Investment expert: Undoing ERCOT overcharges would hurt Texas' business reputation

Texas would damage its business-friendly reputation if state lawmakers retroactively lower prices for wholesale electricity to reverse billions of dollars in overcharges racked up during last month's weather emergency, a representative of an international investment exchange said Tuesday.

"Any such decision by this political process will forever define the 'open for business' culture Texas has worked diligently for decades to create," said Chris Edmonds, global head of clearing and risk at Intercontinental Exchange Inc.

Edmonds, speaking to the House State Affairs committee, said the repercussions will go beyond the market for wholesale electricity by rattling investors in other Texas commodities as well.

"Confidence in the futures markets related to Texas will erode" if the door is opened for after-the-fact political intervention, he said.

Separately, House Speaker Dade Phelan made clear Tuesday that he has concerns about altering prices retroactively and intends to proceed deliberatively on the issue, despite the Senate's warp-speed approach a day earlier to approving legislation aimed at making the changes.

Regulators of the state's electricity grid "failed Texas repeatedly during this tragic event, but the decisions made on pricing were made based on ensuring the reliability of the grid," Phelan said in a written statement. "I believe that these decisions may have saved lives."

During a four-hour whirlwind Monday, the Senate — spurred on by Lt. Gov. Dan Patrick — introduced and approved a bill to change the prices, with the aim of seeing the measure take effect by Saturday.

But that isn't going to happen, based on what Phelan said Tuesday. He indicated there will be a continued effort by the House to study the issue and its ramifications, while advancing bills aimed at shoring up the reliability of the grid.

Retroactively changing prices "is an extraordinary intervention into the free market" that may trigger "major consequences for both residential and commercial consumers going forward," Phelan said.

The Senate bill was barely mentioned earlier Tuesday during a previously scheduled meeting of the House State Affairs Committee, one of several committees investigating the overpricing issues and the massive failure of the state's electricity grid overall.

The failure of the grid — which is overseen by the Electric Reliability Council of Texas, known as ERCOT — triggered extended blackouts during the week of Feb. 15 and left more than 4 million Texans shivering amid sub-freezing temperatures.

The goal of the House State Affairs Committee is "to shed light on the realities and possible implications and the many unknowns related to repricing our electricity market after the fact," state Rep. Chris Paddie, R-Marshall, who chairs the committee, said at the beginning of Tuesday's meeting.

Potomac Economics, a Virginia-based firm that's paid by the state to provide an arm's-length assessment of the Texas power grid, has said ERCOT made a pricing error during a 32-hour period at the tail end of last month's grid calamity that resulted in $16 billion in overcharges for wholesale electricity. The error was made because ERCOT left the price at the maximum allowable — $9,000 per megawatt — during the period but should have let supply and demand determine it by then, according to Potomac Economics.

ERCOT and the Public Utility Commission, which oversees ERCOT, have disputed that the pricing action during the 32-hour period was an error. Representative of both repeated the assertion Tuesday, saying that substantial concerns remained at that point that the grid might slip back into an emergency, so they wanted to incentivize as many generators as possible to continue producing.

Disagreements also continued Tuesday regarding the amount of money that actually could be recouped by electricity consumers if the prices are changed retroactively, and if the move will mainly shift money from one corporate pocket to another.

Carrie Bivens, an Austin-based Potomac vice president who serves as the independent ERCOT market monitor, has said only about $4.2 billion of the $16 billion is recoverable if overcharges are reversed, because of corporate hedging strategies and other issues.

But she said in response to questions Tuesday that it's unclear how much of the recoverable amount might filter down to consumers.

The $4.2 billion "is the money that will change hands, but what happens to it afterward I don’t know," Bivens said.

Retail electric providers that have been socked with huge bills for wholesale electricity racked up during the emergency are advocating for lawmakers to intervene. But generators that were able to keep running during it — and that in many cases made businesses decisions to do so despite soaring prices for natural gas needed to operate their gas-fired plants — are opposed.

In Central Texas, Pedernales Electric Cooperative and Bluebonnet Electric Cooperative, both of which are retail providers, are on opposite sides of the issue from Austin Energy and the Lower Colorado River Authority, which operate generation plants.

Arthur D'Andrea, the chairman and lone remaining member of the Public Utility Commission because the other two resigned in the wake of the storm, repeated his opposition to retroactively changing prices, saying Tuesday that lawmakers should look for other ways to provide help to people that have been hurt financially because of the high prices.

"You're bailing out some banks (by repricing), your bailing out some companies (and) you may end up helping some individuals too, but you're pushing a lot of money through the system to a lot of players that you don’t necessarily want to support just to achieve that," said D'Andrea, who previously likened the issue to trying to "unscramble an egg."

This article originally appeared on Austin American-Statesman: Investment expert: Undoing ERCOT overcharges would hurt Texas' business reputation

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