While Winter Storm Uri has been over for almost two weeks, the financial storm it created is just beginning. In the Texas electricity market, ERCOT, retail energy suppliers and end-use customers alike are just now understanding the profound financial impact the unprecedented storm has had on Texas. This has led to multiple suppliers announcing significant losses, some suppliers defaulting, and various regulatory and legislative proposals being considered.
Below is a summary of the major happenings that have taken place over the last two weeks in the ERCOT market.
TEAM Petition to Correct Wholesale Prices Still Pending
As previously reported in our February 23rd market update, the Texas Energy Association for Marketers (TEAM) has filed an emergency petition with the Texas Public Utility Commission requesting a revision to real-time market prices. Specifically, TEAM is requesting the PUCT to instruct ERCOT to remove the administrative price adders that set prices at the high offer cap of $9,000/MWh effective February 18 at 1:05 am and revise real-time prices accordingly. This petition is still pending.
Texas PUC To Consider Keeping $9,000/MWh Price Cap for Summer 2021
During Winter Storm Uri, ERCOT real-time prices were at or very near the High System-Wide Offer Cap (“HCAP”) of $9,000 per MWh for most the event. However, ERCOT has a protocol that, based on certain events, revises down the HCAP to the Low System-Wide Offer Cap (“LCAP”) which is the greater of $2,000 per MWh or 50 times the natural gas price index. During the winter storm event, the mechanism to change the HCAP to the LCAP was triggered. The resulting LCAP would not have been $2,000 per MWh but instead would have been a much higher price based the calculation of 50 x the natural gas index. Some have estimated the LCAP would have been above $15,000 per MWh. In an effort to avoid LCAP prices higher than the HCAP, the Texas PUC on Monday, February 15th, ordered a suspension of the LCAP and directed ERCOT to use the HCAP as the ceiling price for real-time prices.
However, once the mechanism that triggers the LCAP occurs, it remains in effect for the balance of the year. This effectively means that real-time prices are now capped at $2,000 per MWh for the balance of the year (assuming natural gas prices do not exceed $40/MMBTu.) This has left the Texas PUC concerned about whether there will be enough economic incentive for generators to have all their capacity available to meet the peak summer demand. The PUC will be reviewing at an upcoming meeting whether to suspend the trigger mechanism and allow the system-wide offer cap to return to the HCAP.
The effect of the LCAP currently being in place has caused the summer forward prices to decline. If the system-wide offer cap is revised to the HCAP we believe forward summer power prices will increase.
Texas PUC Claws Back Payments for Ancillary Services Not Provided
Between February 14 and February 19, there was a high demand for ancillary services on the ERCOT grid. However, during this timeframe, numerous market participants who had committed to provide ancillary services were unable to do so due to forced outages or derations. Normally in these instances, ERCOT would have assigned a “failure to provide” notice to the unprovided ancillary services. However, this task was not completed during the winter event thus resulting in payments for services not provided.
On March 1, 2021, the Independent Market Monitor of ERCOT recommended the failure to provide notice be retroactively applied, and today, the Texas PUC formally adopted this recommendation. This will result in the total costs of ancillary services ERCOT is seeking collection to be reduced.
Independent Market Monitor Recommends Repricing All Day-Ahead Ancillary Services
On March 1, ERCOT’s Independent Market Monitor (IMM) recommended repricing all day-ahead ancillary services clearing prices for the period of February 15 through February 20 and capping them at the $9,000 per MWh System-Wide Offer Cap that was in place for real-time energy. During this time period, prices for certain day-ahead ancillary services reached $20,000 per MWh.
On Wednesday, March 3, the Texas PUC said this recommendation will be further considered during their next open meeting on Friday, March 5.
Texas PUC Encourages Suppliers to Restart Customer Invoicing
On February 19, the Texas PUC had expressed concern regarding retail invoices being issued to consumers using estimated meter reads. Estimated meter reads are common with smaller electricity meters and do not reflect the actual consumption used. If invoices are based on estimated meter reads, they would not accurately reflect customer outages or curtailments.
However, on March 3, the PUC noted it was informed by the transmission & distribution utilities that accurate meter readings have now been provided to retail suppliers and encouraged suppliers to begin invoicing customers.
Brazos Electric Power Cooperative Files for Bankruptcy
On March 1, Brazos Electric Power Cooperative filed for bankruptcy. Brazos Electric said it accumulated $2.1 billion in bills during the winter event. The cooperative serves 16 member distribution co-ops that collectively serve more than 1.5 million Texans, and is one of the largest electricity cooperatives in the state.
In a press release, Brazos Electric stated, “As a result of the catastrophic failures due to the storm, Brazos Electric was presented with excessively high invoices by ERCOT for collateral and for purported cost of electric service, payment of which was required within days. As a cooperative whose costs are passed through to its members, and which are ultimately borne by Texas retail consumers served by its Member cooperatives, Brazos Electric determined that it cannot and will not foist this catastrophic financial event on its members and those consumers.”
Resignations Abound Within the Regulatory Community
In addition to the financial fallout from Winter Storm Uri beginning to unfold, the political fallout is also underway. There have been numerous resignations of key leaders within the industry and calls for more resignations continue. Most notably is the Chair of the Texas PUC, DeAnn Walker, who resigned on Monday, March 1st, and Bill Magness, the CEO of ERCOT, who was given a 60-day termination notice by the ERCOT Board on Wednesday, March 3rd. Additionally, seven ERCOT board members have resigned.