you’re bankrupting [someone else].”

Denton Municipal Electric, an electric provider serving about 60,000 customers in the north Texas city of Denton, lost an estimated $100 to $130 million from the power outages, general manager Tony Puente said. The company, which also runs a natural gas-fired power plant, would be harmed even further by the state repricing the market during the week of the outages, Puente said.

The cost of gas also spiked during the storm, a financial burden for many power plants running on that fuel. But the state cannot retroactively change the price of gas during the outages like it can with electricity.

“Any repricing without a change on the natural gas side would pose a negative impact on our customers,” Puente said in an interview.

Puente said he is still unsure how much money exactly was lost due to the outages. But once he’s able to determine a figure, “then we’ve got to look at what financing strategies we can put in place,” possibly a decadeslong process to potentially offset the cost for local consumers.

Some companies and cooperatives fared well during the outages. Mike Kezar, general manager of South Texas Electric Cooperative, testified to lawmakers that it emerged without taking a financial hit. But the company would likely take a blow from a market reprice, he said.

Experts said there is no way to know which companies or entities did well or were harmed following the outages unless those outfits have said so publicly.

The city-owned utility Austin Energy made money — earning $54 million as a result of the outages. In San Antonio, the municipally owned CPS Energy lost an estimated $1 billion from the outages — and was recently approved to borrow money from the city to partially make up for the massive loss.

With safety nets being deployed to aid entities such as CPS Energy, the debate over repricing the market is only further complicated with time. More than a month has now passed since winter weather swept across Texas and left millions without power and water.

The lieutenant governor and others who support repricing have said the primary consideration for doing so would be the benefit to consumers. But repricing would not help the Texans most devastated by the high energy prices during winter storm.

In the immediate aftermath, a number of Texans reported receiving astronomical energy bills — some as high as $20,000. Those customers belonged to indexed retail electric plans, where prices fluctuate with the price of wholesale electricity. Indexed plans could result in greater savings than the more common fixed-rate plans. But they also carry incredible risk, since they’re vulnerable to large market swings like those that occurred during the winter storm.

Repricing would not have any effect on indexed plans, experts said. Griddy — the most prominent Texas provider of this kind — filed for bankruptcy on Monday and is under investigation by both the PUC and Texas Attorney General Ken Paxton’s office. As part of its court filings, the company said it would forgive the nearly $29 million owed by its 29,000 customers. Paxton’s office further said it would work to reimburse customers who had already paid.

The showdown over repricing took center stage at the Texas Legislature this week. The state Senate on Monday suspended its own rules and hastily ushered through Senate Bill 2142, which would force ERCOT to reverse billions in charges stemming from the winter storm. Included in the legislation was a deadline giving the grid operator until Saturday to act.

State Sen. Nathan Johnson, D-Dallas, told The Texas Tribune that repricing is needed to moderate the market. The $9,000 cap was never intended to be in place for days at a time, he said, so companies' extreme gains or losses need to be reined in.

"The idea of blaming the losers and crediting the winners, I think was just farcical," Johnson said. "Because the market wasn't functioning. And so a repricing, or a price correction in this instance, at least compresses us back into the boundaries of reality, or closer to it."

But it's not immediately clear whether or how much the alleged overbilling will affect regular Texans and what impact the Senate legislation would have on people’s future electricity bills. Retail power providers buy power off the state market and then sell it to residential or commercial customers. At least some of the additional costs for the retail providers would seem likely to be passed on to consumers. But the financial hit varies from provider to provider. And some retail providers also supply power to the grid, adding more to the uncertainty.

Patrick contends repricing would benefit consumers, according to a spokesperson, who did not provide any details about how it would help Texans.

"Lowering the price of energy during the storm ultimately will lower the cost to consumers in both the short and long term," the spokesperson said.

State Sen. Bryan Hughes, R-Mineola, the bill’s sponsor, and state Sen. Joan Huffman, R-Houston, whose committee heard the legislation, did not respond to requests for comment.

State Sen. Carol Alvarado, D-Houston, suggested that the uncertainty stems from ERCOT and the PUC because the agencies have not "looked at [repricing] close enough."

"To say that it would hurt other people or cause some catastrophe in the market — we don't know that yet," Alvarado said. "Nobody has shown us. Nobody has said, 'Well here's why we can't act on your bill, Senate, because if we do it, here's what it triggers.' “

On Tuesday, the Texas House dampened senators’ hopes that legislative action on repricing would occur this week. House Speaker Dade Phelan, R-Beaumont, said in a statement that there had been "no error" in the operator's prices. He further expressed skepticism about reversing the charges, saying in a statement that doing so "based on disagreement with PUC and ERCOT’s management decisions is an extraordinary government intervention into the free market."

Abbott has largely avoided taking a position on the issue. He previously named "inaccurate and excessive charges" after the storm as a legislative emergency item. But on Monday, the governor raised concerns about the constitutionality of repricing. D'Andrea, the outgoing PUC chair, has repeatedly said that repricing would be "illegal."

Abbott instead put the onus on the Legislature to "weed through all these complexities."

On Wednesday, Paxton released an opinion that argued the PUC has "complete authority" to order ERCOT to reprice electricity, rebuffing Abbott's and D'Andrea's concerns.

The House finished the week without taking up the Senate bill. Meanwhile, the House State Affairs Committee passed a slate of bills that would address the power grid's vulnerabilities and change the governance structure of ERCOT, among other things.

Patrick turned his attention to Abbott, urging the governor at a Thursday afternoon press conference to take executive action to reverse the charges.

"The governor is a very powerful person," Patrick said, ratcheting up pressure on Abbott to act after he refused to publicly back the Senate's approach. "He can do anything he wants.”

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Disclosure: CPS Energy, Rice University, Texas Electric Cooperative and University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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