In Wake Of Blackouts, Texas Ratepayers May Be On The Hook For $12 Billion

March 28, 2021

The invoices and proposals are still being sorted, but it appears that Texas ratepayers may eventually be on the hook for about $12 billion in electricity-related costs due to the February snowstorm and blackouts that killed 111 people and caused tens of billions of dollars in damages.

On March 24, the Electric Reliability Council of Texas released data showing that it is still owed about $2.9 billion from 14 counterparties. That sum, which ERCOT calls the “current estimated cumulative aggregate short pay amount” is the total payments due from 14 entities, the biggest of which is the Brazos Electric Coop, which owes about $1.86 billion. That coop filed for Chapter 11 bankruptcy. Another coop, the Rayburn County Electric Coop owes about $574 million, and Entrust Energy, a retail electric provider, owes ERCOT about $290 million.

But the $2.9 billion sum reflects only part of the shortfall. ERCOT has previously revealed that diverted about $800 million in funds that were due to be refunded to some of its counterparties to pay for its current obligations. Thus, ERCOT appears to be short roughly $3.7 billion that it cannot pay. The grid operator has previously said that any shortfalls in payments made by the entities participating in the market will have to be absorbed by the other participants.

Fixing the grid so ERCOT doesn’t have another blackout will also likely cost big bucks. Last week, the Dallas Morning News and other news outlets reported that Berkshire Hathaway Energy is offering an $8.3 billion deal to state leaders under which the company would build thousands of megawatts of new natural gas-fired generation capacity as well as new gas storage. The entity would be called the Texas Reliability Corp. The deal will require customers on ERCOT’s system to “pay fees to fund the new project, and the state would have to make guaranteed payments for the extra capacity.”

According to the Morning News, the new company would build about 10,000 megawatts of new generation capacity in Texas. It also reported that Berkshire claimed the investment would ”protect the ERCOT grid from future extreme weather events and would limit power outages to three-hour intervals.”

Summing ERCOT’s $3.7 billion shortfall with the $8.3 billion deal offered by Berkshire Hathaway Energy BRK.B +0.5% shows the state’s ratepayers could be facing $12 billion in new charges due to the blackouts.

To be clear, that  $12 billion figure is speculative. It doesn’t include some $16 billion that Texas ratepayers were overcharged when ERCOT kept market prices too high during the power crisis. The $8.3 billion deal being pitched by Berkshire Hathaway would require approval from the Texas Legislature as it would create a capacity market in ERCOT which currently has an energy-only market. Further, none of the political leaders in Austin have said they will support the deal.

Nevertheless, the $8.3 billion figure provides a ballpark estimate of the challenge facing Texas politicians who are scrambling to come up with a plan that can assure voters that they won’t be hit with another blackout. Further, it provides an idea of the additional reserve generation capacity that may be needed in the ERCOT market. ERCOT has been criticized for years for the decline in its reserve margin, which is the amount of spare generating capacity needed to assure reliability. In 2013, the North American Electric Reliability Corp. warned ERCOT that its reserve margin was too low and needed to be increased. Last July, Jason Isaac of the Texas Public Policy Foundation wrote a piece warning that the state’s reserve margin was too low and that with “such a slim reserve margin, unplanned power plant outages or just days with little wind or sunshine could put us into a real emergency – this time with blackouts.”

Of course, we know that ERCOT ignored the warnings about its too-low reserve margin. We are also learning a handful of players in the Texas market made substantial profits. Austin Energy, the city-owned electric utility in Austin (and my electricity provider) has said it made $54 million during the power crisis.

About six weeks have passed since Winter Storm Uri knocked the Texas grid cattywampus. The winners and the losers from that storm are slowly emerging. Ratepayers will be in the latter category.

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