Texas power crisis could cripple small marketers, unravel market deregulation

By Gary McWilliams
HOUSTON (Reuters) - Texas retail electricity marketers appeal for multi-million dollar bills from last week's blackout that could cripple them and unravel the nearly two-decade-old experiment in Texas as the most deregulated U.S. electricity market.
Wholesale prices, which averaged $ 26 per megawatt hour last year, rose to $ 9,000 per MWh for days as carriers tried to fix a severe shortage that up to 4.3 million residents shivered in the dark last week let. The state's total bill for electricity over seven days increased by $ 45 billion from the previous week, lawmakers said on Thursday.
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"The state is likely to experience the largest number of retailer outages ever seen," said Patrick Woodson, executive director of Green Energy Exchange. "The competition will all but cease to exist." His company will survive, he said, even though service fees were nearly $ 19 million, down from $ 37,000.
Some consumers also face huge bills. During the freeze, around 40,000 consumers whose monthly plans were tied to wholesale prices received bills of up to $ 9,500 as the generators froze and prices rose. State officials have said they will help consumers. The state has around 6.4 million electricity accounts for private households.
LOSS OF COMPETITION
Texas deregulated its power grid in 2002, dividing generation from transmission lines and retail sales. Hundreds of marketers sprang up offering fixed, variable, and indexed tariffs and fuel options. The impact of the failure will accelerate consolidation, experts said.
The division of the industry initially led to modest fees for marketers and generators for maintaining the state power grid. But those charges were tied to the wholesale price of electricity and rose along with electricity costs last week. The retail company saddled with tens of millions of dollars in bills for services that typically cost a few thousand.
The huge increase in fees resulted from the network operator not lowering wholesale prices when supplies became reasonable, said Brandon Young, managing director of Young Energy LLC, which has around 32,000 customer vendors.
"Our utility bills for that week alone are more than our total energy bills for 2020 as a whole," said Young.
The chief of grid operator Electric Reliability Council of Texas (ERCOT) said he kept the wholesale price at $ 9,000 per MWh in order to financially motivate power producers to stay on the grid. Bill Magness, CEO of ERCOT, said late Thursday he and other officials hope to regulate the fees.
ERCOT has not relaxed its order that companies have to pay fees within 72 hours to avoid having their customers assigned to large utility companies.
ASK FOR REPRIEVE
Natural gas utilities and power producers who buy the fuel for their gas-fired power plants will likely have to borrow money to cover the cost of the gas if prices soar.
Atmos Energy Corp and One Gas Inc each spent over $ 2 billion buying gas as prices hit a record high of nearly $ 24 per million British thermal units (mmBtu) from $ 2.30 per mmBtu . The cost of borrowing would end up in consumer bills, analysts said.
Almost a quarter of the 100 Texan energy companies that receive the high electricity and service bills could end up transferring all of their customers to competitors.
The consolidation could leave more than 80% of deregulated retail customers in Texas with giants Vistra Corp and NRG Energy. Both have bought up rivals in recent years.
Nine companies this week appealed to the state regulator to cancel or postpone fees, which are due 72 hours after invoices are received. Pulse Power, which has 100,000 customers, said it lost $ 2,000 per customer during the week. This emerges from a report to the state.
Another power marketer, Freepoint Commodities, requested a waiver of fees of more than $ 20,000 per MWh over five days, saying the demand for immediate payment was "devastating". The charges are slated to be denied, said associate general counsel Simona Patru, who declined further comments in an email.
CUSTOMER EXCHANGE
For consumers, the loss of these mostly small marketers and the potential referral of their customers to a handful of large utility companies will reduce available plans and raise prices, according to consumer advocates.
"Prices can go up too easily in a lack of competition," said Tim Morstad, deputy state director for the consumer protection group AARP Texas. "That's where this train goes."
Texas has urged the state's largest utility companies, including Vistra Corp.'s TXU, to accept customers from other providers. TXU announced to the state that it would add more than 1.3 million new customers.
(Reporting by Gary McWilliams in Houston and Scott DiSavino in New York; Editing by Marguerita Choy)
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