Economic impact of Winter Storm Uri
By Brandon Young
I've reported on the physical infrastructure damage and economic impact caused by Winter Storm Uri in many previous articles. I’ve also shared that we have been awaiting the outcome of the Brazos Electric Cooperative bankruptcy brought on by Winter Storm Uri, so we would know the financial burden this event will place on your cooperative.
Before reporting the bankruptcy outcome, I want to recap what took place, my thoughts on actions taken by government officials to mitigate the economic damage to Texas citizens, and where we go from here.
First, I want all our members to know that during this event, as hundreds of Texans died, your welfare was always our priority. While some may have taken action to mitigate economic damage by reducing load, we did everything in our control to keep power flowing to your homes to minimize the risk for our members, including possible fatalities due to the elements; property damage to your homes due to busted pipes and broken wells; damage to other resources such as water systems, lift stations, grocery stores, gas stations and other facilities which serve our members’ vital needs. We put your lives, your property and the resources that serve your daily needs ahead of economic gain.
So, how did we get here? The abnormal weather event known as Winter Storm Uri brought to light the fragility of not only the Texas electric system and economic model but also the major—and I emphasize major—flaws of the Texas natural gas infrastructure and economic model. As URI made its way south, the power and gas markets took note and began to raise prices significantly. Ultimately, as URI unleashed its fury and electric generation became inoperable primarily due to a lack of natural gas supply to generators, we began to experience a load shed event. This was necessary due to the loss of almost 50% of the Texas generation capacity. When there is not enough generation, the only way to preserve the grid is to shed load. Had ERCOT not mandated load shedding during URI, we would have experienced a complete blackout of the grid, and it would have taken weeks or longer to restore power across the state.
What did that mean economically? Prices in the market were extraordinarily high, and generation was failing at a level never before experienced.
Many utilities have contracts with generators to control costs and provide a reliable source of power. Heart of Texas EC had a contract with Brazos EC for power. When your generator fails to deliver—and you continue to have load to serve—you must purchase power in the real-time market.
Some of you may recall that the Public Utility Commission of Texas issued mandates to position the price of power at the market cap of $9,000/MWh in the utility market during the storm, and it has been noted many times since they did not handle the situation correctly or legally, for that matter. But Texans are expected to pay for it, nonetheless.
The PUCT actions signaled to the natural gas market they could get away with pushing their prices much higher. As a result, natural gas prices were hundreds of times greater than just a week earlier. Don't forget this focus on economics was happening as Texans were dying due to the extreme weather, and federal and local government officials declared the entire state of Texas under an emergency and disaster order.
Ultimately, the price gouging created billions of dollars in debt for utilities across the state, and, unfortunately, your cooperative was not spared. Our focus was preserving life first and property second, but due to the economic situation, we suffered doing so.
Much of the economic damage Brazos EC and its 16 members suffered was due to the natural gas providers’ failure to deliver. Charges are being made that many participants in the natural gas market manipulated the situation to maximize profits by restricting market supply.
Unfortunately, the astronomical power bills forced Brazos EC to file for bankruptcy to mitigate damage. We had hoped that when things settled down, action would be taken to protect the citizens in Texas from the economic damage caused by this unprecedented weather event and the broken economic gas and electric model. Regrettably, that never came to pass.
Utilities such as your cooperative that serve the citizens, members and ratepayers were told to pay what the market settled at. We were offered the option to securitize the debts to spread them out over a long term and not issue immediate bills that would have otherwise been many thousands of dollars per residential member. In my opinion, the entities that grossly price-gouged unfairly got to keep the money, and the citizens of Texas were left to pay the bill over time with interest.
Once a legislative correction to the market was no longer an option, the focus was to mitigate the damage through the bankruptcy court. Brazos EC fought a hard battle in court with Federal Bankruptcy Judge David Jones presiding. Judge Jones instantly noted the market’s catastrophic economic failure and lack of resiliency. During the testimony phase, many of the officials that were in positions of power during the event were called to the stand. This included PUCT Chair and ERCOT’s CEO. Neither of their testimonies impressed Judge Jones, and they were severely admonished on the stand for multiple reasons. Ultimately, the trial was postponed, and the parties entered negotiations for a mediated settlement. I am glad to report that through this mediation, Brazos EC negotiated an approximate 28% reduction, reducing debts for all its members.
It is disheartening to report that the average residential bill for members will increase by approximately $15 per month due to this securitization debt service. Still, I assure you we did everything possible to mitigate the damage through the legislature and the bankruptcy court.
Although this increase is impactful, one thing that is working in our favor is your cooperative is growing rapidly. This growth will lower the cost per household over time as there will be more billing units to spread the debt service across.
As a nonprofit member-owned business mainly serving rural Texas with only six meters per mile, I'm incredibly proud of how efficiently we operate, how reliable our service is, and how competitive our rates are against the entire Texas market. We will continue to leverage our efficiencies to ensure this remains true.
On December 15, 2022 Brazos EC emerged from bankruptcy, but it looks much different than when it entered. Brazos EC will no longer serve members’ power supply needs and will be forced to liquidate their generation assets. This means they will continue to build, own and maintain transmission assets and build, own and maintain our substations.
Some of you may ask if the total liquidation of Brazos EC’s assets was contemplated to use proceeds from those assets to service debt. The answer is yes. However, although it would have reduced the debt somewhat, HOTEC’s ongoing ability to offer reliable service to our members could have been severely compromised. We would have been at the mercy of the new transmission line owner to build all future transmission lines which could have serious implications and risk possible loss of our substation assets to investor-owned utilities.
Your cooperative dominantly serves rural areas, and the loss of these substations would have put restoration times post-storm damage in severe jeopardy. The new owners would likely also have damaged assets in more populated areas which would take priority over our service area for repairs. We currently have ample resources provided by Brazos EC locally to respond immediately, which significantly reduces outage time caused by substation or transmission failure.
There are so many other ways this situation should have turned out. In my opinion, many decisions were made that did not focus on the citizens’ welfare but more on the profits of the businesses that made billions during a time of hardship.
As the state contemplates restructuring the market, it would be great to assemble a task force of industry leaders to offer guidance. This market impacts every Texan’s life, and it should be a process driven by those who intimately understand how system resiliency and market economics align so that it is both capable of reliably serving us during extreme conditions and affordable. It should not be decided by lobbying efforts. My wife, who has been a teacher for over 20 years, firmly believes that if more classroom teachers were part of the process in Austin, we might have a better school system. Now, I feel the same about the electric system.
The past two years have been extremely difficult, but everyone on your team at Heart of Texas EC has worked hard to do their best to serve you, our members, and will continue to do so for many years to come.
This article appears in the March 2023 issue of Texas Co-op Power.