Texas regulators on Friday declined to take action on the ERCOT Independent Market Monitor’s recommendation to reprice $16 billion in market transactions that may have been incorrectly priced following the February winter storm.
The Monitor said on Wednesday that ERCOT erred in maintaining wholesale prices at the $9,000/MWh systemwide price cap for 33 hours after it stopped shedding firm load following the storm’s widespread outages. Prices soared by more than $47 billion during the storm’s five-day period, the Monitor said. (See related story, “Monitor: $16B ERCOT Overcharge,” ERCOT Board Cuts Ties with Magness.)
However, the Public Utility Commission, faced with making a decision to meet a deadline for the commodity clearinghouse Intercontinental Exchange, chose not to take a chance with repricing’s unintended consequences (51812).
The PUC directed ERCOT to set wholesale power prices at the $9,000/MWh cap during the storm in an effort to add more generation and resolve the nonrotating blackouts. Prices stayed at the cap until they were relaxed in the early-morning hours of Feb. 19.
Kenan Ögelman, ERCOT’s vice president of commercial operations, told the Texas Senate’s Business and Commerce Committee on Friday that the grid was already in a Level 3 energy emergency alert, but staff were not “seeing the pricing that was expected, given the value of lost load consistent with the protocols we have.”
He said prices would reach the $9,000/MWh cap as supplies tightened. However, when ERCOT would shed more load, additional reserves would be created that would drop the price back down, incenting resources to add more generation and leading to oscillation fears.
“Across the board, from the transmission side to the ERCOT to the generation side, people were worried if prices dropped and load came back in one very big wave, you could essentially tumble down into an unstable circumstance,” Ögelman said.
PUC Chair Arthur D’Andrea used a series of analogies to explain why he wasn’t ready to move on repricing what the Monitor referred to as ERCOT’s “inappropriate pricing intervention.”
“We just see the tip of the iceberg,” D’Andrea said, referring to hedges and other transactions that may lie below the surface. “You think you’re protecting the consumer, and it turns out you’re bankrupting a cooperative or a city.”
He said “it’s nearly impossible to unscramble this sort of egg” when “decisions were made about these prices in real time, based on information available to everybody, to all market participants.”
“They did all sorts of things they wouldn’t have ever done if the prices were different,” D’Andrea said. “I know that on the surface, it’s like, ‘Oh, no, it’s just the money the generators got. If you reverse it, it will go to the consumers.’
“That’s very simplistic, and it’s not how it works. There are people representing consumers on both sides of this question. People are looking out for the consumers who don’t want us to reprice, and there are a lot of consumers who could be hurt by repricing. The reason for that is very complicated, but it’s mostly got to do with a lot of private arrangements and transactions that happen outside the market,” he said.
D’Andrea received complete agreement from Shelly Botkin, the only other commissioner after previous Chair DeAnn Walker’s resignation on March 1. (See PUCT’s Walker Steps Down from Commission.) Late Monday, Botkin also resigned.
In reaching consensus, the commissioners said they took into consideration Sen. Drew Springer’s (R) suggestion that they “immediately” follow the Monitor’s recommendations. Springer referenced the Texas Energy Association for Marketers’ filing, supported by 37 large customers at the time, to reprice the 33 hours following the end of the load shed.
“Revising this pricing would mean significant savings for a number of commercial/industrial customers, municipals and cooperatives who are facing extremely high costs from the PUC’s actions,” he said.
D’Andrea said he was grateful for Springer’s feedback. He said the PUC and the Legislature need to be “standing shoulder to shoulder” as they work to resettle the ERCOT market and make any reforms.
“I don’t intend to make any huge decisions without talking to all of them first,” D’Andrea said. “I hope what I have said today addresses why I’m reluctant to reprice. I totally get how it looks like you’re protecting consumers, but I promise you, you’re not.”
The commission did rescind an order stopping late fees on customers with late electric bills and directed transmission and distribution service providers to stop charging customers for cold-load pickup spikes following lengthy outages. Many commercial customers’ bills are determined by their largest moment of usage.
Retail electric providers must still offer deferred payments to customers on requests, the commissioners said.
The PUC put off discussion on raising the low systemwide offer cap (LCAP) from $2,000/MWh to $9,000/MWh for this summer in order to allow stakeholder comments by March 26. D’Andrea indicated a preference to keep the LCAP at $2,000/MWh this summer, saying, “I’ve heard advocacy for it, but I have not heard from the other side.”
ERCOT Market Under ‘Financial Duress’
Ögelman told the Senate committee during its Thursday hearing that ERCOT’s market is still recovering from the tens of billions of dollars it has been moving through the settlement system. Noting that the market typically sees about $11 million of daily transactions during the winter and shoulder months, he said invoices amounted to about $22.5 billion for the week of the winter storm, according to his calculations — more than four times 2020’s total of about $5 billion.
ERCOT is currently short about $1.7 billion in payments to market participants, Ögelman said. Much of that came on Feb. 26, when the grid operator came up $2.1 billion short on $12.5 billion of invoices. It borrowed $800,000 from the congestion revenue rights fund to narrow the gap.
“ERCOT as a market is under a lot of financial duress,” he said. “The numbers we’ve been talking about in the billions, the folks trying to make those payments, and being dependent on those payments to pay downstream costs … the market is under extreme duress.”
Ögelman said ERCOT’s short pays are much smaller now, reaching just over $164,751 that day as temperatures and prices have returned to normal.
“It’s kind of dollar in, dollars out. I would expect additional short pays to come in, but in the single millions of dollars, not anything as you saw on Feb. 26,” he said.
Asked what ERCOT can do about short-paying market participants, Ögelman responded that they can be kicked out of the market. The grid operator has already revoked the licenses of two electric retailers, while nearly 20 others are thought to be on the brink of default. Brazos Electric Power Cooperative has already declared bankruptcy.
ERCOT staff told the Technical Advisory Committee on Friday that they expect additional defaults. Five retailers have been acquired or terminated market activity, said Mark Ruane, senior director of settlements, retail and credit.
The Coalition of Competitive Retail Electric Providers trade group and multiple retailers have filed emergency action requests with the PUC to “avoid irreparable [market] harm” by suspending immediate collections on the massive bills. The PUC is expected to file an order during its Thursday open meeting that would extend ERCOT’s 10-day settlement dispute timelines, which Ögelman teased by telling the TAC to expect a market notice on extensions to the dispute timeline.
The PUC has also opened a docket to review ERCOT’s scarcity pricing mechanism (51871).
Sen. Kelly Hancock (R), the Business and Commerce Committee’s chair, referred to the $9,000/MWh cap in saying changes need to be made.
“I don’t think anybody envisioned this, but it’s certainly shown we do have to redesign our system if we want to attract dispatchable energy into the state,” he said.
TAC Takes up Ideas for Solutions
The TAC held a special meeting Friday to identify and catalogue potential solutions to the events preceding and following last month’s severe winter storm, beginning with a list of issues submitted by ERCOT CEO Bill Magness.
“ERCOT believes it is important to immediately analyze the issues and make changes to improve the performance of the electric system if we experience another extreme event,” Magness said in a letter to the committee.
He outlined eight issues, including improved coordination with transmission and distribution providers on rotating-outage practices; working with applicable government and private entities to improve ERCOT emergency public safety communications; and expanding extreme peak load and generation outage scenario analyses in ERCOT’s seasonal assessments of resource adequacy.
The TAC’s Retail Market, Wholesale Market and Reliability and Operations subcommittees also submitted suggested issues for evaluation. The committee leadership will work with ERCOT staff to prioritize the ideas and parcel them back out to the subcommittees during the TAC’s regular March 24 meeting.
Congressional Inquiries Grow
Congressional hearings and investigations continue to pile up for ERCOT.
The House of Representatives’ Energy and Commerce Committee wrote to Magness on Thursday to request a briefing and information on the February events. The five committee members, who include Reps. Marc Veasey and Lizzie Fletcher, both Democrats of Texas, cited the “significant shortcomings” in ERCOT’s preparation and response to the incident.
“The ongoing crisis raises significant questions regarding Texas’ grid resilience and regulatory regime and ERCOT’s stewardship of the grid prior to and during this crisis,” committee members wrote.
The lawmakers stressed more must be done to “protect communities disproportionately impacted by winter power outages.” They pointed to a 2011 report from FERC and NERC that made a number of recommendations for the electric and natural gas industries.
The Senate Energy and Natural Resources Committee has a hearing scheduled for Thursday on the reliability, resilience and affordability of electric service, while Rep. Eddie Bernice Johnson (D-Texas), chair of the Science, Space and Technology Committee, has scheduled a March 18 hearing on “Lessons Learned from the Texas Blackouts: Research Needs for a Secure and Resilient Grid.”
The House Oversight and Government Reform Subcommittee on the Environment has also requested documents and information on ERCOT’s preparations for the storm. (See related story, House Oversight Committee Pokes into ERCOT.)
The outages and ERCOT’s response is also being investigated by the Texas Legislature, the PUC and the attorney general’s office. FERC and NERC has also opened a joint inquiry into the severe winter storm.
