The Texas grid operator has to pay $ 1.3 billion to pay power plants for the energy they provided during last week’s historic power outage, increasing the likelihood that a state bailout will be needed.
The Texas Electric Reliability Council, which controls most of the state’s electrical grid, said it is still waiting for more than $ 2 billion in payments from retail energy suppliers and others after a deep winter shutdown caused energy prices to skyrocket. The grid operator, known as Ercot, managed to hedge some of that debt by siphoning $ 800 million in revenue from another market, but it remains, according to a notice.
If Ercot can’t come up with the rest, the debt could be shared by everyone in the market – even the consumers. That could prompt lawmakers to step in and make up for the difference, said Evan Caron, chief strategy officer of energy technology company ClearTrace and a former Ercot trader.
“Someone will have to pay,” said Caron in an interview. “I’ve never seen anything like it.”
Ercot did not immediately respond to an inquiry as to whether it intended to request a state rescue operation.
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The shortage comes after this month’s Arctic explosion took nearly half of the state’s electricity generation capacity offline, pushing electricity prices to $ 9,000 per megawatt hour and leaving some buyers unable to afford it. The crisis has left more than 4 million homes and businesses shrouded in darkness for days. Dozens died in the cold.
The $ 1.3 billion shortfall that Ercot now faces is unprecedented, said Adam Sinn, energy trader and owner of Aspire Commodities LLC.
“In the past, I’ve only seen a million dollar deficit – so a billion dollars isn’t even on the ballpark,” Sinn said.
In addition to managing the grid, Ercot is an intermediary for transactions between owners of power plants and private energy suppliers who purchase their electricity. Under typical circumstances, those transactions are settled every day. But the organization warned Wednesday that several retailers were in “payment violation” and more could default. As a result, some generators have not been paid in full.
“If there are massive utilities bankruptcies, there may be a need for some sort of state intervention, such as a bailout,” said Michael Webber, a professor at the University of Texas at Austin who serves as Chief Science and Technology Officer at French utility Engie SA. . “The total number will certainly exceed $ 2 billion, and no one knows what the ultimate impact will be, because this is new territory for us.”
Two public utilities told Texas lawmakers during hearings Friday that Ercot owed them money for the power they had produced during the crisis.
“We are concerned that we will not be paid due to the potential bankruptcy of retailers,” said Terry Naulty, assistant general manager of Denton Municipal Electric.
Several electricity providers, including Young Energy LLC and Spark Energy Inc., dispute Ercot costs they incurred for so-called support services, which help the grid operator maintain system reliability.
Because the real-time price of electricity was set at $ 9,000 per megawatt hour for several days during the grid emergency, the cost of ancillary services skyrocketed, costing some companies tens of millions of dollars. Some retailers have asked the Texas Public Utility Commission to waive their obligation to pay those fees while their challenges are ongoing.
Freepoint Commodities LLC also has appealed to the committee saying they intend to challenge Ercot’s ancillary service charges and are concerned that the grid operator does not have the liquidity to successfully repay disputed payments.
On Friday, the grid operator announced that it would cover part of the deficit with $ 800 million in congestion revenue, money generated by network trade bottlenecks that should be returned to consumers. The use of congestion revenue is likely to hit retailer’s margins, according to Caron.
“They will have to figure out how to recoup those margins and if they are still alive after that, they will have to anticipate the fixed rate contracts for customers,” he said.
– With help from Joe Carroll