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Texas Policymakers Split On Electricity Repricing, Natural Gas Reforms In Aftermath Of Winter Storm

With two months left in the legislative session, Texas state policymakers are split on two key issues related to the deadly power outages in February: electricity repricing and natural gas reforms.

“It just feels like there's... this huge overhang over the whole market — that somehow needs to be reconciled,” said Beth Garza, a senior fellow with the R Street Institute think tank and, until 2019, the independent market monitor for the Electric Reliability Council Of Texas electricity market.

The current market monitor says electricity prices were too high for too long during the storm, resulting in about $16 billion of overcharges in the final 32 hours of the crisis. The monitor has repeatedly recommended that the Public Utility Commission retroactively lower prices, which the agency has so far declined to do.

“We're looking at independent market monitor recommendations that really would shrink the pie by $5 billion,” Garza said.

These recommendations would help out many providers that took huge losses from the storm, like CPS Energy in San Antonio — the largest municipally owned utility in the state, which announced a lawsuit against ERCOT over the high prices.

Even Public Utility Commission chair Arthur D’Andrea, who opposes repricing, acknowledged that CPS and other public utilities would benefit from the move.

“Repricing would help the (municipally owned utilities) quite a bit, or at least leave them flat,” he told investors, in a private investor call hosted by Bank of America.

At the time — after two other resignations from the three-member body — D’Andrea was the only member of the Public Utility Commission, which regulates the water, telecommunications and electricity markets. He had pushed back on the idea of repricing, and as he said on the call, he expected Gov. Abbott to keep him as the only member of the commission for a while.

“In a time like this, when I'm communicating all the time with the legislature, it's easier to just be going through one person,” he said. “So, I expect it to be this way for a while, at least a year was just me up there (on the commission).”

The moderator of the call, analyst Julien Dumoulin-Smith, responded, “Wow! Well, best of luck to you. I gotta say — wow! That's quite a task.”

Gov. Abbott quickly asked for D’Andrea’s resignation a week later, when Texas Monthly published a recording of the call.

But, setting aside the continued instability at the PUC, here’s what makes the repricing situation complicated: not every provider took a hit.

On the investor call, D’Andrea chuckled as he talked about Austin Energy.

“Everyone who made a lot of money is keeping their head low right now,” he said. “And Austin Energy’s head is very low right now.”

D’Andrea will remain on the PUC until the legislature confirms a replacement, but he’s already acted as a key pillar of opposition to repricing. And a lot of time has passed since the storm — too long, some experts say — to reprice now.

Peter Cramton served on the ERCOT board for about half a decade until he resigned in the political fallout from the outages. He’s also an economics professor at University of Cologne. He said repricing now would be like the National Football League taking back a late first-half touchdown after the game is already done.

“That doesn't work. The NFL doesn't do that,” he said. “And the reason is: Everything that happened subsequent to that last-second touchdown is affected by that event.”

That’s because NFL teams play and strategize based on the context of the game — what just happened and what’s about to happen. And they assume that whatever just happened is set in stone.

“And it's the exact same thing in the electricity market,” Cramton said.

However, energy and climate consultant Doug Lewin said that the “rules” were changed in the middle of the game.

“So I've heard a lot of people say, like, ‘But where we are now we can't go back. The game was played, everybody understood the rules,’” said Lewin. “No! They changed the rules in the middle of the game, and they changed the rules in a major way in a meeting that took six minutes. I mean, there was basically no discussion about what they were doing.”

In this case, the rule-tinkering referee is the Public Utility Commission. During an emergency meeting on the first day of outages, the commissioners ordered ERCOT to remove a “circuit breaker” for electricity prices, effectively raising the price to its maximum level — where it stayed for days, even after the outages stopped.

“It's chaos,” Lewin said.

ERCOT and the PUC, for their part, have argued that their approach to pricing was necessary and appropriate due to the energy emergency.

So, experts are split, as are state politicians. Lt. Gov. Dan Patrick supports repricing, and the state senate actually passed a repricing bill. But the House appears to have little appetite for the legislation. And Gov. Abbott has implied repricing might be unconstitutional.

As for the consequences of inaction? Beth Garza, the former independent market monitor, pointed to the bottom line.

“At some point, it's money, right? It's just money,” she said. “And at some point, we're all gonna have to pay for it somehow.”

ERCOT is likely to pass billions of dollars in unpaid costs to all market participants in the coming weeks, and ratepayers in the most affected areas are likely to see rates creep up in the coming years — unless some money is moved around.

This whole conversation is focused on how to treat a symptom of a deeper failure. These high prices happened, fundamentally, because demand for electricity skyrocketed as supply dropped. The state is split on how to make sure that doesn’t happen again.

“The first thing that comes to my mind is that electricity is only as reliable as gas delivery,” said Cramton.

“So, if there is no gas, there is no electricity during a sustained shortage event… So, the question is, can gas be made reliable during a winter storm event? And that the technical answer is yes, of course it can be,” he said. “But will it happen?”

If it’s left to the natural gas market — to oil and gas companies — they won’t have the same types of incentives to improve that electricity plants will. Electricity plants that couldn’t maintain supply lost a ton of money.

“What happened in the (natural gas) market was: There was a 45% drop in supply. So that's less quantity, that's bad. But there was a 200 fold increase in price. That's great (from the gas company’s perspective),” Crampton said. “So, the 200-fold increase more than compensates for the 45% loss in supply, so you make tons more money.”

Windfall profits, despite a drastic failure.

Now, the Texas Senate has passed Senate Bill 3, mandating weatherization in the natural gas sector. And speaker of the Texas House Dade Phelan initially said House Bill 14 would also mandate natural gas weatherization. But then HB 14 was filed, and turns out: It’ll just create a committee to map the natural gas supply chain, and issue a report with recommendations.

So, what’s the difference between a recommendation and a mandate?

“The legal requirement. One has the force of law, meaning it will be done and the other has is merely just a suggestion. The Railroad Commission shows that it is unwilling to enforce laws, even when it is required to do so. I think a suggestion to the Railroad Commission is not worth the paper it's written on,” said Chrysta Castañeda, an oil and gas attorney and engineer, and the 2020 Democratic nominee for the Texas Railroad Commission, which regulates the Texas natural gas sector.

She said she actually wants to see the commission scrapped and a new agency formed in its place, but she acknowledges that a more realistic outcome — her best case scenario in the current legislature — falls short of that.

“Well, it's probably a watered down version of the senate bill,” she said. “If the house will adopt even some of the winterization requirements, that would be an incremental improvement over what we have now. But it's still not going to be sufficient to prevent the next catastrophe, which may not be based on the same failures we had this time.”

In addition to electricity repricing and natural gas weatherization, another looming issue is climate change. It’s making extreme weather more severe and more frequent. Texas isn’t ready for it. But the topic of climate change has gotten about as much time in the legislature as it did in this story.

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