Texas power: the price is wrong

There are Democrats. There are Republicans. And then there are bagholders, a group that is bipartisan. The Texas deep freeze lasted just a few days in mid-February. But the catastrophe it has imposed on the Lone Star’s power market continues to unfold. During the cold snap, wholesale power prices surged to a maximum of $9,000 a megawatt hour, orders of magnitude greater than the typical price of $25 MW/h. Consumers were hit with bills running to thousands of dollars. 

State political leaders are now trying to prevent a disaster among voters by pushing through a potential bailout. Four smaller energy companies have already filed for bankruptcy, while titans like NRG and Exelon have warned of significant losses and drawn down liquidity lines. Nobody wants to be caught paying the final bill, whether it is taxpayers, companies or investors. But somebody is going to have to.

The Texas legislature is considering a plan that would unwind or “re-price” $4bn of electricity charges during the storm after a state body concluded that there had been $16bn of overcharges. Ercot, the state grid operator, is accused of leaving the $9,000MW/h wholesale price in effect for 30 hours too long during the crisis. Still, some officials believe retroactively changing terms would be counterproductive for the market. 

That claim is echoed by NRG, a big operator of power plants, which said that this form of picking winners and losers after the game is over would prove detrimental in the long-run. The company has had to withdraw its own profit guidance given its uncertain exposure to the Texas mess.

For small and medium operators in Texas, including Brazos Electric, Just Energy, Brilliant Energy and Griddy Energy, regulatory collateral requirements have proved impossible to meet as end customers are unwilling or unable to pay bills. But if there are losers in trades, there must be winners. The identities of those who prevailed remains obscure for the moment. But the losses cannot be wished away, despite the best efforts of politicians.

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