Everything about Texas is big: big space, big heart, big ideas and big weather. And when things go wrong, big mess.
That is what happened when a never-before-seen winter storm, named Uri, hit in mid-February. It grabbed the state by its throat and shut down much of its electricity generation.
At least 150 people died of hypothermia or carbon monoxide poisoning from unventilated generators. For five days, 4.5 million Texans were without power.
Paula Gold-Williams, president and CEO of CPS Energy, the City of San Antonio-owned electric and gas utility, said all the parts which make up the Texas electric infrastructure failed: the market, the Electric Reliability Council of Texas (ERCOT) which operates the state grid, and the Public Utility Commission of Texas (PUCT) which is the oversight body. Not only did these entities fail but they failed massively.
Initially, there was a political inclination to blame wind power for the electricity generation failure. But it accounts for only 10 percent of the Texas mix. The big failure was with the supply of natural gas, which accounts for half of the electricity generated on the state’s grid.
$19 Billion Mistake
There also was failure in the management of the grid when ERCOT kept charging at the highest rate two days longer than needed, worsening the debt situation for the utilities by $19 billion.
CPS Energy has sued 18 gas suppliers as well as ERCOT. Some of the gas suppliers have sued CPS Energy. Gold-Williams and San Antonio Mayor Ron Nirenberg have been scathing in their attacks on the gas suppliers. The mayor has gone as far to accuse them of participating in “the largest illegal wealth transfer in the history of Texas.”
Those companies which were able to deliver gas during the deep freeze charged astronomically for it: gas at $2 per thousand cubic feet (mcf) went to $200/mcf. They earned record profits for the first quarter, commensurate with electricity rates which went to $9,000 per kilowatt-hour.
After one of the gas suppliers, Energy Transfer
Wall Street banks and financial houses were also big winners as they had bought forward gas contracts. It was win-win for the gas companies and their banking partners.
Any help the utilities and consumers might have hoped for from the Texas State Legislature, which ended its legislative session in Austin on May 31, were in vain.
Texas reveres its oil and natural gas industry — the foundation of its prosperity — and it wasn’t about to move against this bulwark of the Texas establishment. What it did was to pass legislation that would enable the utilities to issue bonds (a system known as securitization) which would raise money to pay current obligations while spreading out the cost to consumers over years.
The political solution, which some had hoped might deal with the crisis, wasn’t forthcoming. In essence, the lawmakers in the Texas House and Senate said, “Tough luck, consumers. But we will give you credit, like buying an automobile. Pay over time, but pay you will.”
So, the utilities continue to look to the courts. And so far, there are indications that they may be more successful there than in Austin.
Already CPS Energy has won a trifecta of initial victories in its critical suit against ERCOT. CPS Energy is important because it is the largest of the 20 municipally owned utilities in the state (and the largest municipally owned electric and gas utility in the nation) and is, therefore, the bellwether in the sector.
The first CPS Energy victory was a temporary restraining order in April, preventing ERCOT from declaring the utility in default. In late May, the district court delivered two other important victories to CPS Energy.
County Court Ruling
The Bexar County District Court, which sits in San Antonio, refused to relocate the trial to another county as ERCOT had requested. But the big victory was a ruling by the court that CPS Energy does have standing in the case, allowing the litigation to proceed as filed. ERCOT had argued that CPS Energy didn’t have standing and that the issues raised should be adjudicated by the PUCT. Ironic as the PUCT was part of the failure matrix.
Clinton Vince, partner and chair of the U.S. energy practice at Dentons, the world’s largest law firm, who has been managing litigation for CPC Energy, said, “ERCOT’s outrageous decision-making during Winter Storm Uri stands to cause an illegitimate wealth transfer of nearly $50 billion.”
He continued, “CPS Energy is one of the very few groups that has directly challenged ERCOT’s actions during and after the storm and we are confident that its efforts will help protect consumers from illegitimate charges.”
Securitization is a tricky business. It neither absolves the utilities of any obligation nor does it define their true indebtedness. It is still up to utilities like CPS Energy to contest the amount asked for from ERCOT and others to establish their true indebtedness. Then the utilities will pay and spread out the cost to their consumers over time, which seems to me like price gouging approved and facilitated.