The Power Is Back On In Texas. Now Comes The Recovery, And It Won’t Be Cheap
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BY CAMILA DOMONOSKE
For Texas, it’s looking like a daunting power bill.
The Lone Star State racked up tens of billions of dollars in electricity expenses, as a free-wheeling market design sent prices skyrocketing. It tallied tens of billions more in damage and economic losses from blackouts.
The state could spend years paying down those costs — costs that many experts say were avoidable had Texas taken pre-emptive steps to leave its independent, isolated power system better prepared for this month’s winter storms.
So far, a lot of attention has focused on one element of the financial fallout: the extraordinarily high bills some Texans have received for the power they used during the crisis.
Take DeAndrew Upshaw of Dallas. His electricity bill is normally $80. A bad month is $300. His electricity bill over seven days in February? $6,700.
“That’s unfathomable,” he says.
A worker fixes a water pipe in Galveston, Texas, on Feb. 19. The power is back on in much of the state, but the Lone Star State now faces the hefty cost of emerging from its devastating storms.
CREDIT: Thomas Shea/AFP via Getty Images
The eye-popping amount was made possible because of Texas’ reliance on free market principles — competition between a multitude of companies — to manage its supply of electricity.
When demand is high and supply is low, market prices go up, by design. It’s supposed to motivate companies to bring more power to the grid.
But last week, cold-stricken power plants just couldn’t deliver more power, so prices went up and stayed up for days.
Meanwhile, Texas allows households in much of the state to choose their provider from a long list of competitive companies, rather than just using the local utility.
A few of those companies, like one called Griddy, offer unusual plans that directly expose customers to those volatile wholesale prices.
Sometimes that’s economical. Last week, it was exorbitant.
That’s how Upshaw, who was then a Griddy customer, got stuck with the $6,700 energy bill.
The state government is considering ways to give some relief to customers like Upshaw.
But Upshaw will likely not be completely off the hook. And neither will Texans who pay fixed rates for their power and are facing more reasonable bills.
That’s because their electrical providers have racked up giant expenses that need to be paid off eventually.
And whether through taxpayer bailouts or through future rate increases, all those expenses will likely be born by ordinary Texans.
It will be costly. According to BloombergNEF, last week in Texas was the most expensive week in the history of U.S. power markets: Despite the massive blackouts, the state spent some $50 billion on electricity, more than 10 times higher than the week before.
Not all companies suffered, of course. Some companies that make power and managed to produce through the crisis saw a big payday.
But for some companies that buy and sell power, it was hugely pricey, though not for all. Just like Upshaw was exposed to high prices while others were’t, some utilities had to pay sky-high market prices while others had locked in more reasonable rates through long-term contracts.
ERCOT, the organization that manages Texas’ power grid, announced Friday that the state’s power market is missing some $2 billion because of power companies that couldn’t pay their bills.
CPS Energy, which serves San Antonio, was one of the utilities forced to buy some power at the high prices. They took an even bigger blow from remarkably high bills for natural gas, the fuel that powers many Texas power plants. At one point, fuel costs were up 16,000%, says CEO Paula Gold-Williams.
Gold-Williams says it’s too soon to say just how much money the utility bled.
She promises San Antonio residents won’t see an abrupt spike in rates. But she acknowledges they may wind up paying off the utility’s expenses gradually for years to come.
“We have … started creating a way to potentially spread those costs over multiple years,” Gold-Williams told reporters on Monday.
These sky-high electricity costs for both Texans and utilities are just the tip of the iceberg when it comes to the financial fallout from this disaster.
The prolonged power outages caused suffering, death and destruction. Businesses were unable to function, leading to lost production and ripple effects to suppliers and other parts of the U.S. economy.
Meanwhile, in many buildings across Texas, pipes froze, then thawed and spewed water, creating costly damage.
“Literally, for many people, their ceilings have fallen down. Homes have been destroyed,” says Houston Mayor Sylvester Turner. “A lot of people don’t have insurance. They don’t have the financial means.”
One estimate has pegged Texas’s losses at $90 billion, according to Enki Research, which works with international agencies and non-governmental agencies.
Turner, and a whole host of energy experts, argue this could have been prevented had the state invested to weather-proof its power system against extreme winter storms.
Peter Larsen, who researches electricity markets for Lawrence Berkeley National Laboratory, says this is a calculation utilities often struggle to make.
That’s because the costs “can be staggering,” he says, and they’re easy for utilities to quantify.
The benefits are also huge, but they’re harder to calculate, partly because they’re things that don’t happen: the pipe that won’t burst or the business that won’t have to shut down.
And these costs are only realized when a relatively rare event happens that ends up exposing the lack of investment as a catastrophic miscalculation.
“If a utility didn’t make an investment … everyone bears the cost in some way or another,” Larsen says. “And it goes well beyond Texas.”
So, Texas will face a key question: as it absorbs the costs of recovering from last week, is it now willing to pay to prevent such crises in the future?
Gold-Williams, the CPS Energy CEO, pondered the question earlier this week.
“We’re going to have to have a conversation across the state about, what do we want to protect? I believe we want to protect lives and people’s livelihoods,” she said. “And so that could cost an uplift or a overall increase in price.”
Ultimately, Gold-Williams says that would be the wisest choice.
“It would be, I think, much more manageable cost than what we’re seeing now,” she said.
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