5 things we learned from this week’s hearings on Texas power outages

AUSTIN — Nearly a month after freezing weather knocked power generators offline and plunged millions of Texans into darkness, lawmakers are starting to get a full picture of the massive damage the outages wrought on the state’s energy market.

Lawmakers reached an important bill-filing deadline Friday, 60 days into the legislative session, with their attention split between measures to prevent future outages and action on dire financial problems the state faces now.

After hours of hearings this week, here are five things we’ve learned.

‘Error’ in eye of beholder

Much of the conversation this week centered on what the state’s independent market monitor called a $16 billion “pricing error” that occurred during the final days of the power crisis last month.

Potomac Economics, a Virginia-based firm that is paid to provide an independent assessment of the Texas power grid, said earlier this month that a state decision to keep in place a $9,000-per-megawatt-hour price cap for wholesale electricity at the end of the power crisis had resulted in $16 billion in overcharges.

The Public Utility Commission, the state’s top utility regulator, ordered the Electric Reliability Council of Texas on Feb. 15, the first day of the electricity crunch, to let prices jump that high to incentivize generators to produce more power. But by Feb. 18, the worst of the crisis had passed and officials should have removed the cap, the market monitor said.

Keeping the cap in place 32 hours longer than necessary led to $16 billion in overcharges, Potomac said.

Potomac has urged the PUC to reverse the charges. The commission, now run by a sole person after its other two members resigned, has declined to do so.

On Thursday, PUC and ERCOT officials said keeping the cap in place was not a mistake. While conditions had improved by Feb. 18, officials still feared that demand would exceed supply and the state would be cast back into power failures.

Large industrial electricity consumers were still offline and the return of their demand could overload the grid. Cold weather continued, creating high demand from residential customers. And many homeowners, who had been without power for days, were being brought back online and would require more energy from the grid.

“We were so concerned about not going back into rotating outages that, based on what we knew, it was the best decision,” said Bill Magness, ERCOT’s fired CEO, who is helping the grid manager sort out the power failure before his last day in two months. “Given the emergency context, I just can’t tell you that I regret the decision.”

Politicians are divided

The independent market monitor’s request to reverse the charges has split lawmakers. In the House, lawmakers were receptive to PUC Chairman Arthur D’Andrea’s reasoning for rejecting the request.

D’Andrea, who took the helm of the commission when his predecessor resigned under pressure from lawmakers, said reversing the charges was not within his agency’s authority and would have unforeseen consequences in other places in the market.

“When you say, ‘Let’s reprice, we’ll take money away from the generators,’ you see that it gets a lot more complicated,” D’Andrea said.

But in the Senate, where 29 of the 31 members have called for the charges to be reversed, D’Andrea was met with skepticism. Lt. Gov. Dan Patrick, who leads the chamber, made a highly unusual appearance at a committee hearing to question the PUC chairman.

“It’s pretty clear to me that a mistake was made,” Patrick said, as he urged D’Andrea to act.

Patrick, saying D’Andrea’s testimony in the House was inaccurate, put pressure on Gov. Greg Abbott, who appoints the PUC, to call for the reversal of the charges. On Friday, Patrick asked Abbott to replace D’Andrea on the commission.

Another kind of cap

Lawmakers in both chambers indicated support for capping prices for ancillary services, which are services that are used as energy reserves in the Texas grid or help keep the power system in balance.

During the winter storms, prices for ancillary services skyrocketed, going beyond the $9,000-per-megawatt-hour cap that was set for wholesale electricity. Pricing for ancillary services rose as high as $25,000 per megawatt-hour, said Carrie Bivens of Potomac Economics.

That did not make economic sense because reserves should not be priced higher than the energy demand they are supposed to protect. Because ERCOT had no cap on ancillary services, those prices were allowed to grow exponentially, leaving some companies that needed those reserves with tens of millions of dollars in unexpected costs.

The independent market monitor has recommended capping prices for ancillary services at $9,000 per megawatt-hour.

“There isn’t a cap, but it really makes sense that there should be a cap,” D’Andrea said.

Winners, losers either way

Whatever state officials decide, there will be winners and losers.

Currently, the retail electric providers and distributors that were buying electricity on the wholesale market are big losers because they had to buy power at the high, capped price for days. The winners are the generators that had weatherproofed their plants and were able to produce power to sell at those high prices.

But if the PUC and ERCOT reverse the prices, that would claw back billions of dollars that would not get paid. That would help the retail electric providers and distributors that are in the hole, but could adversely affect the generators that kept power going into the grid.

Those generators made business decisions based on the capped price for electricity. But they also had to pay high costs for natural gas to produce the electricity. ERCOT deals only in the power market, so it’s unclear how generators would recover their costs for natural gas.

“There are winners and losers today,” said Rep. Chris Paddie, R-Marshall, who leads the House Committee on State Affairs. “And we could do something and just choose different winners and losers.”

Lawsuits almost guaranteed

Either way, billions of dollars is at stake, and companies that made money or broke even during the winter storm are not going to give up their money without a fight.

Some energy companies have already told the PUC that reversing the charges would lead to difficult legal battles. But there are also the companies that lost big and blame ERCOT’s “pricing error” for that loss. It’s unlikely they will take the losses easily.

“We’ll get sued on that either way,” D’Andrea said.