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Texas power manager ERCOT overcharged companies by $16bn, threatening market stability

The pricing error may push ‘the entire market to the brink of collapse’ according to energy experts

Graig Graziosi
Friday 05 March 2021 22:14 GMT
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The Electric Reliability Council of Texas overcharged electric companies by $16bn during the week of Winter Storm Uri, which left millions of Texans without power.

The billing error was uncovered by Potomac Economics, an independent market oversight entity for the Public Utility Commission of Texas, which itself monitors ERCOT.

According to Bloomberg, Potomac Economics determined that ERCOT kept its market prices for power too high for almost two days after the massive power outages throughout the state ended.

The energy monitor said ERCOT should have reset its energy prices the day after the majority of outages were restored.

ERCOT's decision to leave the price unchanged resulted in the $16bn error.

Because Texas's power grid is privately controlled, power prices fluctuate with demand. During the storm, the power provider was directed by the state's Public Utility Commission to set the wholesale power prices at $9,000 per megawatt hour.

That price is the maximum that the grid operators can charge, which is supposed to incentivise power companies in the state to add more power to the grid.

However, because of ERCOT's failure to drop prices again, it forced power companies to purchase power at the inflated rate for days. That cost was passed along to the power companies' customers.

Due to the error, struggling power companies that had to purchase the power at the higher rate may default. Carrie Bivens, the vice president of Potomac Economics, suggested that ERCOT remove the pricing intervention that happened at the end of the outages.

Patrick Woodson, CEO of ATG Clean Energy Holdings, told the Texas Tribune that ERCOT's market-model for utility provision was not designed to be effective during a catastrophe like the storm.

“The ERCOT market was not designed to deal with an emergency of this scale,” he said.

Mr Woodson said ERCOT's pricing mistake “has pushed the entire market to the brink of collapse.”

During a hearing at the Texas Statehouse in Austin on Thursday reviewing the near-collapse of the state's power grid, industry experts warned that the power market is facing extreme challenges.

“The market is facing a financial crisis and it’s a very severe financial crisis,” Catherine Webking, the executive director of a lobby group for the power industry said.

She said there would be an "insurmountable" level of financial distress when natural gas and financial collateral bills are fully realised by energy companies in the coming weeks.

ERCOT did not immediately respond to a request for comment.

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