February 16e, the Texas Public Utility Commission issued a now infamous order that wholesale electricity prices in the state should be set at $ 9,000 per megawatt hour. The claim was that the high price was needed to spur power generation during the week winter storm Uri hit the state and millions of Texans were lost to follow-up due to a power shortage. juice. The order stated that such a high price was necessary because “energy prices should reflect the scarcity of supply. ”
This is exactly what happened: Energy prices have skyrocketed. Now, as the dust settles and the Texas Legislature adjourned after passing several bills aimed at fixing the state’s fragile electricity grid, three truths have become clear: State policymakers do have not done enough to ensure the resiliency and reliability of the grid, the February 16 PUC order kept electricity prices far too high for far too long, and Texas taxpayers will ultimately be grappling with about 37.7 billions of dollars in additional energy costs.
Before going any further, I should also note that the death toll from the storm continues to climb. In the weeks following the storm, official reports indicate that the number of Texans killed about 100. An investigation carried out in April by journalists from Houston Chronicle found that the deadly storm probably killed at least 200 Texans. On May 26, an analysis published by BuzzFeed News indicated that the actual death toll, including medically vulnerable people who perished as a result of the storm-related disruption, could reach 700.
Top state leaders are trying to minimize the political fallout from the disaster. Texas Governor Greg Abbott said on Tuesday: “Everything that needed to be done was done to fix the power grid in Texas. “It is not true.
Abbott has pretended to sign a pair of bills aimed at solving the state’s electricity crisis. Measures require the weathering of infrastructure, an emergency warning system, better coordination between state regulators and changes in the management of the PUC and the Electric Reliability Council of Texas. But the state did not go far enough to avert another disaster. The Texas network is still vulnerable and the disaster that occurred in February could repeat itself next winter. Heck, the state could face blackouts this summer because the state’s energy-only electricity market structure still does not provide an incentive to build and maintain sufficiently reliable capacity. In addition, the state has not gone far enough in requiring natural gas producers to alter their infrastructure. And as Jolly Hayden of Austin-based consulting firm GDS Associates pointed out in March, the state has not done enough to “develop a more granular load reduction planWhich would allow utilities and ERCOT to reduce demand for electricity more selectively, a measure that would allow critical buildings (fire stations and hospitals) to have electricity while cutting off electricity to customers less important.
Now let me explain why the Feb. 16 ordinance was so disastrous, and why it likely cost state taxpayers some $ 26 billion more than they should have paid for the electricity they had to pay. ‘they used.
On June 1, just after the adjournment of the Texas Legislature, a study by London Economics International was released. The study, which was funded by Vistra Corp., one of the state’s largest power producers, found that ERCOT held its price of $ 9,000 per megawatt hour in place for too long during the storm week. He concluded that the wholesale price was $ 6,578 per megawatt hour too high and it stayed too high for about 80 hours. In addition, keeping the price at $ 9,000 did not provide more power to the grid, which former ERCOT CEO Bill Magness argued during an “urgent board meeting” on February 24.
Although the LEI report does not provide an estimate of the total cost, calculating the excess cost to subscribers for overestimated electricity is straightforward. During that 80-hour period, the demand for electricity in Texas was approximately 50,000 megawatts. So a simple multiplication – $ 6,578 x 80 hours x 50,000 MW – shows that Texas consumers were overcharged by about $ 26.3 billion due to the inattention or incompetence of law enforcement officials. PUC and ERCOT.
This figure of $ 26.3 billion is much higher than an earlier estimate of the incremental costs. In March, Potomac Economics, the independent market observer for the PUC, recommended that the state retroactively reduce the wholesale price of electricity for part of the frost week. He put the amount of the overcharge to about $ 16 billion.
Whether the correct number is $ 16 billion or $ 26.3 billion, why has this multibillion-dollar mistake not gained more attention in the Texas legislature? One of the more plausible explanations is that Abbott didn’t want this attention. The president of the PUC during the crisis – and the one who signed the February 16 ordinance mentioned above – was DeAnn Walker. Walker was appointed to the PUC by Abbott. Her work before the PUC was that of Abbott’s senior policy advisor. So any closer examination of Walker’s actions during Freeze Week gives Abbott a bad rap.
The additional costs bring us to the figure of $ 37.7 billion. The estimate of excess energy costs could be too high or too low. It includes the $ 26.3 billion in excess electricity prices incurred during the week of February 15 and the total amount that taxpayers will have to pay for some $ 8.6 billion in bondswhich will be issued to save natural gas utilities and electricity providers who were manhandled during the energy crisis.
Of this $ 8.6 billion, approximately $ 4.5 billion will be issued to raise money for natural gas utilities which lost hundreds of millions of dollars during the storm, $ 2 billion in bonds will be used by electricity cooperatives, and up to $ 2.1 billion will be used. by retail electricity providers. If the state issues $ 8.6 billion in bonds at 3% interest and they are repaid over a 20-year period, the final cost to Texas taxpayers will be approximately $ 11.4 billion. dollars. This sum will be collected by adding a royalty of several dollars per month to the invoices of ERCOT taxpayers.
As I explained in a February 28 post in these pages, it has been clear since the end of the storm that Texas taxpayers – and especially low- and middle-income consumers – would ultimately be forced to pay the costs. higher after the storm. . It’s also increasingly clear that deregulation of the Texas electricity market has been a mixed bag for consumers. Yes, deregulation may have resulted in lower electricity prices in the state for a few years. But now a lot of those savings are wiped out. As a longtime Austin lobbyist told me yesterday, “cheap energy that is unreliable is not cheap”.