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Tribune News Service
Tribune News Service
Business
Irene Wright

New model for Texas power grid is working, and Texans are paying for it

Making sure Texans’ air conditioning and heat stay on during extreme temperature swings is coming at a potentially hefty cost to consumers — $1.5 billion this year.

That price tag is a result of steps taken to boost the reliability of the state’s electric grid — measures being stress-tested now by a heat wave engulfing Dallas-Fort Worth and the rest of the state.

Those measures also could bring a massive payday for Irving-based Vistra, the state’s biggest power generator.

The $1.5 billion estimate comes from Carrie Bivens, the state-appointed independent market monitor with oversight of grid operator ERCOT. She detailed her projection to Texas legislators last month.

“The results of many of these changes is that the pricing outcomes at times grow disconnected from the actual operating conditions,” Bivens said.

Some Texas customers are paying for those added costs already, especially in parts of the state with variable electricity rates, such as Austin and Houston, according to Bivens. In Dallas-Fort Worth, where most consumers sign up for electric plans that often lock in a rate for months or even years, the added cost will come down the road when their current contracts run out.

Bivens said her estimate factors in around $900 million in price increases already passed on to consumers, as well as expected price increases that will come from changes to ERCOT’s buying practices and increased natural gas prices.

Here’s how Bivens and Public Utility Commission chairman Peter Lake explained the added consumer cost to lawmakers:

Lake said the state embarked on a two-phase plan to boost the grid’s resilience by increasing the purchase of reserves and incentivizing power generators like Vistra to increase production before a crisis occurs.

“We’re operating the ERCOT grid with an abundance of caution, and we’re moving away from the crisis-based business model that drove our grid before, and moving toward a reliability-based business model,” said Lake at the June hearing before the committee on state affairs.

The first phase boosted the state’s emergency response service budget from $50 million to $75 million and allows ERCOT to use that money to buy electricity during times of extreme weather or natural disaster.

ERCOT tapped those funds on July 13 to buy 3½ hours of power to meet demand following two record-setting days that led to conservation alerts. Electricity demand has already broken capacity records 30 times during the state’s prolonged scorching weather.

Texans likely would have lost power on six of those days without the emergency purchases, Lake said.

“There was successful deployment of our emergency response services,” Kristi Hobbs, ERCOT vice president of public strategy, said in an update to PUC.

The PUC also reduced the maximum it would pay for emergency power from $9,000 per megawatt hour to $5,000. Lake said that not only “limits the financial exposure of the system,” but also incentivizes generators to bring extra capacity online sooner rather than “waiting until the grid is on the brink.”

Emergency purchases could mean a $100 million windfall for Vistra during the current heat wave, according to a Morgan Stanley research note updated on Monday. Its gains come from selling electricity on the wholesale market at a higher price, not directly from the power bills of consumers.

Vistra’s profits can soar as much as $10 million an hour at peak times when it’s selling at the $5,000 rate, according to the research report.

“This exposure could quickly add up and depending on the weather and supply conditions, we could see $100 million plus over the next few weeks if similar grid conditions arise,” the report said.

Morgan Stanley estimates that Vistra is sitting on 2 to 2.5 gigawatts of unhedged capacity, or electricity it has already produced but hasn’t sold to the grid. “This unhedged capacity could generate $2 million for every hour at $1,000 per megawatt per hour or $10 million for every hour at $5,000 per megawatt per hour,” the report said.

The $5,000 price ceiling is designed to motivate Vistra and other power generators to sell more electricity into the ERCOT marketplace as it’s produced and demand stays high.

Brent Chaney, Vistra’s senior director of government affairs, said Morgan Stanley’s research is “speculative.”

“We report our earnings on August 5th,” he said. “Until then, we can’t comment further.”

Vistra is still trying to bounce back from a $2.5 billion loss it reported following the 2021 winter storm.

The second phase of ERCOT’s reliability improvements is still in the works but is intended to increase reserves that aren’t bought at emergency rates, Lake said. Those could be quickly summoned in a “break glass in case of emergency” scenario, he said.

It also would create a legal requirement for electricity generators to ensure reliable power for their consumers — which didn’t previously exist.

“At the end of the day, reliability should be a core component, integrated into everyday operations of our market. It should not be an afterthought,” Lake said. “Keeping the lights on should not be a bonus, it should be the core mission of our market participants and what happens every day in the ERCOT marketplace.”

Temperatures across Texas aren’t expected to drop significantly anytime soon. Despite over two dozen 100-degree-plus days already, Texans have yet to see large-scale blackouts and the grid has kept pace with demand.

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