ERCOT has remained in the headlines since the February storm rocked power markets across the country and the dust has yet to settle. In this blog, we’ll discuss what we have learned since the February blackouts, and discuss the possible downstream effects of the event.
ERCOT currently has a shortfall of around $3 billion dollars following the February Storm (Kleckner, 2021a). These include Brazos Electric, Rayburn Country Electric, Entrust Energy, Hanwa Energy, Griddy Energy, and more. The full table of payments by short-paying invoice receipts as of March 24th can be found on the ERCOT website. ERCOT has utilized $800 million in CRR auction revenue funds towards the aggregate short pay amount (ERCOT 2021). According to the Wall Street Journal, ERCOT is also seeking support from financial institutions (Gladstone and Scurria, 2021). As a result of the event, Brazos Electric declared bankruptcy on March 1st under chapter 11 (The National Law Review 2021). The electric retail company, Just Energy, also declared bankruptcy (Kleckner, 2021b). CPS Energy (Morehouse 2021a) and The City of Denton (Kleckner, 2021b) have both filed lawsuits against ERCOT. However, the Texas Supreme Court ruled in March that it did not have jurisdiction to resolve an active dispute related to another case as to whether or not the grid operator can be sued (Fox ,2021).
Not unexpectedly, investigations into the event have begun and will continue. In one of these, the Texas Independent Market Monitor found there were potentially $16 billion of overcharges during the event, arguing that ERCOT kept prices at the $9,000/MWh price cap for 32 hours longer than necessary (Ferman and Mulcahy, 2021). The finding has led to calls for repricing of those 32 hours. Those in favor of repricing, including Lt. Gov., Dan Patrick, argue that it will provide relief to customers who incurred large energy bills. Other experts and government officials warn that repricing might worsen the situation and will not likely prove beneficial to consumers (Ferman and Mulcahy, 2021).
The turmoil following the event has led to a massive overhaul of ERCOT and Texas Public Utility Commission (PUC) members. ERCOT CEO, Bill Magness, was relieved of his duties as a result of the events, and seven of the grid operators’ board members resigned. After Governor Abbot requested he do so, the PUC chair, Arthur D’Andrea, also resigned. He was the last PUC Commissioner who had not resigned due to the events (Morehouse 2021b).
Following the blackouts, quite a bit of finger-pointing has taken place. Some say that the increasing dependence on renewable generation was the main contributor (Mann 2021). Others point out that thermal generation units also came in with much less supply than forecasted (Blanchard 2021). A lack of winterizing renewable and thermal generation infrastructure, and a failure to adhere to cold weather preparedness guidelines issued by FERC and NERC following extreme weather events in 2011, are also cited as a major contributing factor. Still, other experts assign blame to ERCOT’s market structure, which does not include a formal capacity market, a mechanism that is used in other markets to help ensure developers have the incentive to add capacity to the grid to ensure reliability standards are met (Mann, 2021).
The reality is that there will likely be no one definitive cause identified for the blackouts in Texas. Based on ERCOT’s Seasonal Assessment of Resource Adequacy (SARA), the ERCOT market should have had sufficient capacity going into the winter to withstand an extreme weather event. This weather event was much more severe than those contemplated in ERCOT’s resource assessment (Mann 2021). The weather did not just affect power infrastructure. Natural gas supply and transportation was also substantially impaired (Blanchard, 2021).
While it is difficult to determine precisely what went wrong in ERCOT in February, the issues at stake in the future include:
ERCOT market structure and the introduction of a capacity market to incentivize the development of further generating resources (Kleckner, 2021a)
ERCOT governing board restructuring (Kleckner, 2021b)
Weatherization requirements for generation and transmission (Kleckner 2021b)
Improved coordination between ERCOT, Texas PUC, and the Railroad Commission during weather events (Kleckner, 2021b)
Protections for residential customers, such as discarding variable rate products (Kleckner, 2021b)
Review of ERCOT planning and forecasting process (Kleckner, 2021a) to account for the likelihood of more extreme weather events
With a staff of market experts, you can count on Yes Energy to stay on top of any changes that are proposed or implemented in the ERCOT market. To learn more about Yes Energy, click here. Don’t forget to subscribe to our blog, and if you’d like to learn more about the events that have transpired in ERCOT, you can check out the resources we consulted while creating this summary below.
Blanchard, C. (2021) ‘The Great Texas Blackout Was Caused by a Failure to Ensure Supplies of Natural Gas’, Texas Monthly [online], March 3, 2021, available: https://www.texasmonthly.com/news-politics/texas-blackouts-natural-gas/ [accessed March 23, 2021].
ERCOT. (2021). M-A032421-01 Payments by Short-Paying Invoice Recipients and Estimated Cumulative Aggregate Short Pay Amount [online database], March 24th, 2021, available: http://www.ercot.com/services/comm/mkt_notices/archives/5352 [accessed March 24, 2021].
Ferman M. and Mulcahy, S. (2021) ‘Experts fear reversing electricity prices from winter storm could make things worse’, The Texas Tribune [online], March 19, 2021, available: https://www.texastribune.org/2021/03/19/texas-electricity-prices-winter-storm/ [accessed March 23, 2021].
Fox, K. (2021) Court issues critical decision over ERCOT’s ability to be sued [print and television], ABC13 Eyewitness News, March 19, 2021, available: https://abc13.com/ercot-can-i-sue-ruling-texas-supreme-court/10432522/ [accessed March 22, 2021].
Gladstone, A. and Scurria, A. (2021) ‘Texas Grid Operator Discussed Financing With Goldman as Energy Buyers Balk at Payment Shortfall’, The Wall Street Journal [online], March 12, 2021, available: http://www.ercot.com/services/comm/mkt_notices/archives/5352 [accessed March 26, 2021].
Morehouse, C. (2021a). ‘CPS Energy sues ERCOT, citing one of the ‘largest illegal wealth transfers’ in Texas history’, Utility Dive [online], March 15, 2021, available: https://www.utilitydive.com/news/cps-energy-sues-ercot-citing-one-of-the-largest-illegal-wealth-transfers/596686/?utm_source=Sailthru&utm_medium=email&utm_campaign=Newsletter%20Weekly%20Roundup:%20Utility%20Dive:%20Daily%20Dive%2003-20-2021&utm_term=Utility%20Dive%20Weekender [accessed March 22, 2021].
Morehouse, C. (2021b). ‘Texas PUC Chair resigns, following pressure from governor, refusal to reprice $16B ERCOT overcharge’, Utility Dive [online], March 17, 2021, available: https://www.utilitydive.com/news/texas-puc-chair-resigns-following-pressure-from-governor-refusal-to-repri/596843/ [accessed March 22, 2021].
The National Law Review. (2021). ‘Case Notes: Brazos Electric’s Bankruptcy Filing’, The National Law Review [online], XI(85), available: https://www.natlawreview.com/article/case-notes-brazos-electric-s-bankruptcy-filing [accessed March 22, 2021].