Utility commission refuses to reverse $16 billion in ERCOT overcharges

Bob Sechler
Austin American-Statesman

About $16 billion in overcharges for wholesale electricity racked up because of a pricing error during the massive failure of the state's power grid last month won't be reversed, after Texas utility regulators rejected a recommendation that they make the change.

“It's just nearly impossible to unscramble this sort of egg," Arthur D'Andrea, the new chair of the Public Utility Commission, said during a commission meeting Friday.

Potomac Economics, a Virginia-based firm that's paid by the state to provide an arm's-length assessment of the Texas power grid, recommended Thursday in a letter to the commission that the overcharges — which were billed to retail electric providers, distributors and others — be reversed by retroactively lowering wholesale electricity prices for a 32-hour period beginning Feb. 18.

More:ERCOT overcharged power buyers by $16 billion amid calamity, monitor says

More:Will ERCOT grid disaster lead to higher electricity rates for Texans?

The Electric Reliability Council of Texas, or ERCOT, oversees the state's power grid. An independent grid monitor has said a pricing error by the agency during the recent weather emergency ended up resulting in $16 billion in overcharges for wholesale electricity billed to retail providers, distributors and others.

The overcharges occurred because the Electric Reliability Council of Texas, which oversees the grid and is commonly known as ERCOT, kept the prices at the maximum level allowable — $9,000 per megawatt hour — during the 32-hour period. ERCOT should have stopped intervening by then because the power crisis was over and instead let supply and demand determine pricing, Potomac said.

The Public Utility Commission oversees ERCOT. At ERCOT's request, it initially set the price at the $9,000 cap — from a market price of about $1,200 at the time — during a specially called meeting Feb. 15 in an effort to incentivize as many generators as possible to keep producing power early in the weather emergency.

Retail electricity providers that incurred the steep charges — as well as some generators that did so because their own plants had been knocked out by the weather — have been advocating that regulators embrace Potomac's remedy, even though it would blunt only a portion of the financial blow delivered by the storm and the subsequent breakdown of the ERCOT grid.

“This is an immediate issue and a very dire issue in terms of finances," Catherine Webking, who heads a lobby group that represents retail electricity providers, told state lawmakers during a hearing Thursday that touched on Potomac's recommendation.

Enacting the remedy "is not changing market prices (because) those prices are not market prices," she said.

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But an executive of the Lower Colorado River Authority — which was able to keep a relatively high proportion of its generation plants operational during the weather emergency — voiced skepticism of the proposal during the same hearing.

“There are always winners and losers on both sides (of a transaction), because that pie doesn’t change size, even if you reprice," said Randa Stephenson, LCRA's senior vice president for wholesale markets. "It's really hard to go back and change the rules when people make business decisions off of them.”

According to Potomac, real-time market costs on the Texas grid totaled about $47 billion from Feb. 14-19 because of power outages during the crisis and the sky-high wholesale prices — compared with about $10 billion in real-time market costs for all of 2020.

D'Andrea said Friday that resetting prices at this point would trigger far-reaching consequences and a new set of complications that can't be predicted.

He also said the commission faced an immediate deadline to decide the issue to bring certainty to markets.

“I’m not inclined to do it today," he said. “Decisions were made about these prices in real-time (by wholesale buyers and sellers) based on information that was available to everyone.”

His fellow commission member, Shelly Botkin, agreed.

The three-member Public Utility Commission is down by one member because DeAnn Walker, the former chair, resigned Monday.

A number of state lawmakers, including Lt. Gov. Dan Patrick, had called on Walker to step down after her highly criticized testimony during legislative hearings last week about the grid failure. ERCOT CEO Bill Magness was fired Wednesday night after also testifying during the hearings.

Complete financial repercussions of the calamity on the ERCOT grid — in which extended blackouts left more than 4 million Texans shivering amid subfreezing temperatures — aren't yet clear.

The state's largest electric cooperative, Brazos Electric Power Cooperative, filed for bankruptcy protection Monday, citing huge unanticipated bills from the disaster, while a number of retail providers are struggling. And even utilities that came through the event relatively unscathed are expected to face higher expenses because of it.

ERCOT, which among other things is a clearinghouse for buyers and sellers on the grid, has a mechanism in which it "uplifts" costs — meaning it spreads them out proportionally among every participant in the wholesale market — when they go unpaid. As of early this week, the agency said it hadn't received payments on bills from retail providers and others totaling nearly $2.5 billion, a figure that's expected to grow.

Will Holford, a spokesman for Bluebonnet Electric Cooperative, which serves portions of the Austin area, said the Public Utility Commission and state lawmakers should reconsider Potomac's recommendation "and act favorably on it."

The pricing intervention during the period in question "placed undue, unfair costs on consumers in the ERCOT market, and an undue, unfair financial hardship on Bluebonnet's members," Holford said.

The precise financial impact to Bluebonnet is still being assessed, he said, and "we will work hard to ensure that Bluebonnet members do not pay more than they should."

Representatives of Austin Energy and Pedernales Electric Cooperative did not respond to requests for comment.

By design, the deregulated Texas electricity market relies on financial incentives to prompt generators to deliver more power to the grid, which is why state regulators initially moved to raise wholesale prices during the crisis. But the action might have had little impact in this case, aside from socking some ERCOT participants with huge bills, because nearly half the state's generation capacity had been knocked offline by the weather.