Texas power crisis could cripple small marketers, unravel market deregulation

FILE PHOTO: Overhead power lines are seen during record-breaking temperatures in Houston, Texas
FILE PHOTO: Overhead power lines are seen during record-breaking temperatures in Houston, Texas, U.S., February 17, 2021. REUTERS/Adrees Latif

February 26, 2021

By Gary McWilliams

HOUSTON (Reuters) – Retail power marketers in Texas are appealing multi-million dollar bills from last week’s blackout that they say could cripple them and unravel Texas’ nearly two-decade-old experiment as the most deregulated U.S. electricity market.

Wholesale prices, which last year averaged $26 a megawatt hour, soared to $9,000 per MWh for days as grid operators tried to quench a severe shortage that left up to 4.3 million residents shivering in the dark last week. The state’s total bill for electricity over seven days rose by $45 billion from the prior week, lawmakers said on Thursday.

“The state will likely experience the largest number of failures of retailers ever seen,” said Patrick Woodson, chief executive of Green Energy Exchange. “Competition will all but cease to exist.” His firm will survive, he said, despite service charges hitting nearly $19 million, up from $37,000.

Some consumers also face enormous bills. During the freeze, some 40,000 consumers who had monthly plans pegged to wholesale prices got bills of up to $9,500 as generators froze and prices soared. State officials have said they will help consumers. The state has about 6.4 million residential electric accounts.


Texas in 2002 deregulated its power system, splitting generation from transmission lines and from retail sales. It spawned 100s of marketers offering fixed, variable and indexed rate plans and fuel choices. Fallout from the outage will accelerate consolidation, experts said.

The industry split initially led to modest fees to marketers and generators for maintaining the state’s grid. But those fees were tied to wholesale price of electricity and jumped last week along with the cost of power. That saddled retail marketers with tens of millions of dollars in bills for services that ordinarily cost a few thousands.

The enormous jump in fees resulted from the grid operator failing to lower wholesale priced when supplies became adequate, said Brandon Young, chief executive of Young Energy LLC, which has about 32,000 customers providers said.

“Our ancillary services costs alone for that one week are greater than our entire energy costs for all of 2020,” said Young.

The head of grid operator Electric Reliability Council of Texas (ERCOT) has said it left the wholesale price at $9,000 per MWh to financially motivate power generators to remain on the grid. ERCOT CEO Bill Magness said late Thursday he and other officials hope to address the fees.

ERCOT has not relaxed its order requiring companies to pay fees within 72 hours to avoid have their customers reassigned to big utilities.


Natural gas utilities and power generators buying the fuel for their gas-fired power plants will likely have to borrow money to cover the cost of the gas when prices skyrocketed.

Atmos Energy Corp and One Gas Inc spent over $2 billion each to buy gas as prices hit a record high of nearly $24 per million British thermal units (mmBtu), from $2.30 per mmBtu. The borrowing costs would wind up in consumer bills, analysts said.

Nearly a quarter of the 100 Texas power companies receiving the high power and services bills could end up transferring all their customers to rivals.

Consolidation could leave more than 80% of deregulated Texas retail customers with giants Vistra Corp and NRG Energy, consumer advocates and industry executives said. Both have been buying up rivals in recent years.

Nine companies this week appealed to the state regulator to cancel or delay the fees, which are due 72 hours after invoices are received. Pulse Power, which has 100,000 customers, said it lost $2,000 per customer during the week, according to a filing with the state.

Freepoint Commodities, another power marketer, sought a waiver for charges of more than $20,000 per MWh over five days, saying the requirement for immediate payment “will be devastating.” It plans to dispute the charges, said associate general counsel Simona Patru, who declined further comment in an email.


For consumers, the loss of these mostly small marketers and potential funneling of their customers to a handful of big utilities will reduce plans available and raise prices, said consumer advocates.

“Prices can go up too easily with a lack of competition,” said Tim Morstad, associate state director for consumer advocacy group AARP Texas. “That’s where this train is heading.”

Texas has called on the state’s largest utilities, including Vistra Corp’s TXU, to accept customers from other providers. TXU told the state it would accept more than 1.3 million new customers.

(Reporting by Gary McWilliams in Houston and Scott DiSavino in New York; Editing by Marguerita Choy)

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