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Texas: Business as Usual for the Big Players

image credit: ERCOT
Rakesh  Sharma's picture
Journalist, Freelance Journalist

I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

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Creating a full catalogue of missteps, inept decision-making, and market design flaws that short-circuited Texas’s electricity markets will take some time. But the biggest players in Texas’s electricity markets will probably emerge without major chinks to their bottom line.

All major utilities operating in the state have estimated losses from the storm’s fallout. Exelon says it will lose between $750 million to $950 million from its balance sheet. The company had revenues of $33 billion in 2020. NRG Energy, which was touted as a winner two years ago by Moody’s on account of its “strong energy margins”, is swinging between a loss or gain of $100 million due to the storm. The company’s generation unit made money during the outage but its retail arm – Direct Energy, which it acquired in 2019, lost cash due to the blackouts. It had revenues of $9 billion in 2020. Vistra is projecting a loss of between $900 million to $1 billion. 

True, these amounts are substantial. But these utilities also carry substantial heft in Texas: They reportedly own almost half of state’s grid generation capacity. The rest of the market is fragmented between smaller players. There is talk of clawbacks or possible write-offs. This means that generation companies may have to return or adjust their earnings on revised rates. Much, however, depends on the terms and legalese of such agreements. Their dominant situation in the Texas power market should ensure that these utilities will have a decisive say in the final structure of such an agreement.

Transmission and distribution companies in the state bore the brunt of customer wrath as blackouts rippled across the state. But they were spared red marks on their balance sheet. “If an REP was to cease to operate, you should know and be confident that the existing regulatory mechanisms allow for us to recover any cost exposure we might have due to bad debt expense,” David Lesar, CEO of CenterPoint Energy, said during the company’s earnings call in February. He reiterated a growth guidance of between 6% to 8% for the company. Sempra-owned Oncor was the most badly-affected due to the outages. But Texas remained a key growth area for the company. Sempra is pushing almost 90% of its capital investment to the Lone Star state and harden its transmission lines to make them resilient to future storms.

Meanwhile, Goldman Sachs, the investment bank which was once described as “a great vampire squid wrapped around the face of humanity”, will rake in as much as $200 million from trades in ERCOT during the outage. The New York-based investment bank functions as a market-maker for the Texas energy markets. Morgan Stanley and Bank of America are also set to profit from ERCOT’s mishandling of the crisis. But their payments are subject to the clearing of legal hurdles.

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