This post reviews winter storm Uri, the very improbable and very impactful storm that hit Texas in mid-February. Uri caused an unprecedented loss of generation and triggered extremely high energy prices over several weeks. This letter provides: (i) a review and timeline of the regulatory and legal proceedings that followed Uri; (ii) an overview of Uri’s impact on a variety of market participants (commercial and industry buyers, municipal utilities, wind farms, renewable purchasers, and the natural gas market); and (iii) a look into the legislative efforts to address reliability in the Energy Reliability Council of Texas (ERCOT).
WINTER STORM URI
Uri, the winter storm that fell upon Texas in mid-February, was unprecedented. Beginning on February 11th, the winter storm delivered snow and frigid temperatures to unprepared Texans until it subsided on February 19th/20th. A general overview of the events of winter storm Uri can be seen in Figure 1.
Figure 1: February Winter Outbreak Timeline from weather.gov
As further evidenced by Figure 2, the most frigid period of the storm was from late February 14th to early February 16th.
Figure 2: Cold Review – Houston (Bush Int.) from weather.gov
The amount and type of generation that was knocked off-line by the winter storm is shown in Figure 3.
Figure 3: Off-line Generation by Uri from wsj.com
Winter storm Uri brought cold weather and power outages, which caused a spike in electricity and natural gas prices. The storm-related electricity prices reflect the Texas PUC decision, made unilaterally, to set energy prices to $9,000 per MWh on February 15th.
Figures 4 and 5 further depict these price spikes, showing how the spot price for electricity remained at that $9,000 cap for almost the entire week of the storm and how natural gas prices from Houston Ship Channel spiked during that period as well.
Figure 4: Spot Electricity ERCOT Load Zone North from 5
Figure 5: February Daily Natural Gas Prices: Houston Ship Channel from 5
The following is a chronology of events surrounding winter storm Uri and is meant to give a sense of the legal and regulatory uncertainty created by the storm. Actions taken by ERCOT or Texas PUC are listed in italics.
- February 12 – Governor Abbott declares a state of emergency.
- February 15 – Rolling blackouts begin, 10,000 MW of load curtailed.
- February 15 – Texas PUC orders prices to be set at $9,000 per MWh even though market prices are clearing at $1,200 per MWh due to curtailments.
- February 16 – Texas PUC confirms its order from February 15.
- February 17 – Rolling blackouts end at 23:55 on February 17.
- February 19 – ERCOT maintains $9,000 per MWh pricing through the morning.
- February 24 – Numerous members of ERCOT’s board resign.
- February/March – Numerous filings in favor and against repricing, many focused on the PUC’s decisions of February 15 and 16.
- March 1 – Texas PUC ChairDeAnnWalker resigns.
- March 1 – Brazos Electricity Power Cooperative files for bankruptcy, citing $1.9B in liability to ERCOT.
- March 4 – Independent Market Monitor (IMM) recommends revising and updating market pricing for the period from when load shedding ended (midnight on February 17) to 9 am on February 19.
- March 5 – Texas PUC refuses to reprice, but does not issue a final order on repricing. Filings for and against repricing continue.
- March 6 – CommissionerD’Andreameets with out-of-state investors and promises to put weight of commission against repricing.
- March 8 – Texas PUC commissioner Shelly Boykin resigns.
- March 12 – CPS Energy, San Antonio’s Municipal utility, files a lawsuit against ERCOT for various actions taken during the storm.
- March 15 – Texas Senate passes Bill 2142 that would require the PUC to reprice from 11:55 pm on February 17 to 9:00 a.m. on February 19.
- March 16 – Texas PUC commissioner ArthurD’Andrearesigns, effective upon appointment of successor.
- March 17 – Texas AG issues opinion at request of Lieutenant Governor that PUC has the authority to reprice.
- March 19 – Luminant files in Court of Appeals for 3rd Judicial District in Texas against Texas PUC claiming Texas PUC has prejudged repricing (Exelon joins in April, Calpine opposes).
- March 19-26 – CPS Energy sues 17 major gas suppliers over high natural gas pricing during the winter storm.
- March 20 – Senate Bill 2142 fails to get support in Texas House and dies.
- March 30 – Texas PUC and Luminant file motion stipulating that PUC has not made a final decision on repricing.
- April 1 – Governor Abbot nominates Will McAdams to the board of Texas PUC, pending approval of Senate.
- April 6 – ERCOT issues a letter to Citigroup stating, among other things, that ERCOT is undertaking a review of the process used to calculate how ERCOT will address various payment failures.
- April 12 – Governor Abbot nominates Peter Lake as Commissioner. McAdams testifies in the Senate hearing that rulings on March 5 and 6 were probably wrong, but may be too late to reverse.
- April 15 – ERCOT files at the Texas PUC, a plan to invoice market participants at a rate of $2.5M/month to recover the $2.9 billion shortfall created when certain market participants failed to pay their ERCOT invoices.
- April 15 – Commissioner McAdams confirmed by Texas Senate.
After review of this timeline, it appears that the decision reached by the Texas PUC to replace the market price with a administratively determined $9,000 per MWh cap is the central issue in many of the current regulatory and legal disputes. Over two months after the storm, prices set by the Texas PUC’s actions are still not final. An extended period of regulatory and legal disputes is all but guaranteed due to this uncertainty and the billions of dollars in dispute.
THE COST OF URI
Monetarily, the cost of winter storm Uri is monumental. The cost can be further exemplified by Figure 6, which provides a comparison of average system energy costs against average costs during the winter storm.
Figure 6: Average Energy Costs during 100 Hours of Uri from 5
For comparison, Figure 7 depicts 5’s estimate of the cost of Uri without the intervention of the Texas PUC.
Figure 7: Estimate of Energy Cost of Uri without Texas PUC intervention from 5
Many of the current regulatory and legal disputes are formed around the difference in Net Impact between Figures 6 and 7.
WHO BEARS THE COST?
The theoretical cost of Uri is much easier to determine than who won and who lost. Integrated energy companies that own power generation and serve customer load in Texas are on both sides of the market. For those companies, the high costs of buying power to supply their retail customers should be offset by the high prices received for selling electricity output. The overview below, based on public information, sheds light on Uri’s impact on various different market participants. 
- Municipal Utility: Brazos Electric Power Cooperative
Texas’ oldest electric co-op, Brazos Electric Power Cooperative, Inc, had noteworthy load-serving obligations and insufficient energy supply. The market pricing during Uri was disastrous given Brazos’ significant load obligation. On March 1st, 2021, Brazos filed for Chapter 11 bankruptcy. Brazos currently owes over $1.8 billion to ERCOT for the cost of power supplied during the storm.
- Renewable Generator: Stephens Ranch Wind Farm
Located between Odessa and Lubbock, Stephens Ranch (Stephens) is a 47,000 acre, 376MW wind farm. Starwood Energy, a leading company in renewable development, initiated the project where 40MWs of their wind generated power by the farm is sold to a large retail establishment to neutralize their consumption in its Texas stores.
Stephens entered into two Power Purchase Agreements (PPAs) to be able to finance the wind farm, with Citibank (Citi). The agreements require Stephens to provide energy to Citi based on the expected wind production of the farm. Stephens priced the energy to Citi at $23.55 per MWh for the first PPA and priced $31.05 per MWh for the second PPA.
Due to the frigid temperatures and snow throughout the winter storm, the wind turbines at Stephens Ranch were frozen in ice and out of operation until February 19th. Citi had to go into the market to purchase power to meet its power delivery commitments when Stephens failed to deliver power to them. This replacement cost Citi an estimated $113 million, leading them to invoice Stephens for $113 million in damages. Citi sought to take ownership of Stephens Ranch when they refused to pay the $113 million (citing Force Majeure). This case is currently being litigated in New York State court.
Corporate purchasers of renewable power may also be affected by outages at wind farms similar to Stephens Ranch. The largest risk for a corporate VPPA purchaser is the use of the fixed price in a VPPA contract in order to offset exposure to other index price contracts. In the case of a wind farm failing to operate, the exposure to index pricing for a retail store leveraging the 40MWs to offset index price exposure could be as high as $14 million. This calculation is under the assumption that the wind farm operates at a 40% capacity factor.
- Integrated Energy Supplier:Vistra/Exelon/NRG
Storm losses between $2.44 and $4 billion have been reported by three of Texas’ largest integrated energy suppliers. Predictably, Vistra, Exelon, and NRG are supporting efforts to reverse the Texas PUC’s actions taken during the winter storm and adjust electricity prices to less than the cap of $9,000 per MWh. Alternatively, another integrated energy supplier, Calpine, has filed papers in favor of leaving ERCOT prices as they are. Calpine has yet to report to what extent Uri financially impacted its business.
- Pure Retailers: Just Energy,Griddy, Entrust
Uri slammed those retail electricity suppliers who serve load but do not own generation. Among those who were forced to close their doors after failing to meet their ERCOT obligations are Griddy, Volt, Gridplus, Entrust, and Bulb. Just Energy, a large energy supplier that met their obligations to ERCOT, eventually filed for bankruptcy due to the extent of their Texas energy losses.
- C&I Index Purchasers
The winter storm also hit C&I customers that purchased power in the spot market quite hard. For example, a Walmart supercenter (a 3MW customer) that was on an index during Uri would have faced a cost of $1.62 million for a 100-hour period (1.8 MW[3 MW @60% load factor]* 100 hours *$9,000 per MWh). According to its current filings, Boxer Property expects its energy expenses to increase by $18M. Hartma, another real estate company, estimates charges to total $5-9 million more than normal February costs.
- Natural Gas Purchasers
During the storm, the spot price of natural gas rose to levels as high as $1,000 per MMBtu in Texas and some Midwest markets. Presently, there does not appear to be any regulatory efforts to reset natural gas prices. However, there are legal proceedings underway. San Antonio’s Municipal Energy Company, CPS Energy, is seeking declaratory judgements against sixteen natural gas suppliers, among which are Chevron, EDF, BP, Symmetry, and Tenaska, in respect to high spot natural gas prices. CPS’ argument centers around the incredibly high prices set during winter storm Uri, citing them as being “exorbitant, unlawful and unconscionable”. CPS’ position stands that they will pay a maximum of $38.83 per MMBtu for natural gas – in spite of some suppliers basing their invoices on prices up to $500 per MMBtu. There has been a class-action lawsuit brought against Symmetry in Federal Court. Among the plaintiff’s claims are that Symmetry illegally price gouged its customers and did not substantiate its claims for “Incremental Supply Costs”.
TEXAS: WHAT HAPPENS TO THE MARKET
The failure of the grid during winter storm Uri puts into question the structure of the ERCOT market and the reliability of the Texas grid itself. The bills currently introduced in the Texas legislature to address these issues can be seen in Figure 8.
Figure 8: House Bills in the Texas Legislature from 5
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This analysis does not address the cost of Uri on those residential and commercial consumers who had to suffer through extended outages.
40MWs times a 40% capacity equals 16MWs. Assuming 100 hours, the difference in price for the 16 MWs is a contract price of 16*$30/MWh*100 hours or $48,000 contract price vs. 16*$9,000*100 or $14.4 million. This retail store’s exposure could be $14.4 million minus $48k.