Mar 5, 2021 - Economy

Financial fallout from the Texas deep freeze

Illustration of fractured ice in the shape of Texas

Illustration: Annelise Capossela/Axios

Texas has thawed out after an Arctic freeze last month threw the state into a power crisis. But the financial turmoil from power grid shock is just starting to take shape.

Why it matters: In total, electricity companies are billions of dollars short on the post-storm payments they now owe to the state's grid operator. There's no clear path for how they will pay — something being watched closely across the country as extreme weather events become more common.

Catch up quick: There was a "cascading failure of infrastructures" in the wake of the statewide cold front, says Josh Rhodes, a research fellow at the University of Texas at Austin's Webber Energy Group.

  • "Our gas, electricity and water grids failed," while millions went without power and water. Officials are still tallying how many died.
  • One example of the massive money effect: Wholesale power prices rose from roughly $50 per megawatt hour to $9,000. As the costs for electric companies rose, resident bills also soared.

What's happening: Electricity providers can't pay the Electric Reliability Council of Texas (ERCOT), which operates the state's power grid, for the power they used.

  • So ERCOT is now short on what it has to pay power generators.
  • Think of the ERCOT like a clearinghouse. It collects money from electricity providers. It then pays the companies that produce power.

The domino-effect fallout from the massive price spike is still taking shape. Just this week ...

  • Brazos Electric Power — the state's oldest and largest power company — couldn't pay $1.8 billion of its ERCOT bill and filed for bankruptcy, the first to come as a direct result of the crisis.
  • Entrust Energy became the second electricity provider to be barred from Texas' power market by ERCOT. It can't pay its bill, either.
  • Another — Energy Monger — is preparing for the same fate and started offloading customers this week, per Bloomberg.
  • The unpaid bills to ERCOT, in total: over $2.2 billion.

Also this week: Heads started to roll at the top decision-making bodies.

  • The chair of the state's top energy regulator Public Utility Council, which oversees ERCOT, is out. So is the head of ERCOT.

Between the lines: Regulators said today they aren't going to retroactively reprice electricity costs — even though a watchdog said they overcharged companies by as much as $16 billion, the Texas Tribune reported.

What to watch ... The worst-case scenario: Residents on the hook for decades.

  • The cost could be passed along to Texas customers as a surcharge. But current laws limit how much utilities can charge you extra per month.
  • "With billions of dollars in short pay, you're talking decades to clean that up," Rhodes says.
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