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ERCOT Overcharged Power Companies $16 Billion for Electricity During Winter Freeze, Firm Says

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.

“They’re going to suffer the most,” Hallermann said.

Retail power providers have been in financial distress across Texas since the storm; many were forced to buy power on the wholesale market at extremely high prices.

Brazos Electric Power Cooperative Inc., Texas’ largest power cooperative, has already filed for bankruptcy protection after incurring $2.1 billion in combined charges owed to ERCOT, according to court documents filed Monday.

Many retail power providers complained in filings to regulators that generators of electricity, which were unable to produce enough power during the storm, profited and left retail companies scrambling.

“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.

Cathy Webking of the Texas Energy Association for Marketers told lawmakers during a Texas Senate Committee on Business and Commerce meeting Thursday that prices should be set back to what the market value would have been.

“There are more defaults imminent. Immediate action is required,” Webking said.

A spokesperson for ERCOT declined to comment on the matter.

Kenan Ogelman, the ERCOT vice president of commercial operations, who testified during a Texas Senate committee hearing Thursday, was not asked by state senators about ERCOT’s $16 billion mistake. Sen. Kelly Hancock, R-North Richland Hills, who chairs the Business and Commerce committee, did not indicate what action he or other senators would take on the various financial ripple effects from the winter storm.

“There are financial concerns — let’s put it that way — that we have to address,” Hancock said.

Reese Oxner and Shannon Najmabadi contributed to this report.

This story originally appeared on The Texas Tribune. To read this article in its original format, click here.

Erin Douglas, The Texas Tribune
Erin Douglas, The Texas Tribune
Erin Douglas is the environment reporter for the Texas Tribune.

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