CEO’s Message — April 2021
Texas is a Mess
“Don’t Mess with Texas” makes a great bumper sticker, but at the moment, Texas is just a mess. Sadly, this mess was predicted, but the only people who listened live in Nevada.
During the battle over ballot Question 3 in 2018, proponents held Texas up as a model of the future of electricity for Nevada. Those of us who opposed Question 3 believed Texas was a time bomb. To be fair, an open energy market like Texas can, and did, deliver competitive prices. Open markets also can, and did, deliver incredible price spikes and rolling blackouts. We didn’t know exactly when it would happen, but the bomb exploded in February when three severe winter storms swept across the Lone Star State.
Temperatures in Dallas, Austin, and San Antonio fell below temperatures in Anchorage, Alaska, triggering a series of compounding problems. First, to keep people warm, heating systems ran much longer than usual and activated emergency electric resistance heating coils. Some homes and businesses generally heated with natural gas also switched to electricity when natural gas supplies stopped flowing. Total electricity demand for the state was forecast at 58,000 megawatts (MW). Actual demand soared to 70,000 MW. I know MW doesn’t mean much to members who don’t deal with wholesale electricity daily. To put that spike in perspective, Wells Rural Electric Company’s (WREC’s) entire system— from Emigrant Pass west of Carlin to the middle of the Salt Flats east of Wendover—demands about 95 MW in the winter.
To make matters worse, not only did demand go through the roof, but supply fell through the floor when freezing temperatures locked up wind turbines and cloud cover limited solar generation. Shortages of natural gas also sidelined backup generation. Grid operators were left with no choice but to implement rolling blackouts to prevent the entire statewide grid from collapsing.
The law of supply and demand is as unforgiving as the laws of physics. For decades, WREC has purchased its wholesale power supply from the Bonneville Power Administration under long-term contracts. Those contracts typically increase a few percent in October of odd-numbered years but prevent dramatic price hikes. The current wholesale price under our BPA contracts is $35 per MW. Prices in Texas spiked to the legal limit of $9,000 per MW for certain hours across about 10 days.
Damage caused by the extreme cold weather quickly became a financial disaster. One consumer in Chambers County has filed a class-action lawsuit against his electricity provider because his average monthly bill of about $200 skyrocketed to $9,000.
Several electric utilities have declared bankruptcy, and more are likely to follow. Insurance companies are likely to take a big hit as well. One estimate pegs total damage at $195 billion. If that is accurate, these storms and their financial aftermath will be the most expensive disaster ever to hit Texas, surpassing the $125 billion in damage caused by Hurricane Harvey.
I have tremendous sympathy for consumers in Texas. They relied on the open market to provide affordable electricity. Unfortunately, there was no way for utilities to overcome decades of energy policy that hampered long-term investment in critical baseload generation.
Thankfully, voters in Nevada listened to utility experts, and our allies, and wisely voted no on Question 3.
Clay R. Fitch
Chief Executive Officer