On Thursday, March 4, the Senate Committee on Business and Commerce held a hearing to examine the financial impacts to the electric grid and market participants from last month’s freeze and resulting blackouts. Here are a few takeaways:
The price of energy soared during the prolonged freezing temperatures. The rate increases as demand increases, to incentivize generators to increase production. The typical cost is around $20-30 / megawatt-hour but skyrocketed to the cap at $9,000 per megawatt-hour. This is resulting in higher prices for suppliers and consumers.
The Vice President of the Energy Reliability Council of Texas (ERCOT) testified that they are short $1.6 billion because many companies are not paying their invoices. Cathy Webking, the Executive Director of Texas Energy Association for Marketers testified that ERCOT owes $2.4 billion to market participants, and there will be continued financial distress.
For example, Bryan Texas Utilities testified that they paid 154 times the price of gas during the coldest days. Bryan Utilities is able to pay their bills with reserves, but their credit rating has been put on watch because of the large nature of their cost-share. There are many other smaller companies that do not have reserves that are going to default.
Additionally, Bill Magness, CEO of ERCOT was fired by the board on Wednesday, March 3. The Legislature is looking at solutions for the short term to see if there are options to help stabilize the market and prevent bankruptcies, but I am very mindful that we need to remain committed to our free-market principles, prevent companies that planned responsibly from being penalized by companies that didn’t. And above all, take action to protect consumers from skyrocketing bills or long-term rate increases.