AUSTIN, Texas — A push to reverse $16 billion in costs incurred by market participants during power failures in last month’s winter storm is gaining steam as dozens of Texas lawmakers express support for the move. The push comes even though the state’s top utility regulator has rejected the idea because it could upset the free market, chill new investment and trigger lawsuits.
The state’s top two officials have already expressed support for the move, with Lt. Gov. Dan Patrick calling on state electric utility officials Monday to reverse the costs and Gov. Greg Abbott declaring the issue an emergency item a day later.
House Speaker Dade Phelan said Wednesday night that “repricing is a consequential step that may affect our ability to improve upon and modernize our electric grid” but did not call for immediate action. He said the pricing structure used during the winter storms “requires a meticulous audit and data analysis so that we make the best decision for consumers, for the health of our market, and for the state of Texas.”
Earlier, all but three of the state’s 31 senators released a letter urging the chairman of the Public Utility Commission, the state’s utility regulator, to reverse the $16 billion charges. The three-person commission has just one member, Arthur D’Andrea, after the two others resigned following criticism of the regulator’s performance during the power failures.
“We urge you in the strongest possible terms to immediately correct the billing errors related to last month’s winter storms,” the senators wrote. “These billing corrections are a critical step in significant reforms which we are undertaking. But the time to make these corrections will soon expire.”
The holdouts were Sarah Eckhardt, D-Austin; Brandon Creighton, R-Conroe; and Kelly Hancock, R-North Richland Hills, who leads the Business and Commerce Committee. Hancock’s committee has led the chamber’s hearings on the winter outages.
Hancock said he abstained from signing the letter because he wanted to remain neutral in tackling the issue. He said he wants to strike a balance between having a reliable market and protecting ratepayers.
But Hancock expressed concern about the effect that a reversal would have on generators that had prepared for extreme weather and were able to provide power to the market during the winter storms.
“To change pricing on them would do what you think it would do, it would retroactively reduce what they were looking at and most of them frankly either lost money or broke even,” he said. “I’ve yet to talk to any of them that made any money through this.”
Eckhardt, whose city-owned electric utility Austin Energy was able to keep producing power because it had weatherproofed its plants after a similar freeze in 2011, said she worried the proposed reversal would wipe away the money the utility was able to make because it had taken responsible actions and helped power Texas during a time of need.
That loss would lead to higher costs for Austin Energy customers because they’d have to bear the high costs of the utility’s decision to produce energy when the market incentivized it.
“If the PUC does what this letter is asking, it will cost Austin Energy ratepayers tens of millions of dollars and punish Austin Energy for acting responsibly, investing in resilience, and maintaining production during the winter storm for Austin and for the whole state,” she said in a statement.
The $16 billion in charges stem from the PUC setting the price for wholesale electricity at the $9,000 megawatts per hour cap to incentivize generators to produce power on Feb. 15, the first day of the power failures caused by the winter storm. The market price at the time was $1,200 megawatts per hour.
But by the early hours of Feb. 18, the worst of the power crisis had passed and the state’s cap should have been removed, according to the state’s independent market monitor, Virginia-based Potomac Economics. Instead, the Electric Reliability Council of Texas, commonly known as ERCOT, kept the cap in place for an additional 32 hours, leading to higher prices for electricity.
Because of that, the independent market monitor recommended last week that the PUC reverse the charges by removing the “inappropriate pricing intervention” that happened Feb. 18 and 19.
Retail electricity providers and power distributors which incurred steep costs during the storm have rallied around Potomac’s call to reverse the charges.
But power generators, which stand to benefit from selling during those high prices and spent considerably to provide power during the storm based on the price cap, say the state shouldn’t get involved in the free market. Doing so could undermine confidence in the Texas power and gas market, chilling future investment. It could also lead to protracted lawsuits.
“Attempts to reprice when no mistake has been made are illegal, will result in litigation and extend the chaos,” Diana Woodman Hammett, vice president of legal for Calpine, wrote in a filing with the PUC.
The PUC refused to reverse the charges last week. D’Andrea, who took over as chair of the commission when the previous chairwoman DeAnn Walker resigned under pressure from lawmakers, said resetting the prices would create confusion and could set off far-reaching consequences.
“It’s just nearly impossible to unscramble this sort of egg,” he said.
D’Andrea has become the sole member on the commission after fellow commissioner Shelly Botkin resigned Monday, and legislative pressure is mounting.
D’Andrea will testify in front of the House State Affairs Committee on Thursday about Abbott’s emergency call to correct ERCOT billing errors. Later in the day, he’ll also speak before the Senate Jurisprudence Committee, which is investigating billing errors resulting from last month’s winter storms and the means available for correcting those errors.
The PUC then will hold a meeting Friday morning, followed by an ERCOT meeting in the afternoon. D’Andrea serves as an ERCOT ex-officio board member.
The PUC is under a tight deadline to decide whether to change its initial ruling on the $16 billion charges. ERCOT has a 30-day window to settle its costs with market participants. That deadline will be up next week, on March 18 and 19.
“There’s clearly a lot of pressure and a lot of frustration from consumers that is being channeled through elected officials to do something on this,” said Tim Morstad, who leads advocacy work on consumer and financial issues for AARP Texas.
Morstad said prices only reached the $16 billion level because the PUC kept the electricity price cap in place. If market participants are unable to pay those costs, those charges will be passed on to consumers.
“This caused a cascading effect,” he said. “At the end of the line it means that consumers are paying more for electricity, considerably more, astronomically more, than they were paying just a month before from the same plants running.”
But fiscal conservatives at the Texas Public Policy Foundation are cautioning lawmakers against a government “bailout” for companies they say gambled on the free market.
Jason Isaac, a former state representative who now runs an energy program at TPPF, said power generators were making financial decisions about how much electricity to generate based on assumptions about profit based on the PUC cap. Those decisions included the high cost of ancillary services and buying natural gas to generate electricity.
To retroactively change the price of electricity, he said, would negate those financial risks and potentially cause generators who produced power during the storm to lose money.
“It’s changing the rules after the game is played out,” Isaac said. “If you do a repricing through this bailout, then you have to go back and figure out the rest of the dominoes. You keep going down the line of dominoes that have already fallen over.”
Isaac said lawmakers should continue to investigate how many retail customers would be affected by higher power bills as a result of the winter storms and then determine whether their providers prepared adequately for such an event.
“We don’t need to rush into anything and start bailing out companies that made rash decisions,” he said. “It’d be absolutely devastating to the market. The consumers would be on the hook for that. Not just a few consumers who were customers of actors who were gambling.”
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