After a week of electricity blackouts, heat failures, and frozen water pipes, many Texans now face thousands of dollars in unexpected electric bills. The reason: a conscienceless rip-off by an unregulated electric utility. For Texans who have an auto-pay arrangement, that means bank accounts emptied or thousands of dollars already charged to their credit cards.
Ripple effects of the Texas disaster will reach almost every Minnesotan. Demand for natural gas, in Minnesota and across the country, was higher than normal because of February’s subzero temperatures. Supply was dramatically smaller than normal because the irresponsible inaction of Texas natural gas producers and public utilities led to failure of production and delivery systems. When supply is low and demand is high, producers can and do hike their prices.
Texas produces huge quantities of natural gas for the national market. Texan natural gas and public utilities largely ignored warnings from 2011 and failed to winterize natural gas production and distribution facilities. They froze up, leaving Texans out in the cold, literally freezing to death. When Texas natural gas producers froze up, national natural gas prices shot up—as much as 100 times the pre-freeze level. The cost to Minnesotans for the February price spike is estimated at $300 to $400 per household.
Unlike Texans, Minnesotans will not see that price hike in February. Minnesota regulates public utilities far more than Texas. Price increases to Minnesota consumers must be approved by the Public Utility Commission, and would be spread out over a year’s time, beginning in September.
That leaves us in a better position than Texans. When their power systems froze, the Texas Public Utility Commission ordered an immediate price increase. “Because energy prices should reflect scarcity of the supply, the market price for the energy needed to serve load being shed in the face of scarcity should also be at its highest,” the Texas PUC announced.
Many Texans use variable rate plans to pay for energy. This sounds similar to “time of day electric service” in Minnesota. Xcel Energy describes its Minnesota plan:
“Time of day electric service—On this optional service, the energy price is higher during on-peak times when electricity is more expensive to generate and lower during off-peak times when it is less expensive to generate.”
In Minnesota, the PUC regulates the amount that is charged, with public hearings and advance notice.
Texan variable rate plans work differently. When fuel prices go up, the rates can also go up—immediately. As the emergency began, one Texas variable rate provider, Griddy, urged its customers to switch to a different electricity provider. But it was too late, even for those with access to computers or telephones. NPR reported that Texas winter prices for electricity—normally about 12 cents per kilowatt-hour, rose to $9 dollars per kilowatt-hour. That meant February bills of $10, $12, $16,000 for Texas families.
Griddy told its customers where to place blame:
“We know you are angry and so are we. Pissed, in fact. Here’s what’s been going down:
“On Monday evening the Public Utility Commission of Texas (PUCT) cited its “complete authority over ERCOT” to direct that ERCOT set pricing at $9/kWh until the grid could manage the outage situation after being ravaged by the freezing winter storm.
“Under ERCOT’s market rules, such a pricing scenario is only enforced when available generation is about to run out (they usually leave a cushion of around 1,000 MW). This is the energy market that Griddy was designed for – one that allows consumers the ability to plan their usage based on the highs and lows of wholesale energy and shift their usage to the cheapest time periods.
“However, the PUCT changed the rules on Monday.
“As of today (Thursday), 99% of homes have their power restored and available generation was well above the 1,000 MW cushion. Yet, the PUCT left the directive in place and continued to force prices to $9/kWh, approximately 300x higher than the normal wholesale price. For a home that uses 2,000 kWh per month, prices at $9/kWh work out to over $640 per day in energy charges. By comparison, that same household would typically pay $2 per day.”
Texas had winter-related power failures before—most recently in 2011 and in 2014. They knew this was coming. The Texas Tribune and Pro Publica reported:
“As millions of Texans endured days without power and water, experts and news organizations pointed to unheeded warnings in a federal report that examined the 2011 winter storm and offered recommendations for preventing future problems. The report by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation concluded, among other things, that power companies and natural gas producers hadn’t properly readied their facilities for cold weather, including failing to install extra insulation, wind breaks and heaters.”
Texas public officials refused to order the needed safeguards. They also put Texas on a go-it-alone plan, disconnecting its power grid from the rest of the country.
“Because Texas operates its own grid, the state isn’t subject to federal oversight by FERC, which can investigate power outages but can’t mandate reforms. Many energy experts say the very nature of the state’s deregulated electric market is perhaps most to blame for last week’s power crisis….
“‘The fault on this one is at the feet of the Legislature and the regulators for their failure to protect the people rather than profits, the utility companies, rather than investing millions of dollars in weatherization that had been recommended in review after review of these kinds of incidents,’ said Tom ‘Smitty’ Smith, a longtime Texas consumer advocate and environmental activist. ‘They have chosen not to do that because it would be too expensive for the utilities and ultimately to the consumers.'”
The Pro Publica/Texas Tribune analysis lays out, in devastating detail, the legislative and government decisions exempting power companies from regulation, and quotes experts who conclude that “the catastrophe shows that the system ultimately prizes profits over people.”
Not only Texans, but all of us, will continue to pay the price for that system.