Higher rates are coming to all of us after the Texas Blackout
All Texans will pay more for electricity following the Texas Blackout, so the critical question is whether we will get a more reliable grid for our hardearned money.
The Texas Blackout destroyed billions of dollars in capital and led some companies into bankruptcy. Damage from frozen pipes, water breaks, medical emergencies and other accidents triggered by the lack of electricity could eventually raise the total losses to $45 billion, according to some estimates.
The electric companies and utilities which suffered losses will eventually recover that money from you and me through higher electricity rates and prices for goods and services.
Texas political leaders, meanwhile, are offering sacrificial bureaucrats to slake the blood lust of 4 million home and business owners who went without power on the four coldest nights in decades. But if we’re honest, these folks were just following orders
when the grid fell apart.
Lawmakers and the governor should pass meaningful legislation to prevent another total grid and market failure like we saw last month. But I attended the hearings in March 2011 following a similar blackout and watched corporate lobbyists slay the enthusiasm for reliability safeguards.
The financial fallout from the 2021 blackout is only beginning to become apparent. Retail electric providers that managed to keep the lights on when prices skyrocketed from $30 a megawatt-hour to $9,000 a megawatt-hour came up $1.6 billion short when the Electric Reliability Council of Texas sent them bills.
Texas’ oldest and largest electric cooperative, Brazos Electric Power Cooperative, declared bankruptcy on Monday, reporting $4.5 billion in debt. Brazos Power supplies electricity to 1.5 million customers from Waco to Cleburne and Lubbock to Corinth and is paying a high price for not blacking out customers.
In total, ERCOT sent out bills totaling $20 billion for the electricity that remained online
during the blackout. But since most electricity providers never imagined prices would remain $9,000 a megawatt-hour for four consecutive days, none were financially prepared.
Moody’s, the corporate rating service, warned investors that every company doing business with ERCOT is at risk. Public power utilities will have to draw down cash reserves, take out new loans and open lines of credit “to cover significant natural gas and ERCOT market purchases.”
“Some will seek to recover costs over a multiyear period through the issuance of longterm debt,” Moody’s added. “Some utilities will spread cost recovery over multiple years instead of immediately passing higher rates on to customers.”
Denton files suit
ERCOT’s rules anticipated that some retail providers might fail to pay their accounts. They have a protocol that allows the nonprofit to raise the bills of customers to cover those losses. Denton’s cityowned utility filed a lawsuit refusing to help ERCOT make up for the bankruptcy of others.
“While the City is ready and willing to pay its own debts, ERCOT now expects it to pay the debts of other market participants,” the suit says. “Cities are not and cannot be responsible for covering the debts of third parties who were undercapitalized and undercollateralized.”
If the suit fails, then ERCOT will expect people like me who went four days without electricity to pay the bills of those who did have power but whose utility or retail electric provider went bankrupt and failed to pay ERCOT.
While this feels like an insult added to injury, all of us are going to pay for those who had light and heat through higher rates in the years to come.
We’ll pay more whether or not the Texas Legislature takes steps to make the grid more reliable. Right now, politicians are excited about mandating weatherization and subsidizing backup generators, but they have yet to vote on any legislation and industry representatives are not interested in new regulations.
In February 2011, the last time a polar vortex triggered blackouts due to poorly prepared powerplants and pipelines, I was the state political editor for the Associated Press. I attended the hearings where many of the same players who testified last week reported the same problems with the same system a decade ago.
Back then, as now, the governor, lieutenant governor and lawmakers were shocked, shocked there was gambling going on in ERCOT. They could not believe powerplants were unprepared, that blackouts shut down the compressors on pipelines that provided natural gas to the other powerplants, creating a cascade of failure.
By the time the Legislature was wrapping up in May 2011, public anger had subsided, and industry lobbyists had spun their magic: no new regulations. A decade later, here we are again, with no significant legislative changes from 2011.
There is still nothing to keep a blackout or political inaction from happening again. We’ll see what happens when session wraps up in May, but don’t count on any real progress.