Texas’ power market watchdog has recommended unwinding $16bn of wholesale electricity trades made at the height of a winter storm last month — an unprecedented move that could alleviate financial distress for companies in the market.
The rollback was justified because the electricity grid operator made an “error” in holding prices at the legal maximum for too long, the watchdog said on Thursday.
As temperatures plummeted and nearly half of Texas’ power generation was knocked offline, Ercot, the grid manager, fixed wholesale prices at $9,000 a megawatt hour, many multiples higher than typical prices of about $25 a MWh, an emergency effort to lure more generation on to the market.
Those prices remained in place for 32 hours longer than allowed by market rules, Carrie Bivens, Ercot’s independent market monitor, wrote in a letter to the Public Utility Commission of Texas (Puct), which oversees the grid operator.
That resulted in “$16bn in additional costs to Ercot’s market”, Bivens wrote.
Retroactively revising prices “is not ideal”, she said, but “allowing them to remain will result in substantial and unjustified economic harm”.
Such a move would require Ercot, which acts as a payment clearing house for the market, to claw back money already paid through its invoice settlement system, a process never carried out on anything like the scale that would be needed.
The extremely high power prices prompted a record $50bn in transactions in Texas’ power market in the week of the storm, more than the typical total for a whole year.
At a Texas Senate hearing on Thursday, Kenan Ogelman, Ercot’s vice-president of commercial operations, said the Texas wholesale power market was in “distress”. About $1.7bn of power bills were still unpaid, a figure he said was likely to keep rising.
Brazos Electric Power Cooperative, the state’s largest and oldest power co-op, has been the largest casualty so far, declaring bankruptcy earlier this week after failing to pay more than $2bn in bills it received from Ercot.
The market watchdog’s recommendation echoes calls from many companies — both retail providers and generators that had to buy power on the wholesale market to meet supply commitments — who have warned of further bankruptcies to come.
Just Energy, the state’s largest electricity retailer, which has warned its investors of a potential $250m loss from the storm, said in a letter to the Puct on Wednesday that the “extreme prices” would force many companies out of the market and could “devastate the competitive electricity market”.
A coalition of renewables developers also wrote to the Puct to argue for a rollback of the $9,000 power prices, arguing dozens of wind projects that had to procure power face “severe financial losses” and warning of a “chilling impact on future investment in Texas”.
The state is the largest wind producer in the US and about 95 per cent of proposed new power projects in the state are wind, solar or storage, a pipeline of investment that could be compromised by the financial damage from the winter storm.
While retroactively reducing prices could ease the burden on many companies that bore the brunt of the price increase, it risks spawning new problems in other linked markets such as the Intercontinental Exchange, where derivatives are traded.
It could also shift the financial burden to some generators where very high power prices helped offset the cost of securing natural gas, which also surged during the storm.