Texas Power Regulator’s Decision to Raise Prices in Freeze Generates Criticism

Texas Power Regulator’s Decision to Raise Prices in Freeze Generates Criticism

The Texas Public Utility Commission said it raised prices to a market cap of $9,000 per megawatt hour during a six-minute emergency meeting Feb. 15 because the computer that was supposed to help match supply and demand on the power grid wasn’t working properly, and it needed to intervene to relieve a growing crisis.

But the higher prices didn’t result in additional power production, because many generators were dealing with frozen equipment or fuel shortages, and were unable to deliver more megawatts, no matter the price. Some electric-market participants now say the commission’s action turned an energy crisis into a financial catastrophe for many electricity buyers, who were left paying billions of dollars more for the same limited supply of electricity as before.

Texas Gov. Greg Abbott has promised to find answers to the state’s recent power crisis.



Photo:

Bob Daemmrich/Zuma Press

The role of the PUC, a three-member panel appointed by

Texas Gov. Greg Abbott,

in last week’s power fiasco is poised to garner more attention as state lawmakers review what went wrong. Up to now, most attention has focused on the Electric Reliability Council of Texas, or Ercot, the state’s nonprofit grid operator, but the PUC is the state’s chief electric regulator, and took key actions during the crisis.

State hearings examining the causes of the power collapse began Thursday.

PUC officials told The Wall Street Journal that, while Ercot had begun ordering blackouts as power supplies fell short last week, its computer that ran the market was apparently confused by what was happening. The computer was “misinterpreting those reserves as abundance and turning off the more expensive natural gas plants,” exacerbating power supply problems, said PUC spokesman

Andrew Barlow.

Ercot didn’t immediately respond to a request for comment about the computer issue.

At the time, the situation left the PUC members dumbfounded. Chairman

DeAnn Walker

described herself during the Feb. 15 meeting as surprised by the market’s prices, which were hovering around $1,200 a megawatt hour at the time. Commissioner

Arthur D’Andrea

added: “We are not calculating prices correctly.”

The commission moved to set prices at the $9,000 cap, concluding that the prices at that time were “inconsistent with the fundamental design of the Ercot market. Energy prices should reflect scarcity of the supply.” That was intended to encourage power generation to come back online and allow Ercot to end the blackouts, which had plunged millions of homes into the dark in subfreezing temperatures, triggering a humanitarian crisis in the nation’s second-largest state.

But the Monday order didn’t immediately have the intended effect. At the time of the order, there was about 50,000 megawatts offline—out of 107,500 megawatts. This would remain the case through midday Wednesday, according to a presentation by Ercot on Wednesday.

While the Ercot computer glitch may have turned off some plants, many more were shut down because of freezing conditions, fluctuations on the power grid and natural gas shortages.

Millions of Texans face empty grocery shelves and a lack of safe drinking water following a power and utility crisis caused by winter storms. President Biden said he would speed up federal aid for the state. Photo: Joe Raedle/Getty Images

“Much of what happened last week was beyond our control,”

Thad Hill,

chief executive of Calpine, one of the largest power generators in Texas, said in prepared remarks delivered to state legislative committees on Thursday. He said Calpine was unable to operate several of the dozen power plants it owns in Texas.

As a result of the PUC’s decision, power prices remained at elevated levels until Friday morning, when the PUC rescinded its order, after Ercot said the grid was again stable. Typically, the Ercot grid hits peak prices for a few hours, at most.

Many residential, commercial and industrial customers as well as retail providers and municipal power companies had to pay extraordinary prices for several days, and some wrote the PUC to complain that its action had raised prices without improving the supply situation, with devastating financial consequences.

“Generation could not magically appear, and the price signals did not stabilize the situation,” wrote

Patrick Woodson,

chief executive of Green Energy Exchange, a retail electricity provider in Texas. “Quite the opposite, the imposition of price caps during these extraordinary times is creating instability in the markets.”

A worker repaired a power line in Austin, Texas, last week.



Photo:

Thomas Ryan Allison/Bloomberg News

In an interview, Mr. Woodson added that retail providers were hurt by the PUC’s decision to keep prices high all week, which essentially transferred money from consumers to power generators and gas providers.

“You want to penalize people? Great. But don’t penalize the people who didn’t cause the crisis,” he said.

The Texas governor promised in a statewide address on Wednesday to find answers to what went wrong and ensure state lawmakers enact fixes. “You deserve answers. You will get those answers,” said Mr. Abbott, a Republican.

Rob Cantrell,

the chief executive of retail electricity provider Pulse Power LLC, said that while generators unable to deliver were the cause of the crisis, it is retailers and customers who are set to pay the price. He estimates Pulse will lose up to $2,000 for each of its 100,000 customers, even though many of them were without power.

In a filing to the PUC, Mr. Cantrell suggested replacing the $9,000 pricing with fines “for generators that a post-mortem reveals…were not following the minimum reliability protocols.” Those fines could be used to help cover exorbitant power bills, he added.

Power generators “should not benefit as an industry from their failure, to the detriment of Texas retail choice and consumers alike,” he wrote.

Millions of Americans entered a third day without power as more snow and freezing rain moves toward the East Coast, prolonging icy conditions in some areas hit earlier this week. Photo: Thomas Ryan Allison/Bloomberg News

Write to Russell Gold at russell.gold@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Source: WSJ – US News

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