In February 2021, a large portion of the central United States was impacted by Winter Storm Uri, which triggered lengthy power outages in Texas and led to record electricity and natural gas prices. The public narrative concerning the energy industry in the aftermath of this storm has generally been:
- That the outages were caused and/or at least exacerbated by the competitive (retail choice) market structures in place (especially in Texas), and,
- That customers (especially residential customers) who were being served by retail suppliers in competitive (retail choice) states like Texas began receiving exorbitant bills due to unscrupulous retail energy companies charging excessive prices.
The implication is that neither of these outcomes would have happened and/or would have been diminished had a traditional vertically integrated monopoly model been in place rather than one that enables choice and competition.
The first point about the outages themselves being attributable to and/or exacerbated by competitive market structures has already been refuted by several industry experts. The Texas power grid (ERCOT) failed because of extremely cold temperatures and the duration of those conditions. The root cause of most generator outages has been linked to the concurrent effects on generators both directly through equipment failures and indirectly through curtailment of natural gas fuel supply. These equipment failures had nothing to do with end-use customers having the ability to choose a retail supplier.[1] This issue has come back into the forefront in a recent story in the Texas Tribune. The story reports that as temperatures dropped in early January 2022, natural gas production fell by about 20% in the state’s top energy-producing region.[2] While this drop was not enough to cause a shortage of electricity generation, the level of weatherization of the gas delivery system remains a concern. The ability of retail customers to choose a supplier is not being called into question.
Additionally, an Intelometry whitepaper[3] brings additional evidence to the forefront in addressing the second point concerning how the volatile energy costs experienced during that period were paid for and by whom. According to the data in the paper, very few residential customers served by competitive suppliers experienced increased energy bills due to the storm, and that, in the vast majority of cases, competitive suppliers, and not their customers, absorbed the costs of the wholesale market price spikes. On the other hand, residential customers being served under a regulated utility construct were in many cases not protected from the storm’s financial impacts and will, in fact, be paying the costs associated with the storm for many years to come.
The reasons why are revealing. The situation at the time was less than 1% of the residential customers served by retail suppliers in Texas were served by contracts based on wholesale market hourly prices. This means that most retail supplier residential customers were on fixed-price contracts and unaffected by the wholesale market volatility. Residential customers under this type of retail power contract paid the same fixed price per kWh during the time period. Meanwhile, according to Table 1 of the Intelometry report, many residential customers in the vertically integrated areas of Texas (that do not enable choice of supplier) will be facing upwards of $7.6B in future costs that are being ‘passed on’ by the vertically integrated monopoly utilities that “protected” them from these events. This same table shows an incremental cost of $373 for every residential power customer and $450 for every residential gas customer served in a vertically integrated (non-competitive) region in Texas.
[1] RealClear Energy: “Five Truths About Grid Reliability and Deregulation”, Devin Hartman & Beth Garza, March 15, 2021
[2] The Texas Tribune: “Texas Natural Gas production dropped during recent cold front, reviving concerns about electric grid”, Mitchell Ferman, January 5th, 2022, www.texastribune.org/2022/01/05/texas-power-grid-natural-gas-cold/
[3] Intelometry Report: “Beyond Texas – Evaluating Customer Exposure to Energy Price Spikes: A Case Study of Winter Storm Uri,” February 2021, October 2021, https://www.nrg.com/assets/documents/energy-policy/Energy_Choice_Protecting_Customers.pdf
