Low-Income Texans Will Foot Big Bills After The Blackouts

There are many things we don’t know about the Texas Blackouts. But this much is certain: low- and … [+]

The first law of plumbing is that poop rolls downhill. That law also applies to how costs are allocated on electricity grids. And it is about to be proven again in Texas in the wake of the deadly blizzard and blackouts that pummeled the state earlier this month.

There are many things we don’t yet know about the Texas Blackouts that plunged more than 4.5 million customers into the dark. But this much is certain: low- and middle-income Texans will end up footing the biggest bills for the disaster in the form of higher electricity rates and/or higher taxes.

We don’t know who, or what, will ultimately bear the brunt of the blame for the days-long blackouts that led to dozens of deaths. We don’t know how the Texas Legislature will tweak the deeply flawed energy-only electricity market it established two decades ago that led to this disaster. Nor can we predict the outcome of the many lawsuits that have been filed or the number of bankruptcies that will be caused by Texas’s self-inflicted energy crisis.

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What we do know is that thousands of Texas ratepayers saw their electric bills skyrocket during the cold wave. Some consumers who used retail electricity providers got bills of $8,000 or even $9,000 for a few days’ worth of juice. We also know those incidents are only a soupçon of the price shocks that are barreling down transmission lines toward consumers.

As you may have heard, everything is big in Texas. One reporter has dubbed the Texas Blackouts “the largest forced blackout in U.S. history.” Bloomberg estimated the total market value of the electricity that was sold during the week of the blizzard at about $50 billion. That number is almost certainly too high. That said, during the height of the crisis, when electricity prices were peaking at $9,000 per megawatt-hour, the ERCOT electric meter was spinning at a rate of nearly $10 billion per day.

But even if the final cost of the electricity delivered during the blizzard is only, say, $25 billion, that’s still a staggering sum for a week’s worth of juice. For comparison, in 2020, the value of all the electricity sold in the state – for the entire year – was $35.1 billion.

Whatever the final price tag of the electricity crisis, there’s scant doubt that the majority of the costs will be paid for by residential customers and therefore increase the energy burden on low-income people. Why? The residential sector is the biggest user of electricity in Texas. Second, residential electricity prices in Texas, and most other states, are higher than those for commercial and industrial users and policymakers are generally reluctant to impose higher costs on commercial and industrial customers. In 2020, residential electricity prices in Texas averaged 12 cents per kilowatt-hour. Commercial prices were 7.7 cents and industrial prices were about 5.2 cents per kilowatt-hour.

Any price hikes will hit low- and middle-income residential customers the hardest. On Friday, Dana Harmon, the executive director of the Austin-based Texas Energy Poverty Research Institute, published a blog on the institute’s website in which she pointed out that low-income Texans were already struggling to pay their utility bills due to the pandemic. The blizzard will make that problem even worse. Harmon wrote that a TEPRI survey done in October 2020 found that among people who “self-identify as financially strained…We see a definite trend in unaffordable electric bills among communities of color, with 49% of respondents who identify as Hispanic and 40% who identify as Black saying that they’re struggling to pay their electricity bills.”

The energy burden on low-income Texans will surge in the wake of the blackouts. On Friday, ERCOT published a notice saying it was short about $1.3 billion in cash it needs to pay the electricity generators who provided power to the Texas grid during the killer cold front. But that figure understates the size of the shortfall. The actual near-term cash shortage is about $2.1 billion because ERCOT borrowed about $800 million in funds that were due to be returned to ratepayers.

The grid operator’s liquidity challenges were a focal point of the “urgent board of directors meeting” it held last Wednesday. During that meeting, ERCOT officials said that if any of its market participants defaulted on their obligations, the cost of that default would be shared among the remaining participants. Those participants won’t absorb those costs, they will pass them on to ratepayers and the early indications are that those defaults will ultimately total hundreds of millions, if not billions, of dollars.

On Friday, Just Energy, a retail energy provider in the Texas market, announced that it was facing a $250 million loss due to the blizzard. In a press release, it said the “losses could be materially adverse to the Company’s liquidity and its ability to continue as a going concern.”

Here’s the bottom line: Texas residential ratepayers are about to be hit with a triple whammy. They will have to pay electricity bills that will be far higher due to increased electricity use during the blizzard. Second, they will be on the hook for any defaults by ERCOT market participants. And finally, they will be paying more for electricity in the future because the state will have to upgrade its electric grid. Those upgrades should include (if sanity prevails) winterizing generation units, requiring some generators to have on-site fuel storage, and making capacity payments to generators to assure the grid has reliable, dispatchable power that can be called on when it is needed.

The Texas Blackouts are the result of one of the biggest government failures in modern history. Texas residential electricity ratepayers — and low- and middle-income Texans in particular — are going to pay a hefty price for that failure.

Robert Bryce is the host of the Power Hungry Podcast. An author and journalist, Bryce has been writing about energy, politics, and the environment for more than 30 years.

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