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Texas House panel appears reluctant to reprice ERCOT storm market

Highlights

Senate passes bill to order repricing

'Winners and losers' on both sides

Chairman defends reliability motives

Houston — Texas House of Representative members grilled electricity market officials March 16 over a bill that passed quickly through the state Senate that would require the Electric Reliability Council of Texas to reprice electricity for 32 hours at the end of the mid-February energy emergency alert.

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During a House State Affairs Committee meeting, representatives showed concern both for and against the proposal to reprice $16 billion of energy transactions on the ERCOT real-time market. Potomac Economics, ERCOT's independent market monitor, has described this amount as the market value of power traded from midnight Feb. 18 through 9 am Feb. 19, when ERCOT erroneously set the real-time energy price at the systemwide cap of $9,000/MWh after ERCOT stopped ordering rotating blackouts at 11:55 pm Feb. 17.

While $16 billion is the value of the energy transactions, said Carrie Bivens, who directs Potomac Economics ERCOT IMM office, the net effect of correcting the pricing would be to shift $4.2 billion in costs among the market participants, after taking into account self-supply and forward hedging positions at the corporate level.

The issue before the committee was Senate Bill 2142, which passed through the state senate on March 15, the same day as its filing. The vote was 27-3 in favor. As an emergency bill, it requires a two-thirds majority to pass through both houses before it can be signed into law.

But the House State Affairs Committee's members were more evenly divided on the issue.

"The bottom line is that the public pays, don't they?" state Rep. Todd Hunter, a Republican from Houston, asked Bivens at the beginning of the March 16 hearing.

Bivens said investors may absorb some of the costs in some cases, but Hunter he expects "all of our folks are going to be getting higher bills" as a result of the extreme pricing during the Feb. 14-19 winter storm.

As a consumer, Bivens said she is on a fixed-rate electricity plan, but she expects the next offer to be higher as a result of the mid-February event, which is currently blamed for the death of 57 people – 25 in Houston's Harris County alone, according to the Texas Department of State Health Services.

In general, net buyers in the real-time market are likely to benefit most from repricing, Bivens said, "primarily retail electric providers, munis and co-ops."

'Winners and losers'

But state Rep. Eddie Lucio III, a Democrat from Brownsville, said certain public power officials in his district have told him that they had prepared for the storm, but "if we adjust the prices, they believe that with their cost to produce, they're going to have to figure out how to absorb that," Lucio said. Therefore, those costs will be passed on to consumers, Lucio said.

Natural gas prices in Texas hit records during the storm -- $400/MMBtu at the Houston Ship Channel, for example.

"There's not only going to be winners and losers on the business side of it, but there's going to be winners and losers on the consumer side, as well," Lucio said.

Bivens acknowledged that energy derivative markets, such as that operated by the Intercontinental Exchange, have settled power transactions for the Feb. 14 storm week.

"We recognize that there are large costs on both sides of this change" advocated by the IMM, Bivens said, but Potomac Economics continues to recommend repricing, so as to send the correct market signal.

'Good luck with a jury'

State Rep. Richard Pena Raymond, a Democrat from Laredo, said correcting the last 32 hours of the $9,000/MWh period represents a small amount, compared with the entire week of pricing, in which the market value of power traded totaled about $46 billion – several times the usual week's power spending.

From Raymond's perspective, the question is, "Do we allow this illegal $4.2 billion tax to be passed on to Texas taxpayers or not?"

To companies that benefited from the extra $30 billion, Raymond said he would ask, "Isn't that enough?"

"If we take this action, and somebody out there wants to sue, they can sue," Raymond said. "Good luck with a jury on that."

Chairman questions proposal

In contrast, state Rep. Chris Paddie, a Republican from Marshall who chairs the State Affairs Committee, asked questions that would signal opposition to repricing.

For example, he pointed out that ERCOT and the Public Utility Commission of Texas has maintained that setting the systemwide power price at the $9,000/MWh through 9 am on Feb. 19 was a conscious decision designed to ensure enough capacity remained online – and enough price-responsive industrial demand remained offline – through the Feb. 18 and Feb. 19 morning peak demand hours.

But Bivens said ERCOT had plenty of reserves most of that time, and "industrial load makes decisions all the time about whether they are off or on without" ERCOT's administrative pricing at elevated levels, and reliability is maintained.

While acknowledging that ERCOT's management had good intent and a challenging situation in deciding to continue out-of-market high pricing after rotating outages ended, Bivens said, "We still come down on the other side [of the issue]."

Paddie also announced that Texas Attorney General Ken Paxton has reached an agreement with Griddy Energy, a company that resells power indexed to wholesale power prices to retail customers. Paxton had sued Griddy under the Texas Deceptive Trade Practices Act on behalf of 24,000 customers with $29.1 million in unpaid electric bills from the Feb. 14 winter storm.

Paxton acted to release Griddy's former customers from Griddy's bankruptcy, which was filed March 15, Paddie said. As part of the agreement, Paxton agreed to abate the deceptive trade practice lawsuit.