» With repricing measure stalled, CPS banks on ERCOT lawsuit.
Legislative measure to reprice freeze costs is likely dead after action by House speaker
CPS Energy’s hopes that state lawmakers would cut the utility’s bill from February’s power crisis were likely dashed after Texas House Speaker Dade Phelan last week put on ice a measure that would have repriced electricity that CPS bought at sky-high prices.
With a legislative fix all but dead, CPS is hanging its hopes on the lawsuit it filed March 12 against the Electric Reliability Council of Texas, the state grid operator.
Some experts expect that effort to hit a wall, too.
The issue is whether CPS has to pay about $350 million for power it bought off the statewide grid during Winter Storm Uri when the utility’s power plants weren’t fully functioning because of the extreme cold.
City-owned CPS argues that ERCOT executives mistakenly set electricity market prices at the maximum $9,000 per megawatt hour on Feb. 18 and 19, the last two days of the historic winter storm. The price for that same amount of power usually is about $30.
In its lawsuit, CPS said there was enough power statewide by Feb. 18 to meet demand, alleging that the high price wasn’t necessary.
CPS officials did not respond to questions about the lawsuit or the House’s decision on the repricing measure.
Last week, the Texas Senate rushed through a bill that would have repriced the electricity sold during the 32-hour window on
Feb. 18 and 19.
But Phelan, a Beaumont Republican, said in a statement that repricing would “be an extraordinary government intervention into the free market” that would “have major consequences for both residential and commercial customers going forward.”
Rep. Trey Martinez Fischer, Dsan Antonio, on Thursday tried to bring the repricing measure to the House floor for a debate. Phe
lan, whose East Texas district is not a part of the ERCOT grid, shot down Martinez Fischer’s effort.
“I don’t know if Speaker Phelan feels the pressure of what it’s like for people to not have power,” Martinez Fischer said. “Decisionmakers who weren’t impacted by this storm are the ones making decisions.”
Lawmakers in both chambers hoped they could bridge the divide and deliver a bill to Gov. Greg Abbott by Friday.
But after the House recessed Thursday without addressing the repricing issue, it appeared time had run out. Under ERCOT rules, lawmakers had about 30 days, or until the end of the day on Friday, to adjust electricity prices before the transactions were settled.
Legal experts have said reducing the dollar amounts of the deals after the Friday deadline would raise complex legal questions and possibly violate contract law.
“For people in San Antonio, I guess we’re just getting thoughts and prayers,” Martinez Fischer said. “We’re not getting meaningful action.”
The $9,000 price for power kicks in when demand for electricity statewide gets close to exceeding the supply of available power. The high price is meant to encourage generators to produce and sell as much power as possible on the wholesale market when electricity is scarce.
But Potomac Economics, a firm hired by the state to act as an independent market monitor for ERCOT, said the grid operator set prices higher than they should have near the end of the storm.
“We have proof of a billing error, and it needs to be corrected,” said Sen. José Menéndez, D-san Antonio. “You’re handing the bill to everyday senior citizens and people on fixed incomes, telling them ‘You’re going to have to pay for this because the state ... made a mistake.’”
But ERCOT’S outgoing
CEO Bill Magness, terminated in the wake of the power outages, said in testimony to House lawmakers Tuesday that ERCOT’S decision to keep the prices at the maximum was intentional.
The grid wasn’t yet stable by Feb. 18, and the grid operator wanted to keep the price at the highest level to ensure there would be enough power available as more homes and businesses began using electricity again, Magness said.
“We looked at our load forecast ... and what those models showed, what that forecast showed, is we were going to be right back in rotating outages on Thursday morning, the 18th,” Magness said. “The supply (of energy) that was available, according to the model, was going to be exceeded by the demand.”
Still, lawmakers should have followed recommendations from Potomac Economics, the firm advising ERCOT, Martinez Fischer said.
“I take Magness at his word. That’s what he saw in real-time,” Martinez Fischer said. “The Legislature had the wisdom to create an independent market monitor so that we could always have the ability to review the play. The review says ‘Whatever real-time decision was made was the wrong decision, to the tune of billions of dollars.’”
Not a slam-dunk
The question of whether ERCOT made a price-setting mistake during the crisis is at the heart of CPS’S lawsuit. There’s also the question of whether ERCOT is the most appropriate target of CPS’ lawsuit.
On Friday, the Texas Supreme Court punted on the question of whether ERCOT does not have sovereign immunity, a legal principle that protects a government agency from being sued for doing its job.
For now, ERCOT, a nonprofit private corporation overseen by the Legislature and the Public Utilities Commission, has sovereign immunity. However, CPS claims in its lawsuit that ERCOT’S violations are not protected by the rule.
Even if the state’s Supreme
Court rules against ERCOT on the question of immunity, it’s unclear whether CPS’ allegation against ERCOT would hold up.
ERCOT “breached” its market agreement “when it failed to implement its protocols in a way to ensure the integrity of its system,” CPS alleges in its suit. ERCOT also erred in its “wrongful decision not to enforce winterization,” the utility adds.
But ordering utilities to prepare their plants for days of freezing temperatures was never ERCOT’S responsibility, said David Spence, a professor of energy law at the University of Texas at Austin.
“I don’t think ERCOT is the primary responsible party here,” Spence said. “ERCOT doesn’t have the power to order anybody to winterize.”
Instead, the PUC is responsible for regulating utilities and the power market in Texas. CPS officials have said the PUC is implicated in the lawsuit, which also names PUC Commissioner Arthur D’andrea — who resigned under pressure last week — as a defendant.
But D’andrea was named in the lawsuit as an ex officio member of ERCOT’S board of directors, not as a PUC commissioner.
It’s likely that CPS is targeting ERCOT in its lawsuit rather than the PUC because it would be more difficult to extract monetary damages from the state’s utilities regulator, an Austin energy attorney said.
CPS contends that ERCOT “breached the handling of ... Weatherization Plans, and Winter Weather Preparedness, as it received warnings of the Winter Storm well in advance of same and failed to take reasonable precautions.”
Yet CPS’ power plants were not adequately weatherized for the freeze.
The utility’s generation fleet operated at 85 percent capacity throughout the storm, with components at some plants freezing or not working properly. That forced CPS onto the spot market to buy power, where it incurred the huge costs that it’s suing ERCOT to reduce.
Other utilities, such as Austin Energy, oppose repricing the storm-related transactions.
Austin Energy’s power plants kept operating during the deep freeze. The utility was able to sell much of its power into the wholesale market at the maximum price, and possibly came out of the storm with a profit.
Repricing would have cost Austin Energy and other utilities that sold power during the storm.
Statewide disaster
Without repricing, CPS and others utilities say, the financial impact will set off a cascading disaster through the statewide power system.
CPS said it expects 22 power companies in ERCOT to go out of business as a result of the bills for power — as well as natural gas — that they racked up during the storm. As more companies go out of business — the Brazos Electric Power Cooperative and the electricity retailer Just Energy have filed for bankruptcy — the companies still operating have to pay off the debt of the firms that have folded.
House lawmakers filed bills Thursday to address the crisis, including measures that would require power plants to better prepare for extreme weather and another that would reform ERCOT’S board. But none of the bills addressed the issue of electricity prices from last month.
Most likely, lawmakers will solve the financial crisis facing Texas utilities by pooling the losses, issuing bonds to pay power generators that are owed money and then having ratepayers pay off the debt over decades, UT’S Spence said.
But issuing bonds to pay the bills would just spread out the pain, Martinez Fischer said. “Even to securitize this debt and to create some sort of debt structure to fix this, it still comes out of the pockets of taxpayers,” he said. “I don’t know if that’s a greater insult, or a greater injury.”