Texas Leaders Press Utility Regulator to Correct Power Prices
(Bloomberg) -- Texas Lieutenant Governor Dan Patrick joined a majority of state senators in urging a key regulator to reverse billions of dollars in energy charges tied to last month’s blackouts.
But Arthur D’Andrea, the chairman and lone member of the Public Utility Commission of Texas, told lawmakers in back-to-back hearings that he would not do so. In circular testimony that displayed an at-times murky grasp of how the state’s power market works, D’Andrea claimed that he lacked the authority to change prices, that doing so would bankrupt certain companies and could even affect hedging contracts for cattle futures. He also asserted, without evidence, that Texas’ independent market monitor erred in concluding that the energy crisis resulted in $16 billion in overcharges.
“I just don’t know what to believe,” Patrick said during the senate hearing. “Much of what you said this morning wasn’t true -- it was speculation, exaggeration.”
Lawmakers tasked with deciding to reverse those overcharges ended the day with few clear answers, highlighting just how difficult it will be to untangle the financial morass created by the energy crisis that has already pushed some power providers into bankruptcy. With Texas’s electricity market facing a more-than $3 billion shortfall, generators, utilities and retailers are sparring over how gains and losses should be divvied up. Meanwhile, ordinary customers are still waiting to find out how much of the shortfall will ultimately fall to them.
At issue is $16 billion in alleged overcharges that accrued when the Electric Reliability Council of Texas, known as Ercot, set the price of electricity at the $9,000-a-megawatt-hour maximum for more than four days during the grid emergency. Potomac Economics, the independent market monitor hired by the state to assess the power market said Thursday that $5.1 billion of that should be reversed, a move that could reduce the risk of “cascading bankruptcies.”
But D’Andrea maintained that keeping the price at $9,000 was not an error, and therefore could not be corrected. At the same time, he disavowed responsibility for instituting the price cap, saying Ercot made the decision, and claimed he lacked authority to change prices now.
“I don’t think I have the legal authority to do it,” he said. “I think it’s illegal.”
Senators repeatedly pushed back on that claim, insisting that, as the head of the utility commission, D’Andrea has the power to institute the market monitor’s recommendations. Of 31 state senators, 28 have signed a letter supporting repricing.
“It’s very clear the rules say you can make a correction,” Patrick said. “The rules say you can make that change.”
The market monitor initially called for reversing the entire $16 billion but revised its recommendations after receiving more granular information about the transactions settled by the grid operator. It now calls for correcting $5.1 billion in overcharges: $3.2 billion tied to energy charges and $1.9 billion tied to grid services, including those that were paid for but never produced.
Carrie Bivens, the Ercot market monitor for Potomac Economics, said Thursday she raised her concerns in real time with Ercot and the utility commission, urging them to end the price cap once the rotating outages had ended. They told her that doing so could prompt some generators to stop producing electricity, she told lawmakers. She warned that spreading Ercot’s shortfall to everyone in the market could have significant repercussions. As of Thursday, the cumulative shortfall had grown to more than $3 billion from nearly $2.5 billion, accoording to a market notice.
“I remain concerned about the possibility of cascading bankruptcies,” Bivens said. “Correcting the prices is the right thing to do.”
D’Andrea, meanwhile, argued forcefully against repricing, saying financial hedges on Intercontinental Exchange have already been settled and “there is no clawing that money back,” D’Andrea said. “There is no unwinding the ICE transactions.”
But that could have been avoided if the utility commission has acted sooner, Bivens said in a letter to regulators. “We had hoped that action on our recommendations would be taken quickly, prior to the settlement of these futures markets,” she said. “Given that many of these futures products have now settled against the original inflated real-time prices, the unintended consequences in these markets of correcting the real-time prices have increased.”
In fact, D’Andrea said during a March 5 commission meeting that the agency had received a deadline for that afternoon to reprice power from ICE, but declined to act. Commissioner Shelly Botkin said she was reluctant to do so as well, before resigning earlier this week. After that meeting, ICE delayed settlement of certain financial contracts that would have taken place earlier this week.
While D’Andrea walked back some of his claims as the day wore on, he refused to change his position, prompting one state representative to call for his resignation.
“My faith in you as chairman is severely, severely lacking,” said Republican Senator Charles Schwertner.
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