ERCOT cost Texas $16B, market monitor says

TX – The state’s grid manager overcharged the state’s electricity market by an estimated $16 billion by leaving emergency pricing in place too long, according to the state’s independent market monitor.

The conclusions by the monitor, which acts as a watchdog for Texas power markets, came a day after the board of the Electric Reliability Council of Texas or ERCOT, fired CEO Bill Magness. Magness, who has led the grid manager since 2016, has been harshly criticized for the widespread failure of the electricity system that cut power and heat for some 4 million Texans over days of bitter cold.Magness was given his 60-day termination notice after a closed-door board meeting Wednesday night. Magness was terminated without cause, which means he’s entitled to a year’s salary as severance, but he informed the board that he would not seek or accept severance pay, according to a spokeswoman.

Magness earned $883,000 in salary and other compensation in 2018, according to IRS filings, but ERCOT said it would immediately launch a search for a successor.

The report by the independent market monitor adds to questions about ERCOT’s response to the power crisis. The monitor, a Virginia-based firm called Potomac Economics, was hired by the Public Utility Commission to assess ERCOT’s operation of wholesale electricity markets.

At issue is an emergency order that the PUC issued on Monday, Feb. 15, directing ERCOT to lift prices to $9,000 per megawatt hour, the state maximum, to reflect the dire electricity shortages as the winter weather knocked generators offline. Potomac concluded that the conditions had improved enough by the end of Feb. 17 that ERCOT should have ended the emergency pricing.

Instead, ERCOT kept the emergency pricing in place until the morning of Feb. 19.

As a result, Potomac said, wholesale buyers were overcharged some $16 billion. The extended period of maximum prices pushed the state’s largest electricity cooperative into bankruptcy, and threatened the survival of some retail electricity providers, according to analysts.

The market monitor called on ERCOT to correct the pricing, estimating that it would save households and other end users some $1.5 billion.

“We recognize that revising the prices retroactively is not ideal,” Potomac said a report to the PUC. “In this case however, given that the prices are inconsistent with ERCOT’s protocols and the (Public Utility) Commission order and that allowing them to remain will result in substantial and unjustified economic harm, we respectfully recommend that the (PUC) take the action … to correct ERCOT’s real time prices.”

ERCOT declined to comment. “When and if we file anything with the PUC, that will be our statement,” said Leslie Sopko, ERCOT’s spokeswoman.

Repricing more than 30 hours of electricity trading — prices settle every 15 minutes in wholesale power markets — would be a complicated and contentious process, said Doug Lewin, an energy consultant in Austin. Power companies, many of which are counting on the money to offset losses from generation that was knocked offline, would almost certainly challenge efforts to reprice the period.

“This has never been done before,” he said. “A bunch of (generators) who thought they were going to be a wash or a push for that week will end up negative. If you don’t roll it back all those that are hurting right now… There’s a series of a bad options here.”

The power crisis has not only led to Magness’ ouster, but also to the resignations of PUC Chairwoman DeAnn Walker and five ERCOT directors. Leaders of ERCOT and the PUC came under pressure from Gov. Greg Abbott and Texas legislators for the failure of the power system.

“The Governor called on ERCOT leadership, including Bill Magness, to resign early on during the response to last month’s severe winter weather when it was clear that ERCOT made false assurances to the public and failed to stabilize the grid—leaving Texans in the dark,” Renae Eze, Abbott’s press secretary, said Thursday. “The change in leadership is an important step toward fixing the structural problems at ERCOT, and we continue working with the Legislature to reform our power system and ensure these tragic events are never repeated.”

ERCOT has not provided details of the decision to fire Magness, but not all board members voted in favor of the move. Nick Fehrenbach opposed the measure; he did not respond to a request for comment. Lori Cobos abstained.

Energy analysts said that it was inevitable that heads would roll after a failure of this magnitude.

“It would be hard for a leader of an organization to survive such a thing,” Lewin said.