Texas Winter Storm 2021 Causes, Economic Damage, Reset, Prevention

Yesterday, I received the following evaluation, in point form, of last week’s winter storm and its financial repercussions from Keith Maxwell, CEO of Spark Energy.

Due to dramatic consumer price increases in electricity that occurred last week, caused by increased prices of electric generation, many individuals and businesses will receive enormously high electric bills. Many energy retailers, who do not generate the electricity, but only distribute it, may be forced into bankruptcy, because of the huge increase in their cost of electricity caused by the increase in price of natural gas needed to produce the electricity.

Gov. Greg Abbott, Lt. Gov. Dan Patrick, Speaker Dade Phelan, and the Texas Legislature must act quickly to prevent an economic crisis in the electric energy sector of our state. Keith Maxwell lays out the solution in the following point form.

Texas Winter Storm 2021 Causes, Economic Damage, Reset, Prevention. 

By Keith Maxwell, CEO of Spark Energy

Causes of the Crisis:

  1. “Planned” maintenance by power generation during the critical winter season.
  2. Power generators de-rated (output reduced) even before winter event arrived.
  3. Generators failed to spend the money to winterize their critical infrastructure. This includes wind, natural gas, coal and even nuclear.
  4. Wind power was reduced due to freezing windmills and drop off of the wind statewide.
  5. Natural gas, coal, and nuclear plants go down from complications of cold weather (frozen water pipes).
  6. Market speculators began manipulating the natural gas markets several days prior to the event forcing generators to pay exorbitant prices for natural gas even before a shortage existed. This looks like it may have been a coordinated effort to manipulate the gas market and take advantage of the upcoming storm (more work needed on this topic later -AG).
  7. The unprecedented escalation of natural gas prices forced natural gas generators to raise prices to pay for the elevated intrastate gas prices.

Economic Damage:

  1. Nearly every Texas power retailer without generation assets will be forced into bankruptcy because of this event. Millions of Texans and small & big businesses alike will not be able to pay their bill resulting in thousands of job losses.
  2. Energy prices in Texas will inevitably rise with the lack of competition and price increases to pay for the storm.
  3. The integrated generators/retailers (NRG/Reliant & Vistra/TXU & Calpine/Champion) will have a near monopoly on the Texas power market effectively eliminating competition.
  4. The generators will profit obscenely, they had a large part of the non-readiness of the disaster.
  5. The situation was made significantly worse when ERCOT pegged the price to maximum beginning on Monday 2/15. Although the situation was already dire for most Texas power retailers the artificial elevation of power prices to $9,000 will have the effect of bankrupting all but a few power retailers and other Texas businesses big and small alike.
  6. From Tuesday thru Friday morning the ERCOT price adder/cap resulted in prices sometimes up to $8,990 above what the market was actually trading. This allowed the generators to reap undue profits while at the same time bankrupting retailers and many small and medium businesses.
  7. The artificially elevated price has been and will be passed onto many residential consumers and small businesses resulting in bills in excess of 100x their normal rate.
  8. Ancillary charges of over $1,000 per MW in addition to the $9,000 per MW power charge have already been seen.
  9. As the retailers are unable to pay for the power their customers consumed the current rule is for the losses to be shared among the remaining market participants. This will have the effect of financially bankrupting the remaining retailers as they are forced to pay the bills of the failed retailers. The only survivors in this situation will be the integrated retailers who will be able to support their payments with the windfall profits of the generation arm of their business and effectively having a monopoly of both sides. NRG/Vistra combine for 60% pre-storm in Texas.

Texas Energy Market Reset (TEMR) Plan to prevent irreversible harm to the state energy market and economy the following actions are suggested:

  1. Price gouging must not be allowed during natural disasters such as the previous week’s storm. This includes both Natural Gas and Power price gouging.
  2. Put a minimum 72-hour freeze on ERCOT collateral calls to retailers and payments to generators while the situation and appropriate actions are investigated. Let emergency appeals for release of funds to generators be made to the Attorney General’s office.

Both Natural gas and power prices must be retroactively capped by the Railroad Commission and the Public Utility Commission during any catastrophic event:

  1. Natural Gas cap – work with the railroad commission to implement a retroactive cap on Nat gas pricing. We suggest a maximum of $20 per DTH. This is high enough to reward natural gas producers for the efforts to supply natural gas to the state while being low enough that natural gas generation can profitably supply power under the new proposed power cap below. The natural gas market has not yet settled for the month so this could be implemented before money changes hands on the settlement date of March 25, 2021.
  2. Power Price Cap – At a bare minimum, the artificial price of $9,000 implemented by ERCOT must be reversed and market prices must be allowed to clear without the artificial adder. This action alone would likely save the state’s citizens TENS of BILLIONS of dollars. However, we believe this does not go far enough to prevent significant economic fallout for our citizens. Although the $9,000 dollar price cap works in theory (for very short periods of time to incentivize generation and maximize power output in an emergency), during a natural disaster it has proven untenable. We suggest this power price cap be set at $500 prior to the event (Thursday the 11th through Saturday the 13th) and $1,000 dollars during the crisis. This will result in enough economic incentive to encourage generation without bankrupting our citizens or businesses. At a price of $1,000, every available source of power generation is already putting as much power as possible into the grid. This can be demonstrated by comparing the output of power just prior to the crisis and during the crisis. The $9,000 dollar pricing did not result in any addition power put into the grid.
  3. By Wednesday ERCOT will be begin transferring customers from all of the now defunct suppliers to the remaining few. Once this process begins the damage will be irreversible. We suggest halting the process pending an investigation and reversal of the artificial price increase implemented by ERCOT. Only after a retroactive price cap is implemented or at the very least a removal of the artificial price hike can we determine which retailers are in a position to continue operating in Texas.

Future Preventative Actions (State of Emergency): 

  1. Lower gas and power price caps to be implemented if demand is expected to exceed capacity in the forward market. These steps are in addition to the conservation guidelines that were enacted this year.
  2. Institute mandatory power and natural gas conservation consumption guidelines for residential and business usage (Maximum thermostat of 60F). Reinforced with emergency alerts to all mobile phones in Texas at the time of the emergency. Turn off all non-essential businesses, schools, state-buildings, office buildings, etc.
  3. All planned, non-emergency generator maintenance must be banned December thru February and July thru august. These times of year are the most crucial in maintaining enough grid capacity to withstand winter storms and or heat waves similar to other states’ “best” industry practices.
  4. All generators must submit winterization plans to participate in the Texas power market or be charged a fee to participate without proper winterization.

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Dr. Steven Hotze

Dr. Hotze is the Founder and CEO of the Hotze Health & Wellness Center, Hotze Vitamins and Physicians Preference Pharmacy International. Dr. Hotze received his medical degree from the University of Texas Medical School at Houston. Dr. Hotze believes that everyone deserves a doctor and a team of professionals who can coach them onto a path of health and wellness, naturally, so that they can enjoy a better quality of life without the use of pharmaceutical drugs. Dr. Hotze is the best-selling author of Hormones, Health, and Happiness, Hypothyroidism, Health & Happiness and Do A 180. Suzanne Somers dedicated an entire chapter to Dr. Hotze in her New York Times best seller, Breakthrough. “This Texan doctor is going to steal your heart,” writes Somers. “He has so much energy he can’t wait to get to his office each day.” Dr. Hotze has appeared on hundreds of television and radio shows across the nation, including ABC, NBC, CBS, and FOX affiliates, CBS’ The Morning Show and The Biography Channel. He has also appeared on the morning program, Great Day Houston with Deborah Duncan. Dr. Hotze hosted “Health & Wellness Solutions” radio show on KSEV 700 AM and “Dr. Hotze’s Wellness Revolution” radio show on KPRC AM 950 and iHeart radio. He currently hosts the Dr. Hotze’s Wellness Revolution podcast. He has been married to his high school sweetheart, Janie, for 52 years. They have 8 children and 23 grandchildren.