Financial fallout from the Texas deep freeze
Texas has thawed out after an Arctic freeze last month threw the state into a power crisis. But the financial turmoil from power grid shock is just starting to take shape.
Why it matters: In total, electricity companies are billions of dollars short on the post-storm payments they now owe to the state’s grid operator. There’s no clear path for how they will pay — something being watched closely across the country as extreme weather events become more common.
Catch up quick: There was a “cascading failure of infrastructures” in the wake of the statewide cold front, says Josh Rhodes, a research fellow at the University of Texas at Austin’s Webber Energy Group.
- “Our gas, electricity and water grids failed,” while millions went without power and water. Officials are still tallying how many died.
- One example of the massive money effect: Wholesale power prices rose from roughly $50 per megawatt hour to $9,000. As the costs for electric companies rose, resident bills also soared.
What’s happening: Electricity providers can’t pay the Electric Reliability Council of Texas (ERCOT), which operates the state’s power grid, for the power they used.
- So ERCOT is now short on what it has to pay power generators.
- Think of the ERCOT like a clearinghouse. It collects money from electricity providers. It then pays the companies that produce power.
The domino-effect fallout from the massive price spike is still taking shape. Just this week …
- Brazos Electric Power — the state’s oldest and largest power company — couldn’t pay $1.8 billion of its ERCOT bill and filed for bankruptcy, the first to come as a direct result of the crisis.
- Entrust Energy became the second electricity provider to be barred from Texas’ power market by ERCOT. It can’t pay its bill, either.
- Another — Energy Monger — is preparing for the same fate and started offloading customers this week, per Bloomberg.
- The unpaid bills to ERCOT, in total: over $2.2 billion.
Also this week: Heads started to roll at the top decision-making bodies.
- The chair of the state’s top energy regulator Public Utility Council, which oversees ERCOT, is out. So is the head of ERCOT.
Between the lines: Regulators said today they aren’t going to retroactively reprice electricity costs — even though a watchdog said they overcharged companies by as much as $16 billion, the Texas Tribune reported.
What to watch … The worst-case scenario: Residents on the hook for decades.
- The cost could be passed along to Texas customers as a surcharge. But current laws limit how much utilities can charge you extra per month.
- “With billions of dollars in short pay, you’re talking decades to clean that up,” Rhodes says.