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    Those pesky high utility rates


    November 16, 2021 - Off the Kuff

     

      Still a problem.

      Those of us who lived through Winter Storm Uri have hardly forgotten the experience, of course. But we’ll have a little reminder of it on our gas bills. Every month. For the next decade. At least.

      And should we face a similar winter weather disaster soon, as we may, well, that’s all right — any costs incurred then can simply be added to the tab, too.

      “There’s a huge moral hazard here,” says Doug Lewin, an energy consultant based in Austin who, like many Texans, sustained serious property damage in February, thanks to a busted pipe.

      The Railroad Commission of Texas on Wednesday approved a plan under which the Texas Public Finance Authority will issue $3.4 billion in state-backed bonds to pay back the natural gas suppliers that remained in operation during the February storm.

      The move has been in the works for a while. During the crisis, as you no doubt recall, the price of gas soared to historic heights, as utilities scrambled over limited supplies. A Bloomberg analysis found that gas producers reaped $11 billion in profits as a result.

      Those costs would have been passed on to consumers directly, but legislators this year passed a measure, House Bill 1520, allowing for the bill to be spread out via the securitization process. As ratepayers, we’re still on the hook for the $3.4 billion, but we’ll pay it back in smaller increments, over a longer period of time; utilities expect the costs for each customer to be roughly $5 a month.

      The House Research Organization, in its bill analysis, summarized the argument from supporters: “State policies have been cited as contributing factors that led to the widespread power outages experienced by millions of Texans. Therefore, it would be appropriate for the state to play a role in minimizing the impact of the storm to ratepayers and utilities, including through securitization of certain costs.”

      […]

      Industry executives and trade associations have suggested that stronger state action is not necessary because power producers themselves have an incentive to winterize. If they weren’t able to produce during Uri, they missed out on an unusually profitable week. During the course of the storm, natural gas spot prices soared across the country. And the Electric Reliability Council of Texas set prices at $9,000 per megawatt-hour — the highest allowable rate and several hundred times higher than the typical rate — in a desperate effort to get more power on the grid.

      But that logic doesn’t really hold up to scrutiny. If every producer had adequately winterized, none of them would have been able to make hay over the situation. From a coldly calculating perspective — if we’re just looking at the heartless logic of economic incentives — the optimal move would be to partially weatherize; that way, in the event of another storm, you would have less product to sell, but at comically higher prices.

      “I’m not one of these people who thinks the oil and gas industry is evil or something like that, but they need a clear, strong regulatory signal of what they need to do,” said Lewin. “They are for-profit businesses. If they don’t have a clear regulatory signal, they will follow price signals — and the price signal tells them these kind of events are great for the bottom line.”

      “What industry doesn’t like making 11 billion in one week?” he added.

      Executives themselves seem content with the current regime. In June, for example, oilman Kelcy Warren donated $1 million to Gov. Greg Abbott’s reelection campaign. His company, Energy Transfer Partners, had its best quarter ever during the storm, raking in an additional $2.4 billion as a result.

      We’ve discussed this before. Author Erica Greider notes that this will be an issue in the race for Railroad Commissioner. I hope she’s right, and that it’s more than just in that race. The more we talk about it, the better those chances are.

      And it’s not just your heating bills.

      Have you looked at retail electricity prices lately?

      On the suggestion of readers, I pulled up the state-sponsored marketing site — PowerToChoose.org (beware of imitators) — and it was like I stuck my finger in a wall socket. I was shocked.

      For as long as The Watchdog can remember, the opening pages usually highlighted kilowatt hour rates of around 6 to 9 cents.

      Now the opening pages show double-digit pricing of 10 cents or more.

      Prices of the two dominant players in the market — TXU Energy and Reliant Energy — offer an added jolt.

      TXU shows one-year plans for 1,000 kWh around 12 cents. Another listed plan offers a 15.9 cents rate.

      On the TXU website, I saw different plans that varied from those presented on the state website. A reminder that with all companies, always remember to check both PowerToChoose and that company’s website.

      Reliant shows plans on the state site from 13.4 cents to 15.2 cents for various kWh usage.

      […]

      What do Texas experts say about these price jumps?

      Ed Hirs, an energy fellow at the University of Houston, says the banning of Griddy, which sold power at wholesale prices, removed a major incentive for retailers to keep their prices down to compete.

      He says the increase in natural gas prices we’re seeing is another cause because many Texas power plants run on gas. He blames hurricanes which struck the Gulf of Mexico.

      He also blames the Texas government’s bailout allowing companies to recoup billions of lost dollars during the horrific February freezeout through the purchase of $6.5 billion in bonds. Those costs will be passed on to consumers.

      When the Texas Legislature sided with companies over consumers, he said, “You know the game is fixed.”

      Beth Garza, who served until 2019 as the independent monitor of grid operator ERCOT, said companies selling one-year contracts must anticipate higher prices expected to increase during the length of those contracts.

      James Boyle, who once led Texas’ Office of Public Utility Counsel, said: “We all know that what happened in the legislative session is that everybody was taken care of except the home folks. And the consumer pays for everybody else’s mistakes. I think that’s reflected in those prices.”

      Kelso King, who runs King Energy Consulting and monitors all Public Utility Commission meetings, warns that still to come is the pass-through to consumers of the multi-billion-dollar bailout for energy companies. That was the solution approved by lawmakers and Gov. Greg Abbott.

      King added, “For decades, policymakers kept saying that the great thing about a competitive market was that all of the risks would be borne by generators instead of ratepayers. But when it came down to it, unsurprisingly, end use customers were left holding the bag.”

      More fruit of the same tree. I agree that the original appeal to our “free market” in electricity was that providers would bear the risk of price fluctuations, but other than the late and not-really-lamented Griddy that hasn’t been the case. Of course, given the massive effect that big donors have on the system, how can you even call it a free market?


      The views expressed in content distributed by Newstex and its re-distributors (collectively, "Newstex Authoritative Content") are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an "AS IS" basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.

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