In February 2021, Texas was hit by a cold front that brought freezing weather and ice across large parts of the state. In response, the purposely weak Texas power grid absolutely collapsed, leading to over 700 deaths. But even as homes were destroyed by bursting pipes and businesses were idled by a lack of power, not everyone was crying. Electrical providers actually celebrated “hitting the jackpot” as the Electric Reliability Council of Texas (ERCOT) cranked prices up to the maximum. That means that providers, even those who were greatly underperforming against their projected output, made more in two miserable days than they made over the rest of the year.
But not every provider came out lucky. Brazos Electric is a cooperative that operates four plants offering up to 2,900 megawatts of electricity. However, Brazos also sold power provided to it by other producers, including Duke Energy. As a result of the freeze and ERCOT’s pricing strategy, Brazos Electric was saddled with a bill for over $2 billion for just a few days of power. Rather than forward that massive bill to co-op members and consumers, Brazos filed for bankruptcy. Then it took the whole Texas power system to court.
As The Houston Chronicle reports, that case generated some dramatic testimony on Wednesday. That’s when former ERCOT CEO Bill Magness took the stand to point a finger straight at the person who had made sure that prices for electricity in Texas didn’t just peg the dial, but stayed at a maximum days after the system was back in business. And that person was Texas Gov. Greg Abbott.
According to Magness, who has since been fired from ERCOT, even though power systems were coming back on line within 48 hours of the initial collapse, he got a message from the governor’s office.
“She told me the governor had conveyed to her if we emerged from rotating outages it was imperative they not resume,” Magness testified. “We needed to do what we needed to do to make it happen.”
What ERCOT could do was what ERCOT did: keep prices punishingly high. Prices were held at $9,000 per megawatt hour, over 150 times greater than the average price.
According to the Chronicle, the thinking behind this was that it would “encourage large power users like factories and petrochemical plants to stay offline.” In other words, the cost of electricity was set so high that business didn’t dare operate, because they couldn’t face the bills. However, that same price was passed along to consumers by many providers, generating costs that found ordinary households facing bills well above $15,000 for a single month of power.
It was also a strategy that ignored the real problems with the grid, like how natural gas providers had failed to insulate pipelines and storage facilities, meaning that many Texas power plants were simply unable to get fuel. Raising the prices for power did nothing to help.
Instead, this was punitive pricing, designed to punish anyone who dared use power. Except that it also came in the middle of an intense wave of cold, at a time when people had to use electricity to warm their homes.
And even if that punish-them-with-pricing strategy seemed like a good idea on Feb. 15, when the Public Utilities Commission first pushed ERCOT to set the needle at the maximum price, there doesn’t seem to be a good excuse for keeping it there an additional two days after the system had stabilized.
Magness explained concerns about the remaining potential for failures, and the bankruptcy judge seemed to sympathize, saying the former ERCOT official was “looking into the unknown” when trying to figure out the best response.
But the biggest news may be the testimony that Abbott was directly involved in setting the electrical price high and keeping it there. That’s because last year, Abbott’s office denied any connection to ERCOT’s pricing strategy. Abbott spokesman Mark Miner said that Abbott was not “involved in any way” in the decision to keep prices at the maximum, despite having an aide seated with the ERCOT board during the crisis. That statement is directly counter to Magness’ testimony.
On the question of whether lowering prices would have put the power grid at risk of additional failures, the answer isn’t completely clear. The way pricing structures are set up at ERCOT, the incentive to fail is high. When average price for a megawatt of power is less than $60, the opportunity to see it shoot up to $9,000 is rarely missed. While Texas may have few outages as bad as those that happened last February, even in the average year, electrical providers make most of their money in just a few days when the system is at or near collapse.
Those prices help ensure that no one in Texas is actually building backup capacity, or investing in hardening their facilities against bad weather. The incentives are all there to make more money through failure instead of reliability.
However, what appears to be 100% clear is that Abbott lied to the state, and to regulators, when he claimed to have no involvement in the decision to keep prices high.