Subsidizing Texas’ “Free Market” Fail

April 23, 2021

Holy crap what a story.

Washington Post:

When that big freeze hit Texas in February, the Lone Star State couldn’t help but share its pain.

With its ill-equipped natural gas systems clocked by the cold, Texas’s exports across the Rio Grande froze up and 4.7 million customers in northern Mexico went without electricity — more than in Texas itself. The spot price of gas jumped 30-fold as far west as Southern California. And all the way up by the Canadian border, gas utilities in Minnesota that turned to the daily spot market to meet demand say they had to pay about $800 million more than planned over the course of just five days as the Texas freeze-up pinched off supplies.

“The ineptness and disregard for common-sense utility regulation in Texas makes my blood boil and keeps me up at night,” Katie Sieben, chairwoman of the Minnesota Public Utility Commission, said in an interview. “It is maddening and outrageous and completely inexcusable that Texas’s lack of sound utility regulation is having this impact on the rest of the country.”

The Texas market is so large — second only to California’s — and its natural gas industry is so predominant that when things go wrong there, the impacts can be felt across the country. And in a state that eschews regulation, driving energy producers to cut costs as deeply as they can to remain competitive, things went spectacularly wrong the week of Valentine’s Day.

Minnesota’s biggest gas companies are putting forward plans to recoup their expenses by adding a surcharge to customers’ bills, which the state utility commission would first have to approve. Normally, such adjustments to account for winter prices go into effect in September, but Minnesota’s biggest gas utility, Houston-based CenterPoint Energy, says the financial pinch is so great it wants to start billing customers next month — and charging them nearly 9 percent interest until the extraordinary costs are paid off.

At the same time, the company’s CEO, David Lesar, has been assuring investors that the company has access to plenty of cash and its weather-related costs nationally are not a concern.

In state after state, from the Gulf Coast to the Rockies, from the Ozarks to the shores of Lake Superior, utility regulators have launched investigations into what went wrong, and gas companies have moved to pass on their exceptional costs to customers. Investigators say they are on the lookout for evidence of price-gouging and market manipulation. In Minnesota, where the temperature dropped below minus-20 degrees in February and scarcely a single customer lost gas or electricity, state officials are struggling to come up with an equitable solution to a debacle made in Texas.

Gas prices in Minnesota rose to 70 times their normal level, as deliveries to the state’s main trading hub dropped by 39 percent.

“I don’t think we even yet truly understand what happened,” said state Sen. David Senjem (R-Rochester), a former Minnesota legislature majority leader. “I hope they realize they better get their system a little more solid,” he said of Texas. “Unfortunate. You could use stronger words, but I better not. They got caught, and the rest of us did, too.”

Senjem sponsored a bill that would provide $115 million in state funds as relief for hard-pressed residents and municipally owned small utilities. It passed the Senate and is awaiting action in the House. He said he hopes federal funds from the American Rescue Plan act could also come into play.

Of the four major commercial gas utilities doing business in Minnesota, attention has focused on CenterPoint, because it is the largest, with 800,000 residential accounts; has pushed most aggressively for relief; and is based in Texas.

CenterPoint says it needs to impose a monthly surcharge on its customers for the next two years to recover the extra $500 million it spent on gas during that one week in February. Tacked onto the surcharge would be interest of 8.75 percent. The total, the company says, would amount to between $300 and $400 per residential account. And it wants to begin billing right away, even before the utility commission has sorted out its position on what CenterPoint calls the “February market event.”

That approach is similar to plans the company is apparently preparing to put forward in Oklahoma and Arkansas.

“We did not have any reliability issues on the delivery of gas here in Minnesota,” Amber Lee, the company’s Minnesota director of regulatory affairs, told a utility commission hearing. “And yet it was an extraordinary event.”

Oh, and you’ll never guess who ended up being huge winners during the freeze.

Bloomberg:

It’s more than two months after the deadly winter storm that paralyzed Texas, but it’s only now that some of the largest financial winners and losers are emerging.

Kinder Morgan Inc. shocked many in the energy industry when it reported a $1 billion dollar gain late Wednesday due to wildly profitable gas sales during the freeze. The earnings report caught analysts off guard and raises the prospect of more surprises to come in the latest round of quarterly earnings.

Kinder’s bombshell disclosure “will surely set in motion a thematic that will likely carry through” quarterly earnings season, said Timm Schneider, a Citigroup Inc. analyst. “Further, we view KMI’s large beat as a ‘zero-sum-game,’ meaning someone (i.e. buyers of the gas) had to pay the bill, which could make for some interesting utility earnings calls.”

Kinder’s sprawling network of pipelines and gas storage facilities positioned it to ramp up shipments to power generators at the height of the emergency as wells and pumping stations froze.

Other Kinder peers seen as potential winners from the Arctic blast include Enterprise Product Partners LP and Energy Transfer LP. There is ample room for upside: Prior to Kinder’s announcement, analysts were forecasting the lowest first-quarter adjusted profit per share in four years for Enterprise. Meanwhile, Energy Transfer was expected to bounce back from an atrocious year-earlier performance but still fall short of 2019 results.

Energy Transfer Co-Chief Executive Officer Marshall McCrea foreshadowed a banner quarter before the storm had even ended, telling investors during a conference call that the company did “exceptionally well” as gas shortages spurred orders for fuel stowed in underground caverns.

The pipeline giant created by billionaire Kelcy Warren is facing backlash from at least one Texas utility that objected to the rates it was charged for gas. CPS Energy has sued Energy Transfer as well as BP Plc, Chevron Corp. and others for allegedly charging 15,000% more than the typical price for gas.

On the other side of the market, the list of self-admitted or probable losers is long.

Atmos Energy Corp., a Dallas-based utility that ships gas to 3 million homes and businesses across eight states, racked up $2.5 billion in fuel costs during the disaster. Calpine Corp., Vistra Corp. and NRG Energy Inc. all said disruptions to gas deliveries interfered with their ability to generate power just as frigid weather sent residential demand soaring.

Vistra has gone as far as to warn the event may have slashed $1.3 billion in profit.

“There was a significant amount of wealth transfer from power to gas,” Vistra Chief Executive Officer Curt Morgan told a state legislative hearing in February. “We’re the guy sitting in the middle, getting it from both ends.”

The burden is so heavy on municipal utilities and rural energy cooperatives that Texas lawmakers are considering a rescue that could include sales of low-interest 30-year bonds backed by extra charges on residential bills.

Amazing. Almost as if they had a lot of influence on how the “free market” ERCOT system was designed…

Washington Post again:

In a March 15 filing, CenterPoint said immediate relief was necessary “to ensure the continued financial health of the utility.” Without it, the company said, its credit rating would fall and its ability to borrow would suffer. On April 9, it said the issue was “of the utmost concern.”

That’s in contrast to the reassuring message delivered by Lesar, the CEO, in a call with investors a week after the cold snap.

“We believe we have ample liquidity from our credit facilities” to meet the costs associated with the freeze, he said. “We will incur modest additional interest expense related to some of these excess costs until they can be recovered. We view this more as an addressable working capital management challenge, which we will manage our way through.”

He boasted about the company’s relationships with state regulators, and said he expected them to come through for CenterPoint. “As we have mentioned many times, we are fortunate to work in constructive regulatory jurisdictions and fully expect these costs to be recoverable in a timely manner,” he said.

CenterPoint argues that its push for immediate relief is to ease the burden on its customers, because the sooner the $500 million is paid off, the less the interest charges will be. Also, it says, any delay would affect its credit rating, leading to higher borrowing costs that would eventually be reflected in bills.

In Minnesota, as in states across the country, utilities’ legitimate expenses are passed on to customers. And Lesar’s sunny view of the company’s prospects is based on the expectation that regulators will be amenable to CenterPoint’s plans.

Ross Corson, a company spokesman, wrote in an email, “We are committed to addressing these extraordinary costs in a way that limits the impact on our customers while being financially responsible as a company.”

Minnesota’s second-largest gas company, Xcel Energy, also wants to spread the recovery of costs over two years — but said it would not charge interest, which it said would amount to $24.7 million on borrowing to cover its expenses. The company, based in Minneapolis, predicted a charge of about $250 per residential customer. Minnesota Energy Resources said it would hope to recover about $225 per customer. The smallest commercial utility, Greater Minnesota Gas, said it had enough of a supply in storage in February and was able to avoid the spot market.

The state’s Department of Commerce objects to CenterPoint’s request to begin the extra billing in May. “We have a process” that sets a September date for adjustments, Commissioner Grace Arnold said. “We don’t need to make an exception.”

She said her department intends to determine if the utility’s expenditures were reasonable and if its preparations were prudent. If so, she said, it’s appropriate to pass costs on to customers, but the analysis “will take a little bit of time.”

More at the Post’s link. Really phenomenal.


This final note from a separate Bloomberg story:

Texas has long taken a laissez-faire approach to its power grid, allowing market forces — rather than regulations — ensure there’s enough power on hand to satisfy demand. State lawmakers have been reluctant to buck that philosophy as they consider legislation to address the problems that led to February’s crisis. Yet without changes, unpredictable weather will continue to beget chaos, experts warn.

“The reality is the market is designed to operate with very thin reserve margins,” said Katie Bays, an analyst at FiscalNote Markets. “And weather unpredictability combined with a white-knuckle approach is going to produce volatility.”

21 Responses to “Subsidizing Texas’ “Free Market” Fail”

  1. al mar Says:

    Maybe this will drive more people to go renewable, and maybe even disconnect from grid. Texas’ stupidity may have a silver lining.


    • We are nowhere near replacing gas with renewables. Gas is pretty much essential for dealing with intermittency. Take a look at a pie chart of California’s electricity mix. It’s nearly half gas!

      • J4Zonian Says:

        Yes, because I had oatmeal for breakfast, I must have oatmeal for lunch. There is no other choice, even though I have 30 or 40 other choices of meals in the house or could order out.

        Canman, are you really this fucking stupid or are you pretending to be? )Which would be pretty fucking stupid.)

        Besides the constant videos and text from Peter, I and others have commented in depth on the paths to 100% clean safe renewable electricity, basing it on dozens of peer-reviewed studies and at least 23 countries that are already at or near 100% RE. And the information is available in many forms in many other places. Are you completely unable to learn or are you just lying–which demonstrates a staggering inability to learn? Lying, stupid or crazy? Or all 3?

        I’d post it again but I’m sure people are tired of it by now, and obviously facts have no effect on you. Why not fix the problem? Seek psychotherapy.

    • J4Zonian Says:

      Going renewable, yes. Disconnecting from the grid, no.

      We need diverse, widely geographically distributed renewables on the grid. That includes a lot more residential, commercial, and public solar than we have, with storage either on site or in the grid. A national law to require storage with solar after a grid reaches a certain percent of solar and before it reaches a certain percent of storage would be useful. (Levels to be determined, subsidies to be provided so it doesn’t reduce the rate of increase of solar or it’s increase in progressivity.)

      • rhymeswithgoalie Says:

        Enough marketeers and business people are eyeing the spikes in cheap electricity for their profit potential to give me hope. That’s a “market force” that will drive both storage-based energy brokers and industries that can make a profit off of even erratic sources of cheap energy.

        Meanwhile, I hope the “market force” of all of those who were pissed off by Texas’ energy performance will include lots of juicy lawsuits to claw back the profits made from sunny-day planning.

        • J4Zonian Says:

          The “market” is controlled by the oligarchy and has absolutely nothing to do with free anything. It has not, is not, and will not make the right things happen, and won’t make anything happen even close to fast enough. (The right things are those that will allow civilization to survive.) To get out of this will take massive, immediate, forceful government action.

  2. talies Says:

    I’m invested in green hydrogen: ITM Power which develops electrolysers


  3. Unbelievable! Minnesota blaming Texas for high natural gas prices during a cold spell? Perhaps they might want to take a look at all the pipelines being blocked and all the fracking bans.

    • J4Zonian Says:

      Right back atcha, tool.


    • I suggest you take a high school course is simple supply and demand economics.
      1) Texas NG production failed
      2) Other suppliers of NG had to fill the void
      3) Suppliers of NG whose resources had not failed were able to raise their prices due to scarcity
      4) Failure of regulation allowed this profiteering on misery

      You are already a laughing stock, but now you are just the object of pity and disgust


      • The Kinder company described in the Bloomberg piece was continually providing gas with its pipelines and storage facilities. Whether or not their profits were excessive, they were following rules just like Warren Buffet when he harvests a bunch of tax credits for his wind turbines, which make electricity more unreliable and expensive unlike Kinder’s gas infrastructure, which DID provide a constant gas supply and over time have undoubtedly contributed to remarkably low gas rates.

        Kinder might invoke a lot of envy and may even get dinged for some arcane over-profiting regulation, but they were there providing gas. Nobody complains when they or companies like them have to cut resources and struggle because of low profit margins due to what have been remarkably low gas prices.

        All the wind and solar apologetics in the second video are very disingenuous. Big deal if they performed up to their expectations. The video doesn’t mention that those expectations don’t include providing any reliable support during the storm because they can’t! They are utterly dependent on gas backup.

        • Mark Mev Says:

          Texas electrical generation was down 34,000MW on 2/15 and down 31,000MW on 2/16. The failure of thermal power plants — natural gas, coal, and nuclear plants — caused a loss of 25,000-31,000 MW of thermal generation. Compare this to wind generation. Wind power is currently producing about 4,000 MW, or 2/3 of the ~6,000 MW that ERCOT was counting on wind to contribute during winter peaking events. Solar is coming online now and helping during daytime, exceeding the <300 MW it is counted on for in system planning. SO wind production decreased by 2,000MW, thermal production decreased by 25,000-31,000 MW.

        • J4Zonian Says:

          Ordinarily he is insane, but he has lucid moments when he is only stupid.
          Heinrich Heine

          Too bad this—and every other moment I’ve seen from him—isn’t one of them.

          There’s a Sri Lankan* folk tale cycle Joseph Campbell told, about a naive-seeming boy who for no apparent reason, buys 2 knice knives, finely hand-worked but identical, before he joins the crew of a ship. He leaves one wrapped up, and is working at the side of the boat with the other, “public” one one day as they sail along. He accidentally drops it off the side. The others urge him to jump right in and see if he can get it before it sinks too deep. He laughs and says no, borrows another knife and cuts a notch where he was standing. He says he’ll just jump in later where he marked it and get it then. They ridicule him of course, and insist on making bets, but later that day he gets the other knife, keeps it hidden, ostentatiously jumps overboard where the notch is, and surprise, comes up with the knife!

          Just like the makers of that execrable piece of pseudocelluloid cow patty Planet of the ARFs**, Canman seems not to understand time. S/he thinks (or at least claims) that just because something happened in the past and we’re still here, that—like oatmeal—that past is still happening, and will be happening forever. It comes from a skewed relationship between the body and mind, and between the growth of the 2 memory structures in the brain, the hippocampus and amygdala, that’s caused by trauma.***

          “There is no present or future—only the past, happening over and over again—now.”
          ― Eugene O’Neill, A Moon for the Misbegotten

          “Because things are the way they are, things will not remain the way they are.” Bertolt Brecht

          Things change. The prices and abilities of clean safe renewable energy sources and batteries have changed. Canman should change. We can get healthy, if we take the right actions.

          * the stories are a lot about the ancient name for Sri Lanka, Serendripa, Sanskrit ancestor of serendipity.

          ** Anti-Renewable Fanatics

          *** Trauma and Recovery, Judith Herman. The Body Remembers, Babette Rothschild

        • rhymeswithgoalie Says:

          Nobody complains when they or companies like them have to cut resources and struggle because of low profit margins due to what have been remarkably low gas prices.

          It’s the gas companies talking out of both sides of their mouths: They tell investors that everything is peachy, and the grid will need natgas thermal plants for a long time, and give dividends to investors out of money saved by skimping maintenance and adaptation, etc. Meanwhile, the individual companies that have gone broke are leaving behind a lot of expensive abandoned wells (many still spewing methane) for public cleanup.

          At least if commercial solar and wind energy producers cheat us, they won’t leave as bad a mess if they go out of business.

        • rhymeswithgoalie Says:

          Are you really going to quote someone like Judith Curry, who’s willing to lie* to a senate investigation hearing about satellite data to support the denialist line that the Earth isn’t gaining heat?

          _______
          *OK, it’s a possibility that she really believed the stupidity she spewed.

  4. Mark Mev Says:

    Complete misinformation. Based on installed capacity. Again, ERCOT lost around 28GW of expected thermal electrical generation, compared to 2GW of expected wind electrical generation. Wind is getting so much cheaper than thermal electrical generation that even with the lower capacity factors, new wind farms will continue to be built over new coal/gas/nuclear.
    The goal is not to replace all thermal electrical generation in a couple of years with wind/solar/batteries/HVDC/hydrogen. It is a progression that will take decades.
    Shellengerger and others keep harping that the problem with the California and Texas blackouts were the result of renewables. They weren’t. It is not rocket science.
    Pointing out that an immediate switch to renewable electrical generation would not work right now, doesn’t mean it is not going to work in the future.

    • J4Zonian Says:

      As far as Canman’s bile-spewing, anyone who knows anything about the field would take a look at that post, see: Schellenberger, Forbes, Curry, laugh uproariously though bitterly and move on, wasting no more time on it. Ideological psychopaths like Canman will continue throwing their feces at onlookers and committing treason against the world.

      But it can’t take decades, or civilization and most life on Earth won’t survive. An immediate switch to 100% renewable electricity AND primary energy is both possible and absolutely necessary.

      100 x 30. Net negative by 30.

      • Mark Mev Says:

        My decades comment is due to my pessimism. I wish I was wrong, but then the USA did almost elect for a second term someone who’s name we do not say.

        • J4Zonian Says:

          I don’t understand your comment. The US oligarchy did select a mentally deteriorating far right moron, and I’m not talking about Trump. The praise being heaped upon Biden and the second right wing of the oligarchic duopoly is flabbergastingly ignorant and self-serving.

          If we want civilization and most life on Earth to survive, it simply cannot take decades. This is not about optimism or pessimism, it’s about understanding ecological science. I make no judgment about what will happen in the future, but the timeline of collapse remains unaltered. It depends partly on whether the bulk of emissions are eliminated now or in 2029, but even best case scenarios only give us a 50% chance at survival at best. The only practical action is a massive immediate peaceful revolution to take power in the US and implement a comprehensive emergency Green New Deal, to avoid both fascism and climate catastrophe.

  5. rhymeswithgoalie Says:

    “At the same time, the company’s CEO, David Lesar, has been assuring investors that the company has access to plenty of cash and its weather-related costs nationally are not a concern.”

    It’s only now that the Feds are required that publicly held companies’ income/profit reporting to the government match the numbers that they give their shareholders. That’s been a long time coming.


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