Texas Gov. Greg Abbott Pressed Grid Operator To Keep Prices At $9,000 Per Megawatt-Hour During Crisis

In the annals of awful electric grid management, the decision to keep the wholesale price for electricity on the ERCOT market at $9,000 per megawatt-hour – and leave it there for three days longer than needed – during the electricity crisis that slammed Texas a year ago, will go down as one of the worst.

Who made that decision? In testimony in a federal bankruptcy court in Houston, former ERCOT CEO Bill Magness pointed the finger at Texas Gov. Greg Abbott. The testimony was made in the bankruptcy trial of Waco-based Brazos Electric Cooperative, which is challenging $1.9 billion in costs it incurred during the crisis that forced it into Chapter 11.

Magness’s testimony is giving gigawatts of ammunition to Beto O’Rourke, the likely Democratic nominee for the governor’s race in November. O’Rourke has made the failure of the Texas grid a major campaign theme. Magness’s testimony will also bolster claims that ERCOT (and/or the Public Utility Commission) mismanaged the electric grid and therefore the costs incurred by Brazos and other electricity providers during the crisis, are invalid and should be reversed. That could mean that Texas ratepayers will be on the hook for any losses incurred by generators during the crisis.  

In an article published yesterday, James Osborne, a reporter at the Houston Chronicle, wrote that during his testimony, Magness said former Public Utility Commission Chair DeAnn Walker, who was appointed to the utility commission in 2017 by Abbott, “had come to ERCOT’s operations center in the middle of the crisis and relayed to him Abbott’s demand that rotating blackouts come to an end,” and that “Abbott wanted them to do whatever necessary to prevent further rotating blackouts that left millions of Texans without power.” Osborne also cited a statement issued last year by a spokesman for the governor, who said Abbott was not “involved in any way” in the decision to keep prices at the $9,000 level.

Shortly after Magness’ testimony, O’Rourke issued a statement claiming Abbott had, “once again put the profits of his donors over the people of this state…Abbott screwed us, and he’ll continue to screw us until we vote him out.”

As I reported in these pages last June, a study done by London Economics International found that ERCOT kept its $9,000 per megawatt-hour price in place for far too long. The study, which was paid for by Vistra Corp., one of the state’s biggest electricity generators, concluded that the wholesale price was $6,578 per megawatt-hour too high and that it stayed too high for about 80 hours. Furthermore, keeping the price at $9,000 did not bring any more electricity supply onto the grid, a point that Magness made during ERCOT’s “urgent board of directors meeting” on February 24, 2021. Although the LEI report did not provide a total cost estimate, consumers were likely overcharged by some $26.3 billion.

Earlier today, Walker was on the stand. She confirmed parts of Magness’ testimony, saying the governor told her to go to ERCOT’s headquarters in Taylor and “figure out a way to get the power back on to all the customers and to not go back into rolling outages.” Asked why the price was kept at $9,000 even though it was not attracting new generation onto the grid, she said it was “an independent decision I made.” In an article posted a few hours ago, Osborne wrote that Walker “struggled to remember details of the blackout at numerous times during her testimony” and that she was rebuked by U.S. Bankruptcy Judge David Jones, who said, “I am disappointed in your conduct and your lack of candor this morning.”

O’Rourke quickly blasted Abbott again. He posted a message on Twitter saying the governor, “directed them to jack up the price of power as Texans froze in their homes.” 

The testimony from Magness and Walker is emerging at about the same time that some Texas electricity providers are securitizing the debt they incurred during the crisis. As Llewelyn King reported in these pages last week, Rayburn Country Electric Cooperative “closed on Texas’ first cooperative securitization bond, arising out of Winter Storm Uri.” The coop will pay off the $908 million bond (the legal work was done by Clinton Vince, chair of the U.S. energy practice at Dentons) by adding surcharges to its members’ monthly bills until 2049. But as King also explained, Rayburn “reserves the right to sue and may do so.” 

O’Rourke and other critics are claiming that Abbott made the decision to keep prices high to serve his donors. But was the decision to keep the price at $9,000 per megawatt-hour a conspiracy, or incompetence? 

There are no clear answers to those questions, at least, not yet. But the testimony from Magness and Walker are adding plenty of intrigue to the legal battles over who is to blame for the Texas electricity crisis, and of course, who will end up paying the bill. Rest assured though, one way or another, it will be ratepayers.