AUSTIN, Texas — Texas utility regulators have rejected a recommendation that they reverse about $16 billion in overcharges for wholesale electricity that were racked up during the massive failure of the state’s utility grid last month because of a pricing error by the grid’s operator.
“It’s just nearly impossible to unscramble this sort of egg,” Arthur D’Andrea, the new chair of the Public Utility Commission, said during a commission meeting Friday.
Potomac Economics, a Virginia-based firm that’s paid by the state to provide an arm’s-length assessment of the Texas power grid, recommended Thursday in a letter to the commission that the overcharges — which were billed to retail electric providers, distributors and others — be reversed by retroactively lowering wholesale electricity prices over a 32-hour period beginning Feb. 18.
The Electric Reliability Council of Texas, or ERCOT, oversees the state’s power grid. An independent grid monitor has said a pricing error by the agency during the recent weather emergency ended up resulting in $16 billion in overcharges for wholesale electricity billed to retail providers, distributors and others.
The overcharges occurred because the Electric Reliability Council of Texas, which oversees the grid and is commonly known as ERCOT, kept wholesale prices at the maximum level allowable — $9,000 per megawatt hour — during that 32-hour period. ERCOT should have stopped intervening by then and instead let supply and demand determine pricing, Potomac said.
The Public Utility Commission oversees ERCOT. At ERCOT’s request, it initially set the price at the $9,000 cap — from a market price of about $1,200 at the time — early in the crisis during a specially called meeting Feb. 15.
During a brief discussion Friday of Potomac’s recommendation, D’Andrea said that resetting prices at this point would set off far-reaching consequences that can’t be predicted but likely would trigger a new set of complications.
In addition, he said the commission faced an immediate deadline to decide the issue in order to bring certainty to markets.
“I’m not inclined to do it today,” he said. “Decisions were made about these prices in real-time (by wholesale buyers and sellers) based on information that was available to everyone.”
His fellow commission member, Shelly Botkin, agreed.
The three-member Public Utility Commission is down by one member because DeAnn Walker, the former chair, resigned Monday.
A number of state lawmakers, including Lt. Gov. Dan Patrick, had called on Walker to step down after her highly criticized testimony last week during legislative hearings called to look into the grid failure. Bill Magness, CEO of ERCOT, was fired Wednesday night after also testifying during the hearings.
Even if the commission were to reverse the ERCOT overcharges, huge bills incurred by retail power providers, distributors and others would remain.
According to Potomac, real-time market costs on the Texas grid totaled about $47 billion from Feb. 14-19 because of power outages during the crisis and the sky-high wholesale prices — compared with about $10 billion in real-time market costs for all of 2020.
ERCOT’s initial aim in lifting the wholesale prices to the $9,000 cap was to keep generators that were able to operate during the storm producing power. By design, the deregulated Texas electricity market relies on financial incentives to prompt generators to deliver more power to the grid.
But the move might have had little impact in this case, aside from socking some ERCOT participants with huge bills, because nearly half the state’s generation capacity had been knocked offline by the weather.
