Texas Clawing Back Payments For Grid Services Never Provided

Texas regulators voted to claw back some payments to power generators for services they never actually provided during the state’s massive blackouts last month.

The move could save an estimated $80 million to $150 million, according to the independent market monitor for Texas’s grid, which recommended the change. The Public Utility Commission of Texas agreed Wednesday to adopt the recommendation, saying retailers and others shouldn’t pay for so-called ancillary services to help smooth power flows on the grid if they weren’t delivered.

“That’s a no brainer,” said Arthur D’Andrea, who was appointed chair of utility commission following Wednesday’s meeting. “They were paid for something they didn’t do.” Regulators didn’t say how much those payments totaled.

It’s the first significant step by regulators to address the astronomical power bills accrued during the unprecedented cold blast that crippled the state’s grid. At peak, more than four million homes and businesses were without electricity, and power prices soared to record levels. The impact on individual companies is only starting to emerge.

Texas’s power market is facing a $2.5 billion shortfall as retail electricity providers and others are squeezed by massive power bills in the wake of the crisis. Brazos Electric Power Cooperative, the largest power generation and transmission cooperative in the state, filed for bankruptcy after racking up an estimated $2.1 billion in charges. Griddy Energy LLC, the retailer whose customers were slammed with exorbitant electric bills, defaulted on its debt to the grid operator and has been banned from participating in the market.

Smaller retailers who tend to be thinly capitalized have been particularly hard-hit, and many now face bankruptcy. Just Energy, Texas’s largest independent retailer, is among those asking the utility commission to waive its obligation to pay while it challenges the electricity prices set by the grid operator, known as Ercot, during the crisis. Small generators including EDF Renewable Energy and RWE Renewables Americas LLC have asked the commission to retroactively cap the price of certain power services at $9,000 a megawatt-hour for the days after the immediate crisis.

Also See: Texas Names Power Providers Short on Payments After Freeze

The commission on Wednesday appeared to support the request for a price cap on ancillary services from Feb. 15 through Feb. 20, though they didn’t take formal action. Such a move would save consumers $2 billion, Carrie Bivens, Ercot independent market monitor director at Potomac Economics, said in an interview.

In some instances, ancillary service prices during the cold snap jumped above $20,000 a megawatt-hour. Ancillary services help the grid operator maintain reliability on the system, including by infusing the grid with quick bursts of energy that stabilize the flow of electricity.

Retroactively adjusting prices would likely face opposition from Texas’s biggest power generators, who would have reaped substantial profits if they were able to continue operating during the storm.

“The signal that we want to send is not that we changed the rules after the game’s been played,” said Michele Richmond, executive director of the Texas Competitive Power Advocates, a trade group representing companies that own 70% of the generating capacity in Ercot. “That doesn’t instill confidence in the markets.”

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