New PUC chair opposes crisis repricing
Market monitor’s recommendation to adjust 30 hours of high rates gets the cold shoulder
The Public Utility Commission’s new chairman said Friday that he opposed reversing the electricity pricing put in place during the recent power crisis, despite the conclusion by the state’s market watchdog that the emergency measure overcharged Texans by $16 billion.
During a PUC hearing, Arthur D’Andrea called recommendations to reprice more than 30 hours of trading in the state’s wholesale power markets as “dangerous,” arguing that buyers and sellers made good-faith decisions based on prices at the time — the state maximum of $9,000 per megawatt hour — and undoing them would hurt as many parties as it would help.
“You think you're protecting the consumer, and it turns out you’re bankrupting a co-op, or a city,” D’Andrea said. “They (market participants) did all sorts of things that wouldn’t be done if the prices were different. The results of going down this path are unknowable.”
At issue is an emergency order that the PUC issued on Feb. 15, directing the state’s grid manager, the Electric Reliability Council of Texas, or ERCOT, to lift prices to the state maximum to reflect the dire electricity shortages as the winter weather knocked generators offline. The goal was to provide all the incentives for generators to get back online and sell into the wholesale market.
But by Feb.17, supply, demand and weather conditions had improved enough that ERCOT should have ended the emergency order, allowing prices to fall below the state maximum, according to a report by the independent market monitor, a Virginia-based firm called Potomac Economics. Instead, ERCOT kept the emergency pricing in place until the morning of Feb. 19, saddling buyers with $16
billion in unnecessary charges, according to Potomac.
About $1.5 billion will be passed onto households and other end users, according to Potomac. How that might affect residential power bills will depend on retail electricity plans and providers, according to analysts. While a small share of retail customers with plans tied to wholesale prices have been hit with huge bills, others with traditional contracts might not see an increase.
NRG Energy, the state’s biggest retail electricity provider, has said that the power crisis won’t increase its customers’ bills.
Buyers vs. sellers
The question of whether to reprice the period recommended by the independent market monitor is already provoking sharp debate — one that appears to split along whether companies were buying or selling during the severe power shortages.
Retail power providers, who secure power for their customers from wholesale markets, have sharply criticized the PUC’s move to lift prices that were trading between $1,000 and $2,000 per megawatt hour early in the crisis to the $9,000 state maximum, with some describing it as market manipulation.
In a memo filed with the PUC, the Coalition of Competitive Retail Electric Providers, a trade group, urged the PUC to adopt the independent market monitor’s recommendation and reverse the emergency pricing.
“We believe this action is required by the Public Utility Commission of Texas to avoid irreparable harm to the Texas electric market, its participants, and the public,” the coalition said, “while the Commission, policymakers, and other industry stakeholders consider
longer term solutions to what is now a financial crisis.”
But the Houston merchant power company Calpine, the nation's biggest natural gas-fired generator, argued that repricing the period would destabilize the market “and harm those market participants that took prudent actions to protect themselves.” Analysts have said some retail providers are paying for the extra risk they took by relying too much on the wholesale spot market, instead of securing most of their power through long-term contracts.
“Retroactive, outcome-determinative decisions that pick winners and losers after the fact without a record on which to make such decisions greatly diminishes
investor confidence in the market,” Calpine said in a letter to the PUC, “and acts as a significant disincentive to participate in the future.”
D’Andrea has defended ERCOT’s administration of the emergency order. In testimony before the Legislature on Thursday, he said the grid manager, faced with persisting cold, remained nervous that if it lowered prices, generators would lose incentive to stay online and the public would face more outages.
“I know at the time it was like, this is creating a mess, but we had to have the power on,” he told state representatives. “Everything else took a backseat to that.”
D’Andrea said Friday that he's open to changing his mind on reversing
the emergency pricing, but will consult with state political leaders first. “On my part, I don’t intend to make any huge decisions without talking to all of them first,” he said.
It’s unclear when or if the PUC commissioners will vote on the emergency pricing issue.
The panel, which usually has three members, is down to two with recent resignation of the former chairwoman, DeAnn Walker.
A spokesman for the PUC did not answer a question about whether the commission would eventually vote on the matter.
Not easy
Experts have said that repricing trades over more than 30 hours — prices settle every 15 minutes in the wholesale market — would be complicated and controversial. The PUC and ERCOT have rejected other efforts to overturn wholesale pricing errors in the past.
Last year, they shot down a request from Aspire Commodities of Houston to correct a price surge caused by a transmission error made by Calpine.
ERCOT and the PUC rejected a proposal to reprice a 15-minute interval even though the error caused consumers, industrial consumers, power traders and retail electric providers millions of dollars in losses, according to Aspire