Texas Gov. Greg Abbot (R) on Friday rejected Lt. Gov. Dan Patrick’s (R) call to fire Public Utility Commission Chair Arthur D’Andrea, who has steadfastly refused to reprice billions of ERCOT market transactions during that occurred the February storm that almost collapsed the grid.
On Friday evening, Patrick called on Abbott to replace D’Andrea, the lone electric regulator left standing, when he fills the PUC’s other two vacancies, saying D’Andrea “demonstrated little competence and questionable integrity” during several hours of testimony before the State Legislature on Thursday.
Abbott responded by saying he agrees with D’Andrea’s refusal to reprice the market. “The governor does not have independent authority to accomplish the goals you seek,” Abbott told Patrick. “The only entity that can authorize the solution you want is the legislature itself. That is why I made this issue an emergency item for the legislature to consider this session.”
ERCOT’s Independent Market Monitor has said those transactions are an error, a position its director reiterated before the Senate’s Jurisprudence Committee on Thursday.
“I believe ERCOT has the authority to correct the price, if ordered to do so,” Monitor Carrie Bivens said.
The Monitor revised the initial $16 billion down to $5.1 billion on Thursday after receiving meter information and other additional data. Saying it had considered day-ahead market positions, hedging activity, and offsetting supply and demand positions by multiple entities under the same corporate umbrella, the IMM said real-time market transactions net out to $4.2 billion. Ancillary service charges — which the Monitor said ERCOT improperly priced above the $9,000/MWh cap — should be reduced by an additional $900 million, it said.
The IMM noted that its calculations included only contracts settled by ERCOT, not futures contracts.
The market transactions in question were incurred when ERCOT extended emergency conditions for 32 hours after it stabilized the grid on Feb. 17 and stopped shedding load. The decision kept the grid operator’s $9,000/MWh scarcity pricing — enabled by a Feb. 15 PUC emergency order — in place through the morning peak of Feb. 19.
ERCOT CEO Bill Magness argued the decision wasn’t an error during his testimony before the Senate committee, saying it was “an intentional and carefully considered decision to protect human health and safety while stabilizing the electric grid.”
“It is clear to me there is a difference of opinion of whether there was a billing error or there was a deliberate decision to take action to save the lives of Texans in their homes. That issue will ultimately be decided by courts,” Abbott told Patrick.
Abbott, who last week added legislation to correct “any [ERCOT] billing errors” to the legislators’ priority list, appointed D’Andrea to the commission in 2017. He named him as the chair when DeAnn Walker resigned earlier this month. (See PUCT’s Walker Steps Down from Commission.)
The lieutenant governor’s ire was raised by D’Andrea’s continued insistence that repricing 32 hours of market transactions at the $9,000/MWh systemwide cap would lead to additional bankruptcies and other unforeseen circumstances. The chairman said he lacked the authority to retroactively change the prices and questioned the Monitor’s contention of a billing error. (See Texas PUC Won’t Reprice $16B Error.)
That was enough to bring Patrick to the Senate floor during D’Andrea’s testimony for what he said was only the second time he questioned a witness during his six years in office.
“It’s a highly unusual circumstance, isn’t it?” Patrick asked D’Andrea.
“Very,” D’Andrea responded.
Armed with a transcript of D’Andrea’s testimony earlier that day to the House of Representatives’ State Affairs Committee, Patrick said, “I have to be candid with you: I just don’t know what to believe. Much of what you said this morning was not true. It was speculation. It was exaggeration.”
Patrick noted that the Lower Colorado River Authority (LCRA) had issued a statement after D’Andrea recounted a conversation to the House in which he said the public utility’s CEO, former Secretary of State Phil Wilson, had said repricing the market transactions “would bankrupt them.”
“At no time did LCRA ever make such a comment to Chairman D’Andrea,” LCRA said in a Twitter thread. The utility, which generates and sells power, said repricing the entire market “would actually benefit LCRA” but admitted repricing ancillary services charges, estimated by the IMM to amount to $900 million, “could substantially harm LCRA.”
“That testimony you gave in the House was incorrect,” Patrick told D’Andrea.
“I would love to verify that with him, because what I heard him say was their preference was we just reprice the energy,” D’Andrea said. “He said, ‘If you do both … if you reprice ancillary services, we will owe a massive amount of money.”
Patrick continued to hammer D’Andrea, referring to a March 9 phone call between the two and Patrick’s chief of staff and a senior adviser — “I have earwitnesses,” the lieutenant governor said — during which they discussed the chairman’s reaction to ERCOT’s decision to extend scarcity pricing.
In testimony to the House and Senate, D’Andrea said he woke up the morning of Feb. 18 and saw a market notice from ERCOT alerting participants that, although load was no longer being shed, scarcity pricing was being extended through the morning peak of Feb. 19. He said his chief of staff was “panicked,” but D’Andrea said he called Magness “and he talked me down.”
“Remember what you were telling me in real time?” Patrick asked.
“That it was a mistake and wrong impression,” D’Andrea said. “That was my first impression. I woke up that morning thinking that it didn’t make [economic] sense.
“I’ve told this story a million times the last few weeks,” he continued. “I told [the chief of staff], ‘Let me check this. This is possibly a mistake. This decision was made at 1:30 [a.m.].’ I called Bill and said, ‘Please explain this to me.’ He said, ‘We had a lot of industrial load still out. If we let the prices drop, the load’s going to come back on.’”
D’Andrea said he thanked Magness for making the decision under pressure. “I think it was heroic,” he said.
Magness testified that he made the decision after consulting with Walker. He said that while the grid had been stabilized, dropping prices could have led more industrial load and demand-response customers to come back on, plunging the ERCOT grid back into controlled outages.
“We were so concerned about not going back into rotating outages that, based on what we knew, it was the best decision,” Magness said. “Given the emergency context, I just can’t tell you that I regret the decision.”
“You have to put lives first, as painful as it is to deal with now,” D’Andrea said. “We’d just been through three nights of load shed. We didn’t want a fourth. I just thought we would deal with the economic fallout later.”
D’Andrea’s responses did little to satisfy Patrick, who kept insisting the chairman had the authority to direct EROCT to reprice the 32 hours of scarcity prices. He pointed to a section of the ERCOT Protocols (9.5.12 Suspension of Issuing Settlement Statements for the Real-Time Market) as proof.
The language says the grid operator’s Board of Directors “may direct” ERCOT to suspend real-time settlement statements’ issuance “to address unusual circumstances.” However, Patrick omitted the next sentence, which reads, “Any proposal to suspend settlements must be presented to the Technical Advisory Committee for review and comment, in a reasonable manner under the circumstances, before such suspension.”
In his Friday statement, Patrick said the state’s Public Utility Regulatory Act gives the PUC authority to direct ERCOT to lower the prices, an apparent reference to section 39.151’s language that says the grid operator “is directly responsible and accountable to the commission.”
Twenty-eight of the state’s 31 senators joined Patrick last week in signing a letter urging D’Andrea to “immediately correct” the prices, saying that is “squarely within [D’Andrea’s] authority, whether by your own action or an order to ERCOT.”
“I don’t think I have that authority to order them to reprice,” D’Andrea said. “I have to follow the protocols because that’s what people who play in the market expect. We’re the ones that delegate to ERCOT the protocols. Those are law in my world. I have to act lawfully.”
“It’s pretty clear the rules give you that authority,” Patrick said. “Even if the governor of the state of Texas told you to correct this error … are you saying that you would not obey that?”
“I’ve worked for him for a decade, and he’s never asked me to do something that I thought was illegal,” D’Andrea responded.
“We have to have someone we think is credible,” Patrick said. “You say things in the morning, and you say things in the afternoon that are totally different. It’s hard to really accept you as a credible witness.”
Patrick said he found IMM Bivens to be the day’s only credible witness. For her part, Bivens agreed that D’Andrea and Magness were faced with a difficult decision over whether to allow the scarcity prices to continue Feb. 18-19.
“This was a very difficult decision for us, as well,” she said. “We weighed the pros and cons. At the end of that analysis, we really believe this was an error, and the error should be corrected.”
Bivens said she discussed the situation with both Magness and Walker on Feb. 18. As the IMM monitored the market, it saw “significant” reserves coming online, with “room for more,” she said.
She said the $5.1 billion is real money. “That’s money that has left the system and is not coming back. That is the money that would change hands if our recommendation was put in place.”
Committee Chair Joan Huffman (R) asked Bivens whether it would be possible for the market players to negotiate an “equitable solution.”
“I believe there’s a way,” she said, without offering further details. “I believe it’s complicated, and the longer we wait, the more complicated it gets.”
The problem is the Intercontinental Exchange (ICE), which offers more than 50 futures contracts in ERCOT and four options contracts. The exchange has been proactively making it clear to state regulators and lawmakers that repricing the transactions would “undermine the stability of the futures markets.”
D’Andrea said he discussed the situation last week with ICE, New York banks and the Dallas Federal Reserve and said, “They’re all afraid of [repricing].” When a House representative said he had a communication from ICE that the exchange was delaying final settlement on some ancillary services transactions, D’Andrea said he had heard from ICE President Trabue Bland that “‘that ship has sailed.’”
In a letter to D’Andrea, Bland pointed out that ICE is regulated by the Commodity Futures Trading Commission. “CFTC and international regulations could not be clearer: When a contract is settled, it must be treated as final. Repricing the ERCOT contracts days or weeks after the settlement will cause chaos in the futures markets.”
“Removing one domino by repricing ERCOT for the outage week will have cascading effects in other markets and may cause bigger problems than the repricing solves,” ICE told a state Senate committee. “Changing these observed prices now destroys the value of any hedge. This is the slippery slope ICE Futures US is encouraging the state of Texas to avoid at all costs.”
“There is no clawing that money back. There is no unwinding the ICE transactions,” D’Andrea said.
“In the universe of best practices, it would have been best if the error had not occurred,” Bivens said. “Second-best would have been the repricing of the market to occur quickly. Now that the ERCOT derivatives market has been settled, we recognize that creates complications for certain entities that use those markets.”
ERCOT has a 30-day window to settle transactions with its market participants. Because the PUC’s emergency order went into effect Feb. 15, that would place the deadline for any possible resettlements as early as Wednesday.
The state’s largest public power utility, Brazos Electric Power Cooperative, has declared bankruptcy, and dozens of retailers are thought to be nearing insolvency as well. Asked if he anticipated the bankruptcies, D’Andrea said, “I knew we were making some decisions that were inflicting real pain on people in the market.”
For now, D’Andrea said he needs to repair his relationship with Bivens.
“I really regret that this hearing has pitted us against each other in a strange way,” he said. “I can’t solve this problem for Texans without the IMM standing next to me. This hearing has us against each other, and I can’t have that.”
