On Monday, the senate expedited procedure to push through legislation ordering the Public Utility Commission (PUC) to retroactively adjust wholesale electricity prices during a 32-hour period within which controlled residential blackouts had ceased.
During that period, prices remained at the $9,000 per megawatt-hour (MWh) cap set by agency rule. The PUC originally ordered prices to that level on February 15 so it “more accurately reflected” the commodity’s scarcity during the winter event that caused widespread generation failures across the state. Excess reserves, according to the PUC and the Electric Reliability Council of Texas (ERCOT), warped the price-setting algorithm’s perception of the readily available generation on the grid.
Patrick and the senate are in near-unanimous agreement with the state’s Independent Market Monitor (IMM) — a group of economists that monitor the electricity market — that the 32-hour window after the Energy Emergency Alert 3 had concluded.
The IMM is paid $16 million by the state, through ERCOT fees, and is overseen by the PUC.
But the House isn’t so resolute on the question.
The House State Affairs Committee questioned four witnesses on repricing on Tuesday: IMM Economist Carrie Bivens, ERCOT CEO Bill Magness, PUC Chair Arthur D’Andrea, and Intercontinental Exchange (ICE) Global Head of Clearing and Risk Chris Edmonds.
The first three had already been subject to hours of questioning from legislators, but Edmonds’ appearance was the first for ICE — which is a marketplace upon which futures contracts, including for electricity, are bought and sold.
Bivens and the IMM were the first to bring to light an estimated billion overcharge in electricity pricing caused by the, in their mind, errant extension of the price scarcity order.
The IMM requested that the PUC reprice the transactions made during that time — which would amount to a $4.2 billion retroaction. The PUC declined that option, with D’Andrea expressing doubt in his ability to issue such an order sans legislative direction.
The IMM also estimates a $900 million overcharge for ancillary services — generation paid to sit aside in case of an emergency situation. Those traded upwards of $26,000 MWh despite some that were paid who were then unable to generate electricity.
That failure stems from natural gas delivery issues which stems from various cold weather problems including wellhead pumps being cut off from power.
Bivens gave the House three recommendations she has to remedy the situation during that 32-hour window: 1) cap ancillary service transactions at $9,000 MWh, 2) separate the ancillary service transactions paid for but not delivered upon, and 3) reprice the regular day-ahead wholesale transactions.
Without specifying more, Bivens told the committee that that repricing will chiefly benefit retail electric providers, municipal utility providers and cooperatives, marketers, and some banks.
Rep Chris Paddie (R-Marshall), the committee chair, provided among the most significant pushback given by a legislator, pressing Bivens on the issue.
“If we were to do what you suggest, individual consumers are going to see a positive impact. Yes or no?” Paddie asked Bivens.
She responded by saying that while she cannot “definitively say” what the impact of repricing will be, she thinks it would be positive.
Paddie, tempering expectations, added, “I don’t want folks to think that what we’re debating here necessarily means that consumers benefit at all. If we move this money from one pocket to another, there is nothing that says that actually goes to the consumer.”
He then went on to express concern over the state “picking winners and losers,” stating, “There are ‘winners’ today who, if we reprice, not only would ‘win’ less, they would actually be flipped to ‘losers.’ It’s a zero-sum game.”
Later, Paddie further lamented that repricing would “punish” entities that effectively hedged their prices to safeguard against such a catastrophic event. “Hedging” is the process of purchasing a commodity, at a usually somewhat marked up price compared to the market average, for future consumption.
It is at its root a way to mitigate risk and volatility in market prices. Many companies did that before the winter storm, but some did not. Generally, those who hedged and made it out okay, or even well, object to repricing while those who suffered have advocated it.
During his testimony, Magness defended the decision to preserve the scarcity pricing order stating concern that industrial generators would not have purchased gas necessary to generate fuel on Friday, which could have thrown the state back into controlled blackouts.
Natural gas prices were trading in the hundreds of dollars, drastically higher than normal. And thus, the only way for generators fueled by natural gas to avoid committing financial seppuku was to earn back that revenue through high wholesale electricity costs.
ERCOT and the PUC acted as they did, according to their testimonies, to push as much generation onto the grid as possible and avoid another string of blackouts.
But critics, like Rep. Richard Peña Raymond (D-Laredo), believe consumers are being unfairly left holding the bag the state bureaucracy filled and handed them. Raymond was the most outspoken committee member in favor of repricing.
According to Magness, ERCOT currently has $3 billion in unpaid invoices which, if not paid, will be shouldered by the entire industry collectively through a process called “uplifting.” However, there is a monthly cap on uplifting set at $2.5 million. At that rate, it’d take 100 years for ERCOT to close those outstanding debts.
Edmonds warned against repricing, citing precedential concerns of contract violation — going back to Paddie’s position that rules of the game were known beforehand which influenced market actions one way or another.
Unintended consequences, he added, would proliferate and uncertainty would blossom.
Texas House Speaker Dade Phelan said after the hearing, “ERCOT and PUC failed Texas repeatedly during this tragic event, but the decisions made on pricing were made based on ensuring the reliability of the grid.”
“I believe that these decisions may have saved lives,” he continued.
Phelan further called the prospect “an extraordinary government intervention into the free market.”
After hearing of Phelan’s statement, Patrick admonished the House, stating, “The Texas Senate stood for individuals and I’m proud of you. The House stood for big business.”
“There is still time for you to correct that,” he concluded.
Phelan responded in-kind, stating he has not spoken with Patrick about the repricing legislation and will refer it to committee in accordance with proper procedure.
Other legislation concerning the winter weather event and its consequences will be advanced in the House this week.
But for now, the House has placed itself directly between the Senate and the convoluted mess of Texas’ power sector.