TexasElectricityRatings.com by Vernon Trollinger 3/2/2021
Electricity Customers Will Survive the Texas Power Grid FailureOne impish pal privately quipped to me that news about the Texas freeze reminded him of Sunday morning church after a Saturday night chili festival — lots of strained grimaces, startling noises, and mortified amazement. Still, crude humor aside, Texas energy customers are rightly outraged at events that grew into a federally declared disaster. With this ordeal slowly resolving, many electricity consumers are worrying about their electricity in the coming months. Could your Texas electricity provider go out of business? How might the Texas electricity market change? Will your energy rates increase? Of course, we’ve been watching all the moving parts on this. To help keep you informed, we’re going to drill down into the latest REP news. That way, we can show energy customers how to best weather the Texas grid failure.
Texas Retail Electricity Providers OrdealTo begin getting a handle on all this, it helps to understand something of the REP perspective. During a normal Texas winter, most REPs plan for volatile electric prices. They contract with generators to buy electric supply in advance at a fixed price. This way, the REPs line up enough electricity as a hedge against prices spiking later on the wholesale markets. Those REPs that didn’t hedge enough risk paying those high prices. REPs also need to have enough collateral to do transactions in the wholesale market. They have just 72 hours to pay ERCOT the fees and collateral requirements for the transaction. If they default, they lose their customers.
But no one prepared for such extreme cold hitting Texas. Rates went higher and higher. When generators went off line, the wholesale rate rose to the $9,000 cap. At that point, ERCOT began asking for increasing amounts of collateral to guarantee each increasingly expensive transaction. At one point, the Chicago-based Exelon, which operates several natural gas generators in Texas, posted $1.4 billion in collateral to ERCOT.
Obviously, this kind of sustained demand for cash threatens the financial stability of smaller REP companies. Add to this the additional financial strain due the PUC suspending billing and smaller, weaker REPs will struggle.
More:
https://www.texaselectricityratings.com/blog/energy-customers-weather-tx-grid-failure/
