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Texas electric industry financial crisis to grow as more costs surface

03/04/2021 | 05:14pm EDT
FILE PHOTO: The Electric Reliability Council of Texas (ERCOT) command center in Taylor

(Reuters) - The Texas electricity market faces "insurmountable distress" as more gas and service bills come due, power industry officials said on Thursday at a hearing into financial fallout from the state's February blackout.

High prices for emergency fuel and power saddled the companies that sell, transmit and generate electricity in the state with about $47 billion in storm-related costs. Those costs have led to one bankruptcy and put two retail providers out of business in the state.

Consumers facing bills for broken water pipes and food losses will see higher prices as costs get passed down through rate increases or fewer choices in providers, officials said. Future spending on weather defenses and grid linkages could add billions of dollars to the recovery. San Antonio's city-owned utility expects about $1 billion in extra costs.

"The market is facing a financial crisis and it's a very severe financial crisis," Catherine Webking, executive director of an industry lobby group told state lawmakers at a hearing in Austin on Thursday. "You'll see more and more financial distress that is insurmountable," as bills for natural gas and financial collateral come due in coming weeks, she testified.

Vistra Corp., one of the largest utilities in Texas, forecast that buying natural gas at high prices triggered by the storm and selling power at fixed-rate prices will cut its profit by between $900 million and $1.3 billion, Vistra senior vice president Bill Quinn testified.

GAS SHORTAGES

Vistra's power plants ran between 20% and 30% below capacity because of a lack of natural gas, Quinn said. "Getting gas to them was a challenge," he said, noting all four of the utility's gas providers could not meet their fuel commitments.

On Wednesday, grid operator Electric Reliability Council of Texas (ERCOT) disclosed 12 energy companies and two municipal utilities were overdue on $2.21 billion for power and services during February.

Part of the deficit was covered by tapping internal grid accounts, but the rest eventually will be passed along to all grid users, straining those that have covered their initial bills, an official said.

ERCOT has little means to cover the charges, said Kenan Ogelman, the grid's vice president for commercial operations. It collects money from suppliers and pays generators, typically in four days. Texas may have to consider providing a financial backstop during future emergencies, he said in response to a question.

"This event has demonstrated some consideration for a grid instrument," Ogelman said. Multi-billion dollar service charges have led to collateral calls on top of the fuel bills. The short period to pay both has led to "cascading concerns," he said.

The decision to hold power rates high to keep power plants running even after the emergency passed was management judgment, he said. "In hindsight, it would look like that wasn't needed. In real-time it looked like it was needed," Ogelman said.

ERCOT normally uses a bid system to set prices but officials decided to set a $9,000 per megawatt hour charge that was about 450 times the price before the storm. It held at that $9,000 level for about 90 hours, leading to 10s of billions of dollars in charges over five days.

The state Public Utility Commission (PUC) on Friday is expected to vote on a proposal to claw back some charges for standby power and other services that were not provided. It could save grid users about $1.5 billion, Carrie Bivens, the state's independent market adviser told the PUC in a letter on Thursday. She previously estimated the storm would push up state-wide power costs by $47 billion.

(Reporting by Gary McWilliams; Editing by David Gregorio)

By Gary McWilliams


© Reuters 2021
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