ERCOT overcharged power companies $16 billion for electricity during winter freeze, firm says
An independent market monitor for the Public Utility Commission of Texas wrote in a letter that the power grid operator kept market prices too high for nearly two days after widespread outages ended.
The Electric Reliability Council of Texas made a $16 billion error in pricing during the week of the winter storm that caused power outages across the state, according to a filing by its market monitor.
Potomac Economics, the independent market monitor for the Public Utility Commission of Texas, which oversees ERCOT, wrote in a letter to the Public Utility Commission that ERCOT kept market prices for power too high for nearly two days after widespread outages ended late the night of Feb. 17. It should have reset the prices the following day.
That decision to keep prices high, the market monitor claimed, resulted in $16 billion in additional costs to Texas power companies. The news of the overcharging was first reported by Bloomberg.
Some of the providers that were charged during the high price period could pass the costs to customers, depending on the type of contract they have, according to Detlef Hallermann, director of the Reliant Energy Trade Center at Texas A&M University.
In Texas, wholesale power prices are determined by supply and demand: When demand is high, ERCOT allows prices to go up. During the storm, PUC directed the grid operator to set wholesale power prices at $9,000 per megawatt hour — the maximum price. Raising prices is intended to incentivize power generators in the state to add more power to the grid. Companies then buy power from the wholesale market to deliver to consumers, which they are contractually obligated to do.
Because ERCOT failed to bring prices back down on time, companies had to buy power in the market at inflated prices.
The error will likely result in higher levels of defaults, wrote Carrie Bivens, a vice president of Potomac Economics, the firm that monitors the grid operator. She said the PUC should direct ERCOT to remove the pricing interventions that occurred after outages ended, and allowing them to remain would result in “substantial and unjustified” economic harm.
At least $1.5 billion could be passed on to retail electric providers and their customers. Some retail providers have already begun to file for bankruptcy.