ERCOT’s overcharges

Oops.

The Electric Reliability Council of Texas made a $16 billion error in pricing during the week of the winter storm that caused power outages across the state, according to a filing by its market monitor.

Potomac Economics, the independent market monitor for the Public Utility Commission of Texas, which oversees ERCOT, wrote in a letter to the Public Utility Commission that ERCOT kept market prices for power too high for nearly two days after widespread outages ended late the night of Feb. 17. It should have reset the prices the following day.

That decision to keep prices high, the market monitor claimed, resulted in $16 billion in additional costs to Texas power companies. The news of the overcharging was first reported by Bloomberg.

Some of the providers that were charged during the high price period could pass the costs to customers, depending on the type of contract they have, according to Detlef Hallermann, director of the Reliant Energy Trade Center at Texas A&M University.

In Texas, wholesale power prices are determined by supply and demand: When demand is high, ERCOT allows prices to go up. During the storm, PUC directed the grid operator to set wholesale power prices at $9,000 per megawatt hour — the maximum price. Raising prices is intended to incentivize power generators in the state to add more power to the grid. Companies then buy power from the wholesale market to deliver to consumers, which they are contractually obligated to do.

Because ERCOT failed to bring prices back down on time, companies had to buy power in the market at inflated prices.

The error will likely result in higher levels of defaults, wrote Carrie Bivens, a vice president of Potomac Economics, the firm that monitors the grid operator. She said the PUC should direct ERCOT to remove the pricing interventions that occurred after outages ended, and allowing them to remain would result in “substantial and unjustified” economic harm.

At least $1.5 billion could be passed on to retail electric providers and their customers. Some retail providers have already begun to file for bankruptcy.

[…]

“The ERCOT market was not designed to deal with an emergency of this scale,” wrote Patrick Woodson, CEO of ATG Clean Energy Holdings, a retail power provider based in Austin, to the Public Utility Commission. The pricing failure, he wrote, “has pushed the entire market to the brink of collapse.”

Bivens wrote that while she recognizes that retroactively revising the prices is “not ideal,” correcting the error will reflect the accurate supply and demand for power during the period after the outages.

First and foremost, most if not all of that $16 billion in overcharges needs to be refunded to the customers and retail providers. This isn’t a matter of reading the fine print, it’s a matter of the market failing. No one should have to pay those extortionate rates, and no one should have their credit ratings dinged because they were charged those extortionate rates.

Second, the PUC cannot be allowed to authorize such rates again in the future. I don’t know if this was a process problem or a judgment problem, but either way the effect was extremely damaging. That needs to be a high priority.

But in some sense, these are just details. The big picture problem is that the system we have in place failed completely during the freeze week. The bright idea behind this deregulated, market-driven system of power delivery is that it’s supposed to provide incentives to power companies to ensure there’s a sufficient supply of power, while lowering prices for the customers. The latter has long been a massive failure, but we see now how the former failed as well. All it did was serve as incentive for the system to be gamed. We can tinker around the edges and maybe put in some guard rails, but the underlying problem won’t be solved.

Of course, the Republicans in charge aren’t interested in systemic reform, because they think everything was just fine outside of that one unfortunate week. The real first step in solving this problem is getting people into office that want to solve it. The Chron has more.

UPDATE: That’s not how you fix it.

Texas’ utility regulator had an opportunity Friday to eliminate some of the $16 billion that the state’s grid operator erroneously overcharged power companies during last month’s deadly winter storm — but the board of the Public Utility Commission chose not to do so.

Some Texas electricity customers could have benefited from a decision to readjust the electricity market prices for the week of the storm, according to PUC Chair Arthur D’Andrea and some independent analysts. But other customers could have been harmed by such a move, D’Andrea said.

“I totally get how it looks like you’re protecting consumers [by readjusting electric prices],” D’Andrea said Friday during a PUC meeting. “But I promise you you’re not.”

D’Andrea added that a retroactive decision would have winners and losers: “You don’t know who you’re hurting. And you think you’re protecting the consumer and it turns out you’re bankrupting [someone else].”

[…]

State Sen. Drew Springer, R-Muenster, was hoping for a different decision by the PUC on Friday.

“Keeping the market at an artificial $9,000 for 32 hrs cost $16B,” Springer tweeted, adding that the Potomac Economics report “says those hours should be repriced, I agree.”

You have the power to do something about that, Sen. Springer. What are you going to do?

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