March 6, 2021

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When demand for energy rose sharply last week in unseasonably frigid Texas, and power plants started going offline, the state Public Utility Commission (PUC) allowed wholesale electricity prices to jump to the maximum rate of $9 per kilowatt-hour, a 7,400 percent increase over the normal rate of 12 cents per kilowatt-hour, The Texas Tribune reports. “The rate hike was supposed to entice power generators to get more juice into the grid, but the astounding costs were also passed directly on to some customers.”

Texas became national news because its power grid, overseen by the Electric Reliability Council of Texas (ERCOT), nearly collapsed and 4.5 million customers lost power. But “now that the lights are back on in Texas, the state has to figure out who’s going to pay for the energy crisis,” Bloomberg News reports. “It will likely be ordinary Texans.”

“The price tag so far: $50.6 billion, the cost of electricity sold from early Monday, when the blackouts began, to Friday morning,” Bloomberg estimates. “That compares with $4.2 billion for the prior week.” Texas allows energy retailers to compete for customers, and those who opted for variable-rate plans face huge bills — up to $17,000 in one case. But even utilities with fixed-rate plans “that ran up huge losses as the cost of electricity skyrocketed last week will inevitably try to recoup those through their customers, taxpayers, or bonds,” Bloomberg reports.

Texas Gov. Greg Abbott (R), who appointed the PUC, said Sunday he will work with the legislature to address the huge energy bills. But the customers’ pain is the energy industry’s gain, ProPublica and The Texas Tribune report. After a 2014 freeze, Houston’s CenterPoint Energy bragged to investors that it “benefited significantly” from high energy prices during the resulting power squeeze, adding, “To the extent that we get another polar vortex or whatever, absolutely, we’ll be opportunistic and take advantage of those conditions.”

Under the Texas system, power companies not only aren’t required to produce enough energy to avoid blackouts, “they are incentivized to ramp up generation only when dwindling power supplies have driven up prices,” ProPublica and the Tribune report. That’s incentive structure is a recipe for near-misses — and blackouts, said University of Houston energy expert Ed Hirs.

It is also bad politics right now. “We cannot allow someone to exploit a market when they were the ones responsible for the dire consequences in the first place,” said state Rep. Brooks Landgra (R). Peter Weber

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