Home Energy system Texas power companies seek to shift storm preparedness costs onto consumers

Texas power companies seek to shift storm preparedness costs onto consumers

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Thanks to soaring energy costs during the February freeze that crippled the state and killed hundreds of people, Texans will pay billions of dollars in higher gas and electricity bills for decades.

Now energy companies are asking to pass millions, if not billions, of additional storm costs onto taxpayers.

Last month, Gov. Greg Abbott promulgated new rules to bolster an energy grid that has stranded Texans for a week of below freezing temperatures. “In the end, all that needed to be done was done to fix the power grid in Texas,” he said at the time.

A major element of Senate Bill 3 was the requirement that power companies withstand future freezes, which lawmakers failed to do after a winter storm in 2011 froze electrical equipment and caused power outages.

Still, the new law doesn’t say who should pay for upgrades. In recent deposits with the Texas Public Utility Commission, several large power generation companies have said residents – not the investor-owned companies themselves – should cover the cost of waterproofing their equipment.

Hearst Newspapers documented how 20 million Texans lost power in a deadly freeze after state lawmakers dismissed a decade of warnings about the increasingly vulnerable power grid.

Read the series at www.houstonchronicle.com/failures-of-power.


Because the new requirements “represent a societal judgment that requires additional investment in additional extreme weather,” it makes sense that the public foot the bill, Houston-based Calpine Corp. said in a filing.

The companies said that if they had to bear the costs of weatherization, it could make the Texas network less reliable.

Absorbing the costs could make some companies uncompetitive in Texas’ cut-throat power market, forcing them to take generation facilities offline, said Texas Competitive Power Advocates, who represent the power generation companies.

“Businesses without cost recovery will be forced to decide whether to invest in capital improvements or retire or put these marginal units on the back burner on a seasonal basis,” he said in a filing.

Taxpayer advocates have said it is outrageous asking Texans to pay essential trade costs on behalf of the same power companies that contributed to the near collapse of the grid five months ago by not properly preparing their equipment .

“Here we go,” said Tim Morstad, associate state director for AARP Texas. “Private utilities that pocket profits in good times are now looking to put charges on taxpayer bills to pay for improvements they should have made long ago. “

With the billions in storm-related costs that consumers are already paying, “we’re already in our great-grandchildren,” said Jim Boyle, former state legal counsel, who represents consumers in utility matters. . “How many times do we have to take a hit?” “

Cost estimate: $ 430 million per year

The inadequate weatherization of production equipment was not the only reason the Texas grid nearly collapsed.

Natural gas production plummeted when wellheads and pipelines froze. Poor communication between the electricity and gas sectors caused the failure of some gas production facilities when their electricity was cut. This interrupted the gas supply to production companies that needed it to generate electricity.

Yet one of the main goals of SB 3 was to prevent a future winter disaster by ensuring that the equipment that powers the state grid could cope with extreme weather conditions.

After the winter storm of 2011, when frozen equipment caused rotating power outages for two days over Super Bowl weekend, state lawmakers vowed to ensure customers would be protected from the events. extreme weather.

But electric utilities and large industrial consumers have protested that mandatory winterization would be too expensive. At the end of that year’s legislative session, the only weatherization bill to be passed only required electric companies to file their winter plans with the Public Utilities Board every year.

This time around, the new law requires producers and transportation companies to insulate their equipment enough to withstand a future severe storm. Failure to do so could result in a penalty of $ 1 million per day.

Still, the details of what weatherization will look like have been left to the utilities commission. The agency has until September to draft the necessary regulations, spokesman Andrew Barlow said. In the meantime, the parties who will be affected by the new law have submitted comments and suggestions.

Several power companies have cautioned against a single rule, noting that a production facility in Lubbock may require very different cold protection than in Houston. Older factories may also have different needs than modern equipment.

Companies also noted the challenge of installing insulation, windbreaks and heaters while having to protect the same production equipment from the intense summer heat several months later. “The commission should determine whether certain cold preparation requirements have a corresponding reduction in summer production,” wrote Vistra Corp.

Because the details remain unresolved, estimates of the costs of mandatory weatherization have varied considerably. Some researchers put it to billions of dollars.

El Paso Electric declared expenses $ 4.5 million to winter two generators. An April study by the Federal Reserve Bank of Dallas fixed the cost of wintering the entire Texas energy system at $ 430 million per year. The study concluded that it was a reasonable expense, compared to the damage the February storm caused to the state’s economy, estimated at between $ 80 billion and $ 130 billion.

Taxpayers will likely end up paying many of the new mandatory storm preparedness costs. Transportation companies can apply to the Public Utilities Board for authorization to charge higher rates to recover extraordinary costs. Municipal utilities and co-ops can get money from local governments or members to upgrade their equipment.

A new threat to the network?

In a regulated market, producers typically recover these additional business costs by asking regulators for permission to pass them on to taxpayers. But in Texas’ deregulated energy market, companies are bearing those costs themselves in exchange for less government oversight and the possibility of greater profits.

In their documents, however, the companies said having to spend millions of dollars on the new requirements could force them to downsize their generating fleet, which would mean less electricity when the Electric Reliability Council of Texas, the state’s grid operator, needs it the most.

“Imposing potentially costly demands on production resources … and leaving the discussion of the associated costs for another day, will likely lead some production resources to conclude that participation in the ERCOT market does not make economic sense when evaluating costs and risks, causing resources to prematurely retire or never get built, ”wrote Exelon Generation Co. in its file.

“Such a result would exacerbate reliability issues on an isolated power grid that shows signs of being increasingly strained (even during non-peak months), contrary to the legislative mandate.”

Too bad, replied Morstad of the AARP. Energy companies that weathered before the February storm were able to afford their upgrades while remaining competitive, he said.

“Why should companies that failed to install weather protection be rewarded with a financial advantage over generators that did the right thing?” ” he said. “The deregulated production market does not protect homeowners from bankruptcy or bankruptcy. It’s part of trust in the market. If a business cannot cover its required costs, it goes bankrupt and restructures its financing or sells its production assets to another owner who will pay the necessary costs.

Whether state officials expected companies or the public to cover the costs is unclear. Power companies say Abbott signaled he wanted generators to be able to recoup their costs when led the legislature to impose weatherization but also “to ensure the necessary financing”.

Consumer advocates respond that lawmakers have had ample opportunity to approve public funding for weatherization – one failed the invoice would have used money from the state rainy day fund – but chose not to. This suggests that they intended companies to pay for it, advocates say.

Asking taxpayers to bear the special costs incurred by production companies “would be a radical departure” from the deregulated Texas system that has been in place for two decades, said Doug Lewin, a clean energy advocate who heads the consultancy firm Stoic Climate and Energy.

Thanks to the mixed messages, “I don’t have a clear signal on what the legislature meant,” said Caitlin Smith, energy analyst for AB Power Advisors.

For now, heads of state seem willing to let the tea leaf reading continue. Abbott, Lieutenant Governor Dan Patrick and Senator Charles Schwertner, author of SB 3, did not all answer questions about the financial intent of the new weatherization legislation.

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