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The Senate Committee on Jurisprudence met on March 11 to hear invited testimony from Independent Market Monitor Carrie Bivens, ERCOT CEO Bill Magness, and Public Utility Commission Chair Arthur D’Andrea regarding high electricity market pricing during Winter Storm Uri.

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Opening Comments

Chair Joan Huffman

  • Winter Storm Uri had an immense impact across the state, need to work to address tremendous financial issues
  • Jurisprudence is focusing on potential billing and pricing errors resulting from the storm
  • Something is wrong here, billions were spent with little to show for it, companies sent towards bankruptcy, and families seeing crippling utility charges
  • Will be looking at if this is the electricity market at work, whether gov interference caused misaligned, whether there was an error

Invited Testimony

Carrie Bivens, Potomac Economics, PUC Independent Market Monitor

  • Provides overview of IMM roles; reviews market outcomes and ensure high wholesale price events are result of actual conditions and not result of manipulation
  • Required to make an annual report that identifies market design flaws and makes recommendations to correct those flaws
  • Huffman – There was testimony in the House today that changed some numbers, went from $16 billion to $3 billion
  • Huffman – it appears from your written material that you still think there was a mistake at ERCOT or PUC, that price increases should have ended with load shedding, do you still believe that?
    • Yes, I do
  • Huffman – How do you come to that conclusion?
    • There are pricing changes needed to ensure when ERCOT takes out of market action it is reflected in the prices; market needs to reflect reliability actions
    • When ERCOT takes an action, this adjusts balance of supply and demand
    • Load shed value is value of lost load, pegged at $9k/megawatt hour, we agree with that
  • Huffman – So you agree with them setting price while shedding load?
    • Yes
    • Where we differ is when ERCOT ceased giving load instructions, they are no longer intervening and there was no reason to continue prices; clear in PUC order
  • Huffman – Which order was that?
    • Feb. 15
  • Huffman – And you believe this gave ERCOT authority to reduce load?
    • Correct
    • Unfortunately, prices did continue from Feb. 17 until Feb. 19, these are the days we say ERCOT exceeded their mandate
  • Huffman – Would it have been necessary for PUC to issue direct order to lower prices?
    • No, ERCOT could have done this
  • Huffman – Do you believe this is a mistake or error?
    • Yes, judgment call made by ERCOT
  • Huffman – Do you work for the PUC Chair?
    • No, we are contractors, undergo selection process for market monitor contract
    • Contracted with PUC and ERCOT, funding source is through ERCOT
  • Huffman – And Potomac has been doing this for quite some time, you were in this role during 2011?
    • Correct
  •  Huffman – Would you be comfortable saying to PUC Chair that ERCOT made a mistake or error?
    • That is our independent perspective, yes
  • Huffman – $16 billion was floating, your report says $5.1 billion, this morning number was $3 billion
    • $16 billion is the accurate representation of economic value of pricing error
    • Now that there is meter data, we can estimate how much of this was hedged
    • Aggregated costs to corporate entities, equaled +/- $3.2 billion
    • Also need to factor in reserves, this is the other $1 billion portion
  • Huffman – Do you think it’s possible to come up with an equitable solution using the data
    • I believe there’s a way, is complicated
  • Huffman – Just because it’s complicated doesn’t mean we don’t want to do it if it’s the right thing
    • The longer we wait the more complicated it gets, derivatives markets have settled which creates complications for those using these markets for hedging
  • Huffman – Does ERCOT still have power and authority to sit down and unravel these issues
    • ERCOT has authority to correct price if ordered to do so by PUC
  • Schwertner – What is the purpose of a market monitor
    • Not advocating for an entity, role is to oversee the market as a whole
  • Schwertner and Bivens discuss qualifications of Potomac Economics, Potomac staff has experience with the energy market and rules
  • Schwertner – What is the total amount of costs associated with ERCOT?
    • We calculate the economic value of the energy is $46 billion
  • Schwertner – Basically your looking at kind of gross versus net in the comparison of numbers in this case; $16 billion was essentially the gross number and proportional to $46 billion number
    • Pricing times energy consumed
  • Schwertner – Was there any thought that ancillary services could exceed $9k
    • Not to my knowledge
  • Schwertner – Does it make it wrong that they were that high?
    • Finer point on this that is different; if energy prices were in error then there should be a correction
    • Makes no economic sense that reserve prices should go over cost of energy
  • Schwertner – Therefore, they should be corrected as well?
    • Correct
  • Schwertner – There have been arguments for the continuation of the $9k/megawatt hour, industrials weren’t back online and thus market wasn’t feeling full demand, maintaining $9k was then the appropriate tactic to balance demand without entering load shed again
    • Purpose of price adjustment was to correct for out of market actions by ERCOT, ended on Feb. 17
    • There were differences in which entities would come back online at which time
  • Schwertner – So argument that they were doing so in concern of overall supply of power given anticipated demand doesn’t hold weight in your view?
    • AS we were monitoring the market, there were substantial reserves on Thursday, room for additional demand
  • Schwertner – And therefore the price was incorrect?
    • Yes
  • Hinojosa – You asked ERCOT to do a price correction and now the number has changed?
    • Value is still $16 billion, have provided additional data incl. settlements; able to do accounting to see at net level where dollars come from or go to
  • Hinojosa – So $16 billion is incorrect?
    • It is a correct number
  • Hinojosa – Do you have data on who saw losses and who made money?
    • Sent out requests for information, due in April
  • Hinojosa – Will customers have to pay higher bills if numbers are not corrected?
    • Majority of money will go to load serving entities, but there are some with losses; majority of dollars are coming into entities that serve customers
  • Johnson – You’ve opposed these types of actions in the past
    • In the past I’ve advocated for the day-ahead market to not be corrected, not the same real time market we’re talking about today
    • Difficult decision, weighed pros and cons, really believe that this was an error and it should be corrected
  • Johnson – When we’re talking about $16 billion & $5.1 billion, would it be far off to say $16 billion won’t be what’s felt, $5.1 billion is what we’ll feel
    • $16 billion is more of an accounting number, $5.1 billion is real; money that would change hands if Potomac’s recommendations were put into place
  • Johnson – Which positions would be helped?
    • Generally will help those that are short
  • Johnson – Brazos Electric is in bankruptcy, what effect would the recommendations have on their liabilities?
    • Corrections would substantially help Brazos
  • Johnson – Debts are in order of $3 billion per their filing, are you suggesting price change would be a nontrivial portion of this, perhaps $100s of millions?
    • Accurate
  • Johnson – Would entities in the long position wind up being in the red?
    • Generally not the case, there are a few
  • Johnson – Are there any that would be thrown into instability?
    • Can’t speak to their position, can say that we looked at public power in particular; in general if recommendations are followed, public power will be helped by $1 billion
  • Johnson –
    • Out of market action is a discrete number we can back out
  • Johnson – Asks if entities would’ve made different decisions if the number had been backed out?
    • Very possible, while the dispatch price was correct, there were cases where entities were at low limits and not setting the price
    • Can’t recover those costs typically unless ERCOT issues correction
  • Johnson – Does this relate to Exceptional Cost Applications?
    • Different process
    • Energy only market design is that pricing creates incentives to generate, ERCOT generally lets that market work
    • In rare occasions ERCOT needs to intervene and asks generators to be online
    • Can see an argument that we’re in an emergency alert and could see this as a reliability instruction
    • Wouldn’t oppose a settlement that takes this into account, but not recommending this
  • Johnson – Are you aware of entities that would’ve shut down with a price of $5k?
    • Can’t shut down in an emergency
  • Johnson – Could make them whole if they were operating at a loss?
    • Not opposed to making them whole, avenue exists for this
  • Hughes – Your greater concern is the staying at the $9k price, news reported that early on that formula wasn’t working, ERCOT made decision to take us to the cap to set the $9k price; can you tell us how this works and if it’s common to override this and go to the cap?
    • 3 components, 1) prices based on generator offers, 2) value of reserves adder, typically zero with a lot of reserves, 3) Reliability Deployment Price Adder that corrects out of market ERCOT actions
    • There was a general understanding that the value of this last adder would be $9k to reflect price of lost load
  • Hughes – Do you have data on what number would’ve been if it hadn’t been $9k
    • Don’t have this data, roughly $1.2k; normal price is $25-$30
  • Hughes – If the system is designed to incentivize production, is $1.2k a sufficient incentive to bring generation online?
    • Heavily dependent on natural gas price, natural gas prices were very high; this is why lost load number has been used to set pricing
  • Hughes – You agree that the algorithm wasn’t working and price did need to be raised to $9k?
    • I do
  • Hughes – Is it common to override the algorithm, has it happened before?
    • Not common, changes are typically in rulemaking; speed is different from before
    • Not aware of other times PUC has circumvented rulemaking and gone to cap
  • Hughes – If purpose of raising price is to incentivize generation, but because of situation everyone is already putting online everything they have, does it help to go to $9k?
    • It does, even though they may not be participating in demand response, there is still price-responsive demand; e.g. industrial users going offline to not have to pay $9k
  • Hughes – High price then does 2 things, tells producers to come online and tells consumers to back off
    • Yes
  • Hughes – If we’re talking about residential users trying to keep warm, high price will not really discourage them from using power
    • Yes, most residential consumers are protected from wholesale price
  • Hughes – Is there a way for us to measure when industrial users get off?
    • ERCOT typically does a demand response survey attempting to quantify that, expect we will get this data eventually
  • Hughes – EEA 1 is a warning, EEA 2 is saying we need a cushion, EEA 3 is most difficult condition with outages?
    • Close, actions taken scale up with level
  • Hughes – So in EEA 3, is a producer legally obligated to continue producing?
    • Cannot come offline in an emergency voluntarily, would need to ask ERCOT to go offline
  • Hughes – Based on inputs, does the algorithm have all info that the humans involved have?
    • Algorithm is designed based on rules humans have written
  • Hughes – Are those in ERCOT control room able to discern where generation is and status?
    • Yes
  • Hughes – With hedging, there are those who operate in ERCOT who buy resources a day ahead
    • Can get more involved, can hedge a year in advance, a month, etc.
    • Some concern there, load entities do not always know what load will be
  • Hughes – IS there also hedging taking place from an investment standpoint?
    • Certainly financial hedges as well
  • Hughes – Is that information available?
    • Would have to ask individual entities, difficult to say what they may be doing outside of ERCOT; competitive info
  • Hughes – We have a 3-5 week window to make corrections?
    • Traditionally you do initial settlement in 5 days, then getting load data from meters, etc. and true up after 55 days
    • Resettlements also exist due to accounting error or price corrections, one has never been ordered by legislature
    • Typically ERCOT determines there is an error within 30 days, then they ask the board if prices should be corrected
  • Hughes – Would it be fair to say that market participants are aware of this process?
    • There is a settlement calendar that is published and everyone knows which settlements are happening when
  • Hughes – If legislature or PUC decided to sue this process, it is well-known and familiar?
    • Yes, typically used for load data changes
  • Huffman – When you spoke about algorithm, when they hit the cap is the algorithm still a factor? When does it become a factor again?
    • ERCOT implemented the PUC order by changing adders in the algorithm to reach a price of $9k
  • Huffman – So if someone said $9k cap wasn’t part of the formula this is sort of correct, but was going to hit $9k because of what was ordered?
    • Correct
  • Huffman – Where is the price correction resettlement regulation located
    • ERCOT nodal rules; reached by number of committee discussions that get passed to the board for approval, ERCOT releases a set of protocols that get distributed
  • Huffman – So market participants are the ERCOT board and they allow market resettlement and price corrections?
    • Correct, ERCOT is typically involved in decision to do price correction, process is laid out by the board
  • Huffman – Would not be a strange process to those involved
    • Price corrections have happened before
  • Huffman – Seemed to be outrage and angst about this before, but corrections exist in the protocol
    • Yes, within the 30 day window, outside this, corrections typically do not happen
  • Schwertner – Reiterates that correction process is known; in Potomac’s judgment, the 32 hours where $9k price held were inappropriate market manipulation by ERCOT?
    • Exceeded mandate of the PUC order and also not the right economic result for those hours
  • Schwertner – Algorithm is maintained by Hitachi ABV, how often is it adjusted? Concerned that former PUC Chair said there was a glitch
    • Might be a better question to ask ERCOT; I think there are 6 major software releases per year
  • Schwertner – So no problem with price initially increasing to $9k? The glitch
    • Wouldn’t call it a glitch, software worked the way people who implemented it designed it to, but it didn’t produce outcome everyone expected when there was load shed
    • Typically see shorter term load shed, mechanisms to ensure appropriate price had kind of run out due to length of load shed
  • Schwertner – Have we seen load shed before
    • Last time there was load shed the value was $3k, this was 2011
  • Schwertner – There are financial-only participants
    • You can be a market participant if you can meet collateral and other requirements, can participate in futures and buy energy or congestion products
  • Schwertner – Interesting that this happens, didn’t know we had financial-only participants
  • Springer – When you set the price at $9k and leave it doesn’t this collapse the day ahead market because you can’t hedge?
    • No, close to perfect hedge
  • Springer – But no one will take the other side of it?
    • Could be reasons to do so, generators have some risk in that generators may not be available the next day instead, might take a lower value to provide risk mitigation
  • Springer – Not only do you hedge based on energy price, theirs is also hedging on fuel source; also have speculators involved, when you set $9k price don’t you also tell this side of the market that they can make this what it is
  • Springer – Natural gas prices increased dramatically over the event and then went back down, price comes down with speculators being unsure they could get this price
    • In the electricity market the price kind of sets the natural gas price
  • Springer – But when the market goes from $9k to $30, no one will by natural gas at $700
  • Springer – Trying to understand in these 32 hours when market was beyond what we should be doing, are we not telling speculators they can ask highest price possible?
    • Had numerous calls ahead of the $9k concerned about high gas prices; high gas prices occurred before load shed
  • Hughes – Once demand side was static and no more was coming off, then there is no reason to be at the artificial cap, fair to say?
    • As the market monitor, we are thinking about improvements, one of these could be a limit on number of hours at the cap before calling on ERCOT to use reliability tools
    • There could be a number of hours that act as a circuit breaker
  • Hughes – Regarding day ahead market, how is this implicated?
    • Voluntary market that is financial only used for hedging, though ERCOT procures its reliability reserves through this market
  • Hughes – How was this affected by errors?
    • One of our recommendations regard ancillary services that went above $9k, this is function of ERCOT needing to procure a flat reserve value, but no one is offering above $9k; pricing got higher than the $9k due to opportunity costs
  • Hughes – Makes sense, why would someone sell ancillary services if they can make more elsewhere
    • One recommendation is to bring this back to $9k because they exceed economic value of reserves
  • Creighton and Bivens clarify role of IMM, firm is chosen by ERCOT, firm then chooses director, PUC has the ability to sign off on this choice
  • Creighton – What legal authority did PUC or ERCOT have as grid operator to manipulate the formula for the algorithm?
    • PUC has oversight over ERCOT and ERCOT protocols
  • Creighton – Is it customary real time to manipulate formulas?
    • Not customary, response to extreme event
    • ERCTO needs the PUC to direct it to do so, PUC called an open meeting for this
  • Creighton – What was the timeline?
    • Emergency open meeting was called on the 15th to issue order saying ERCOT should ensure price is at the value of lost load during load shed
  • Creighton – That order was different that the order to max caps?
    • ERCOT took the Feb. 15 order and changed the adder to match the price to lost load at $9k
  • Creighton – But it’s not customary to manipulate the algorithm like this?
    • This is the first time that PUC has called a meeting to do this
  • Creighton – It’s your opinion now that this was an error instead of a management decision?
    • We want the market to work, this was an extraordinary circumstance; if price was not at correct value, we wouldn’t have gotten demand response; unsure what other possibilities would’ve been
  • Creighton – We don’t know a lot, a month later we’re doing our best to figure out decisions
    • Believe initial decision was correct, ERCOT didn’t end it soon enough
  • Creighton – Even though it’s not customary to change the formula?
    • There was a general understanding by market participants that $9k is the price during load shed
    • Have spoken to a number of market participants
  • Creighton – Can you explain the $16 billion to $3 billion change
    • $16 billion is economic value, energy multiplied by the price change
  • Creighton – You mention a $900 million impact on the corporate side?
    • $900 million applies to ancillary services
    • Roughly $3.2 billion plus $1 billion is the accounting change if energy is corrected, $900 million is if ancillary is corrected and capped at $9k
  • Creighton – Repricing will not have any cost savings for customers, is that correct?
    • If all recommendations are put into place, public power will be helped by $1 billion
  • Creighton – You mentioned $16 billion is the economic number
    • $16 billion is the cost of the widgets, but hedging protects certain entities from exposure to risk
  • Creighton – Is it customary for your firm to recommend repricing?
    • No, did this very deliberatively
  • Creighton – Do you forecast impact and consequences on making recommendations given cash settlement contracts are closed? $16 billion is not just economic, market participants are owed that number under closed settlement agreements
  • Creighton – Market participants drive prices down through competition, need to protect that competition; you’re stating that the $16 billion is not owed?
    • When we made decision to recommend price correction, derivatives market hadn’t closed
  • Creighton – Do you take into account the negative market consequences when publishing advice?
    • We do
  • Creighton – Have you published anything on these impacts, e.g. cost to consumer, cost of doing business in Texas?
    • Have not, in the future if PUC issues an order and everyone should expect it to be; should expect it to be corrected to the extent the order isn’t followed
    • So long as prices are not in error they will stand, will make improvements to make sure
  • Creighton – You mention in written materials that corrections do not include amounts outside of ERCOT settlement and that there are downstream consequences
  • Creighton – Any market participants you are aware of that didn’t behave?
    • Investigating, will refer to ERCOT for action if discovered
  • Creighton – But otherwise these were good actors; algorithm was putting out incredible ancillary numbers
  • Creighton – What are unintended consequences downstream?
    • Real time energy is a price correctio because it is an error; others argue this wasn’t an error based on protocol
    • On ancillary services side, we’re pointing out the prices make no economic sense; tries to intervene with ERCOT, but they didn’t feel they had authority to adjust day ahead and it continued throughout the week
    • Second issue is different from a price correction because there was no order violation, pointing out that it doesn’t make economic sense
  • Creighton – Didn’t make sense because they were too high? What would’ve made sense?
    • Yes, $9k would’ve made sense, matched to value of lost load
  • Creighton – For downstream impact being difficult to quantify, at what point can we quantify that? Is it possible we’re moving too fast, or once we went past settlement contracts closing should we be more measured?
    • Considered and weighed actions, still came to conclusion that error should be corrected; time passing changed weight, derivatives have closed, these are confidential
  • Creighton – Will we expect another letter soon?
    • No intention to at this time, responding to $16 billion and analysis of data as it came in
  • Creighton – Is there a chance that without taking action then negotiations will work as intended?
    • Remain significantly concerned about possibility of cascading bankruptcies
    • Entities that performed well and hedged could go out of business
  • Creighton – Should we save them?
    • We have an excellent electricity market, if we lose participants it will negatively affect efficiency of the market
    • Defaults are so large they are difficult to swallow, could cause some to exit and not pay
  • Creighton – Need to look at both outcomes, need consistency in market construct
  • Schwertner – Other argument is that if we don’t correct it could chill entries into the market; could be hesitant because market was not functioning as it should during the winter storm
  • Schwertner – Ultimately we’re at fault for $9k without stopgap, but should consider recommendations of IMM and lack of market response in hitting cap when needed and not following order of PUC
    • Difficult decision, there are harms on both sides, concerned about fidelity of the market, but also expectation that errors are corrected
  • Schwertner – Any price correction will have winners and losers, will be hearing from them no matter what we do
  • Schwertner – Will be hearing from constituents, heard from Georgetown Energy, we know Austin Energy’s position and LCRA’s
  • Hughes – In the free market price is a signal of demand, higher the price the more incentive exists to meet demand
    • Yes, electricity markets are unique because demand is inelastic, this is the reason for constructs like lost load
    • Design of energy only market is that incentive should be matched to reliability
  • Hughes – If the price is wrong it throws everything; if we don’t correct, we have much larger problems?
    • We believe correcting the price is the right thing to do
  • Hughes – This process is part of the market everyone is familiar with, if we didn’t correct mistakes, that would be changing the rules
    • Yes, though people can disagree on “rules” e.g. ERCOT protocol, PUC rule
  • Hughes – Anyone investing would know the process exists and mistakes can be corrected; wouldn’t we incentivize people if they know mistakes will be corrected?
    • I think that’s accurate
  • Hughes – It ought to be
  • Hughes – Asks after cascading bankruptcies and potential harm if we don’t correct?
    • In ERCOT, you have load serving entities who were able to pay bills and you have those who weren’t able to pay
    • Groups that were not able to pay could be helped by correcting the price
    • Only the whole load serving entities would benefit
  • Hughes – Is there a way to identify generators who properly winterized?
    • Yes, can look at data and reasons for going offline
  • Hughes – Is Potomac looking at this?
    • Traditionally we’re on the market side more than reliability, but interested in this
  • Hughes – Could you tell us how much damage was caused based on this?
    • Will be able to categorize outages by cause, will be analyzing trends
  • Huffman – Did you communicate concerns about the $9k cap continuing to ERCOT & PUC?
    • Yes, spoke with both early in the morning on Thursday, spoke with then-Chair and CEO
    • Described Potomac’s position that $9k needed to end with need for load shed
  • Huffman – What was their response?
    • They were concerned generators wouldn’t stay online, wouldn’t be enough online to absorb demand, also concerned about Friday morning peak
  • Huffman – But you disagree with that decision?
    • I disagree with that decision
  • Huffman – Generators were required to continue to produce during an emergency?
    • That is my understanding, must asks ERCOT for permission to come offline
  • Huffman – $5.1 billion is money that would change hands if Potomac’s recommendations were followed, $4.1 million is energy and $900 million is ancillary
    • Correct
  • Huffman – Who determines when errors are identified to trigger 30 day timeline for corrections?
    • ERCOT, 30 days from day of event
  • Huffman – Are we past it?
    • Not yet, close
  • Huffman – You’re not taking issue with determination to raise price on 14th?
    • Correct
  • Huffman – Does a market we know has an error, but we do nothing or a market with an error we correct have more integrity?
    • We recommend the correction because we believe it’s what is right to do

Bill Magness, ERCOT

  • Provides timeline of EEA 3 being issued and decision to raise price to cap
  • Raised cap to protect human health & safety, did not want to bring price down too fast and have outages
  • Actions were also to stabilize the grid, forecasts were showing very high demand on morning of the 18th, evening of the 18th, and morning of the 19th
  • Also wanted to bridge gap between outages and restoring customers, trying to coincide with generation coming back online
  • Highlights decisions made by generators in taking load down, continuing $9k price was to give ERCOT ability to try and shape demand
  • Wanted to make sure that everything done in transition did not damage anything when removed
  • Took note of continued winter risk, power plants experiencing continued failures, restoring service, when industrial loads would come back, etc.; also concerned that coming out of EEA would mean generation would come offline as load increased
  • Price seemed like the idea that could be executed to maintain generation and voluntary load shed; load shed event was not entirely over, felt that price could be maintained at $9k until EEA 3 was no longer in effect
  • Potomac did express objections, ERCOT and PUC felt that we needed to maintain integrity of system in any way we could
  • Was a judgement call, generation stayed on and demand was managed
  • Ran through 9am on Friday to get through anticipated peaks and wanted to tell the market that ending time was definite
  • ERCOT doesn’t believe there was an error in the way ancillary services prices were applied, market conditions dictated the high prices
  • Huffman – When you were making these decisions, did you contemplate the economic crises that would result?
    • Yes, we knew that with $9k prices we would see issues, hadn’t had market operate at these prices at this length of time before
    • Was a judgment call to get out of public safety hazard
  • Huffman – So you knew there would be cascading bankruptcies, businesses put out of business?
    • Don’t know what impacts of high prices will be because hedging arrangements exist
  • Huffman – You said no one has seen this before, prices were set and stayed high longer than we’ve ever seen
    • Unprecedented prices, but had to wait and see on impact as we sent invoices
    • Exactly who prices affected was not something we knew through our data
  • Huffman – Did you speak to anyone at the PUC and notify of possible economic consequences?
    • Worked with Chair Walker moment by moment to mitigate risk, knew there would be an economic impact, but weighed against risk
  • Huffman – Asks after industrials
    • Concerned that a lot of industrial consumers would come back quickly
  • Huffman – Did you think about contacting them to discuss? Seems like you would understand there would be a crisis on the back end, why weren’t other options seriously considered and taken? Why can’t you look back and say there was an error and that prices should be adjusted?
    • Certainly were considering other options as we got into that evening, but needed a broad market signal to demand and generation
    • Thought about emergency response service, but these resources were exhausted
    • A lot of discussion took place, $9k price cap remaining was determined to keep most amount of generation on and load off
    • We were talking to industrial customers throughout the event
  • Huffman – Was anyone else pushing back on elevated price other than IMM?
    • We walked through a lot of options, $9k price seemed to mitigate the most risks
    • Didn’t receive other pushback on this decision
  • Huffman – No one called and complained price continued to be elevated after load shed?
    • Couldn’t talk to generators or load serving entities while options were considered due to unfair competitive advantage; not able to vet something, analyzed in context of PUC and ERCOT regulation, risk
  • Huffman – Would you be able to instigate price correction yourself now? PUC order?
    • Can ask for correction with software errors, data errors, inconsistent with PUC rules
    • If PUC determines action was against order can also do so
  • Huffman – So PUC has authority to order ERCOT to start price corrections?
    • Under ERCOT protocols we can ask them, unsure if this is legal
  • Huffman – Why wouldn’t this be legal?
    • If there’s anything in law that prevents changing prices after markets closed
  • Huffman – Apparently the IMM believes this can happen
  • Huffman – My understanding is that ERCOT could do a model of what would’ve happened if $9k was ended with load shed
    • Can do a back pass in certain cases, need to assume many things with this situation
  • Huffman – Are there groups and orgs that can do an independent analysis?
    • Yes, would likely face the same challenges we do
  • Huffman – Do you have documents or records of the timeline for the event? Asks for this to be provided to Senate Jurisprudence
    • Sure, have been gathering this in response to House members and the AG
  • Schwertner – You were in constant communication with Chair Walker, who decided to maintain scarcity pricing? Was it you? Chair Walker?
    • I made the ultimate call, ERCOT issued the notice
  • Schwertner – Which you believe is consistent with PUC order even though it is clear about pricing and load shed and last load shed was recalled on Thursday?
    • There were still many customers in load shed even after we stopped calling for it
  • Schwertner – Did you not trust the market?
    • Our concern was that if market operated as if on Monday or generation and load weren’t balanced, we had higher risk of seeing outages; felt it was better to maintain stability from a reliability perspective
  • Schwertner – Asks after notice timeline
    • Had the time certain of 9am Friday
  • Schwertner – You knew your decision would be controversial, why didn’t you ask for PUC opinion?
    • Felt we needed to make a decision before 8am to address circumstances
  • Schwertner – PUC seemed to move when they wanted to raise the price to $9k, but when it was time to back it back down there was no further clarification
  • Johnson – People saying maybe cap of $5k was okay, would you agree?
    • In hindsight, it could’ve been different; no basis to say if it should have been $5k or anything else; went with cap due to emergency conditions
  • Johnson – Does EEA3 necessitate we need to be at market cap?
    • That is how the order laid it out
    • Various adders came on at various points
  • Johnson – entire market construct never envisioned the circumstances we experienced that week?
    • Did not contemplate so much outage you could not rotate load
  • Johnson – system was not structure for this week? Things were not working.
    • Still had to administer the market that was presented to us
  • Johnson – At EEA3 you’re at emergency levels, if cap went down in price, they still need permission before they go offline?
    • Yes, but could have required them to participate as long as we reimagined in the emergency conditions and would have settled up with them after
  • Johnson – would it have been economical for an industrial user to go on at $7k?
    • No data to back up either way
  • Johnson – cap was to signal peak production not industrial load drop off
    • Dollar amount was tied to supply amount, but it provides a strong incentive for demand side as well
  • Johnson – asked for more details on uplift?
    • Generally costs are socialized across all qualified scheduling entities
    • Collected up to $2.5 million a month for the whole market
    • ERCOT must file lawsuits and do collections to avoid uplift
  • Johnson – have there been any preliminary estimates on bankruptcy?
    • Lawyers are involved but have not heard from them
  • Hughes – how to describe bids and demands finding price, algorithm? Want to know what to call the mechanism that was not working on pricing?
    • Set of algorithms and looks at supply and demand and adjust on the grid
    • Hughes – is there a legal process for making changes to the process; changes what goes into it and how it works?
    • Changes can be written down in ERCOT protocols, if board approves then they implement
    • If there is a PUC rule involved, it then goes to protocols process and then it goes into the computer system
  • Hughes – for each process is there a transparent system where people can see it?
    • Protocol revision process is conducted in public meetings
  • Hughes – other than that process, have you seen a situation where we went to cap and stayed there and did not follow process to get us to the right place
    • It is the only time I have seen it happen
  • Hughes – EEA3 and its implications, folks providing power into ERCOT cannot get off with out permission; did you say should always be at the cap in EEA3
    • There is energy price and reliability adders; agrees all the adders would get you to a $9k
  • Hughes – heard from market participants we should be at the cap; where they buyers or sellers?
    • As issue arose, commission needed to authorize the change
    • Agrees would not anticipate the buyer to ask for the price to go higher
  • Hughes – heard people were shutting down everything they could
    • Believe they were shutting down maximum in plan
  • Hughes – is there risk of industrial coming back up and sucking power out of the system?
    • Concern is yes, if they see a price signal they can come back up now and resume their process which is what they did on Friday
  • Hughes – discussion on prices, what would we need to know to construct pricing if it wasn’t $9k?
    • You would have to make an assumption on industrial load to be able to construct something like that
    • To reconstruct it really depends on what gas price was, it is one factor that would be hard to figure out
    • Hughes – could you figure out the price since it was a commodity?
    • Prices vary according to contracts but there is data available you could just plug in to use if you want
  • Hughes – no guarantee of accuracy but you can model it?
    • Yes; if people tells us what assumptions they want to make
  • Hughes – would it be easier to figure out regarding load that was on or off?
    • Think you need data for the loads, you would need to ask them what their numbers are
  • Hughes – do you think there could be industrials to come in at $7k, is there something prohibitive?
    • Making some prohibitive may be point
    • You are paying a lot for electricity if they are coming in at $5k or $7k but don’t know which one number he would pick
  • Hughes – how many times in EEA 3 since you have been there?
    • In 2011 but not since then
    • EEA 1 & 2 during certain summers
  • Hughes – does ERCOT have a retention records policy and would any of those records be destroyed or go away at any time during the course of business?
    • Email is 3 years and then it goes away
    • Can give them a copy of record retention policy so they can see
  • Hughes – what other documentation should we be asking about?
    • Text, phone calls and emails and then protocols are all communication
    • Operator logs and call are subject to review
  • Hughes – will you be able to get them all to the committee for the time frame requested? What time frame would you ask?
    • February 8th is the start
  • Creighton – did it perform?
    • System performed as it was designed
  • Creighton – market construct?
    • Doesn’t think it invalidates the construct, the market construct worked as designed
  • Creighton – market is potentially always under review and can be changed?
    • Yes, it is frequently tweaked, continuous improvement
  • Creighton – if you were told about possibility of $9k, would it have been foreseeable?
    • It was so far from any experience they have seen
    • Not expecting too lose power that long
    • If they could have laid out here are the things we might see, then policy makers might want to go in a different direction
    • Some think the market was volatile and others thought it best way to work the market
  • Creighton – max cap rate of $9k, do you think you made a mistake after all you know now? Would you have made the same decision?
    • We were so concerned about not going back into rotating outages it was the best decision
    • Feel like it was the right decision given they could have gone back into rotating outages
    • If we had more time to do it in a different way, or considered market down but given the emergency time cannot say he regrets the decision
  • Creighton – any adverse effects for energy industry going forward (of opening up settled prices)?
    • Market certainty is important part of the operation
  • Creighton – if no decisions were made, would market participants reapproach and renegotiate under uplift?
    • Always a potential they could renegotiate, there may be private negations
  • Creighton – can $3.2 billion be settled in uplift?
    • Yes but it would take a long period of time, process exist
  • Creighton – 98% or more of consumers would not receive a pass through on bills, have you been approached or heard this?
    • Have no reason to question that
  • Huffman – real time energy costs don’t have to do with commodities
    • Yes those are real time, agrees it is ancillary and energy cost
    • When energy prices are closed discussion held at commission on ancillary they held open options for adjustment on ancillary prices – the last he heard
  • Hughes – was anyone hedged for $9k cap?
    • Don’t know financial arrangements, if they are saying they don’t have to pass on cost then risk management was very conservative
    • They may have had financial arrangements where risk was fronted but don’t know enough about those instruments to speculate on it
    • Can’t comment on specifics or what they cost, would just be speculation
  • Hughes – did you tell us about 55 days
    • There are adjustments and resettlements as load data gets finalized, doesn’t tend to be a huge difference
    • Price correction timeline is 30 days after operating, different for resettlement
    • Full time for resettlement is 55 days
  • Hughes – Price correction, data error meaning
    • Means data was entered in incorrectly
  • Hughes – system for fixing errors, everyone is aware it is out there
    • Criteria for what is ok to try to correct is in their protocols
    • Timeline (of 55 days above) is stated in their documents
  • Hughes – not saying the system performed as it was designed
    • System performed as it was designed through that Monday, when realized it was not outcome then they issued and order and changed it
    • They issued notice on how they are interpreting PUC notice – that was not the system that was a judgement call
  • Hinojosa – Independent market monitor reports to?
    • They report to commission, ERCOT job is to pay them but they report to Commission and not ERCOT
  • Hinojosa – do you agree there were cost to the market?
    • Agree there were cost to the market with that decision
  • Hinojosa – 350 generators out
    • Still pulling those calculations together but thinks that is the case over the course of the event
  • Hinojosa – There were 350 generators out?
    • Over the course of the event, yes
  • Hinojosa – What is your opinion rolling gas into the electricity market
    • Haven’t been asked to look at this market, would be a different way of operating than we’ve been asked to
  • Bettencourt – In your testimony, you said you received the order when power was trading at $1,200/megawatt hour and it raised to $9k, took until 1 am next morning to do the programming
    • Yes
  • Bettencourt – Other ERCOT testimony indicated there were troubles with the software asking for power to be taken offline due to reserve power requirements?
    • This was happening before PUC issue its order due to the way scarcity pricing was implemented
  • Bettencourt – So no additional forced reserve coming out of the system at that point?
    • We were able to adjust reserve after this point
  • Bettencourt – So you got the order, order was implemented, programmed for $9k at 1 am the next morning?
    • Yes, not sure about the $1.2k initial, price bounced around
  • Bettencourt – Asks about the back end $9k
    • Posted and printed price was $9k, gave notice that it would continue for a certain time
  • Bettencourt – From 11:59 on Wednesday night to Friday morning, for that 32-hour period IMM says in this report essentially there was a billing error
    • Yes, because they believe price should reflect normal conditions, we believe it was emergency
  • Bettencourt – Was disappointed of a lack of an integrated load sharing test between ERCOT and consumers; could’ve informed us about the issues with a high load shed event
    • If that had been drilled, might’ve seen things ahead of time
    • As we talk to TDUs, idea that they may have load shed for so long was unthinkable; now looking at how they continue if we are in this situation again
  • Bettencourt – Any drill could’ve uncovered problems
    • True, but not sure what TDUs do to drill their plans; we didn’t show them 20k of load shed and ask what’d they do
  • Bettencourt – Or even 5k, or 10k
    • Would need to look at this
  • Bettencourt – Fact that rolling outages were not realistic had to be discovered Monday night; without a drill, there’s no way to know the problem, if we don’t do integrated drills we’re missing fundamentals of plan operations, do you agree?
    • Agree we need to do something like this
    • On Monday, generation wasn’t coming back and weren’t ready with messaging
  • Bettencourt – Reiterates importance of messaging
  • Bettencourt – Have a rider filed to mandate annual testing and drilling for winter and summer capacity
  • Hughes – Price correction would be issued on data or software errors?
    • For day ahead market, protocols are for data input error, software error, or inconsistency with protocol or PUC rules
    • For real-time, incl. data input or output error, hardware error
  • Hughes – Cites protocol that ERCOT board could suspend settlements to address irregularities with real-time markets (9.5.12)
    • Can look at this
  • Hughes – I would read this as broad discretion, but hope you take a look
  • Hughes – Would the EEA stages be called emergency conditions generally in the ERCOT world?
    • Yes
  • Hughes – So not enough reserves, system instability?
    • Yes, ramps up with lower reserves; frequency also plays into this
  • Hughes – On Thursday, was the system stable?
    • The system was stable; was stable the whole time after initial frequency problem
    • Concern was bringing on additional load and staying stable
  • Hughes – What were reserves like on Thursday?
    • Got to pretty significant levels, but were concerned about upcoming peaks
  • Hughes – Did the level of reserves and system stability justify an emergency condition on Thursday?
    • Wednesday night conditions justified taking the action we did, needed maximum incentive to keep generation on and load off; seemed like best course
  • Schwertner – You were nervous about how the grid would perform on Thursday?
    • There was certainly concern based on data
    • Wanted to ensure we didn’t move back into rotating outages
  • Schwertner – Had you had script errors in times of emergency prices before?
    • Didn’t have a script error, was running as designed, but didn’t act as expected given the conditions
    • The way the system handled reserves with that much load shed wasn’t anticipated
  • Schwertner – When you hear that these situations weren’t anticipated, you conclude the market is broken, correct?
    • Conditions created in computer systems weren’t generating the price expected, needed to be changed
  • Schwertner – The over 100 hours $9k price was never anticipated by anyone in the market, did you ever anticipate this would last this long?
    • Did not
  • Schwertner – Principles of the market causing change in demands or generation didn’t work?
    • Yes, needed to be corrected
  • Schwertner – Maintaining the price on Thursday was also a market change, without human intervention the rate would’ve dropped?
    • Correct
  • Schwertner – So a market that was possibly functioning again, altered by yourself and others?
    • Yes, we took an out of market action we thought was necessary for reliability
  • Schwertner – The IMM testified that costumer serving entities would benefit by $1 billion, do you disagree?
    • Haven’t looked at it, but no reason to think otherwise
  • Schwertner – $16 billion is real-time price, $3 billion is after hedges?
    • Yes, saying the actual financial impact after hedges and contracts are taken into account are more the second number
  • Schwertner – Was anticipated that some things might happen that need changes?
    • Yes, there are criteria for when price corrections can be done, usually not to this scale
  • Schwertner – Would you say we have a dysfunctional market with lack of capacity to respond?
    • Depends on what you want out of the market, when this was designed, no one anticipated these kinds of numbers and almost half generation being gone
    • Policy determination
  • Schwertner – Policy determination that ultimately resides with the legislature, correct?
    • Yes

Chair Arthur D’Andrea, PUC

  • Not very far from the opinion of the IMM, unfortunate that it has put us kind of at odds; need IMM to do the job
  • IMM is right that we made decisions that first week that made no economic sense, we were making decisions in context of the emergency
  • Huffman – In decision making process in first raising the cap, how was PUC meeting?
    • Head of market operations at ERCOT called each commissioner to describe the issue
    • Price interpretation was seeing large reserve in advance as excess, units were ramping up and down, PUC decided to set price at $9k
    • Discussed this at the emergency open meeting call, commissioners, legal, staff, etc.
  • Huffman – Was there consultation with others before the open meeting?
    • Spoke with ERCOT, chief of staff
  • Huffman – In one of the B&C meetings, Chair Walker said she spoke with ERCOT and others, do you know who this might be?
    • Don’t believe I spoke with anyone else, can’t think of who
  • Huffman – No one was pushing back on the $9k
    • I hadn’t heard any pushback
  • Huffman – On the 19th, why didn’t you remove the cap? Did the PUC talk about removing the cap?
    • Discussed logistically who was meeting with whom, but couldn’t discuss this directly
  • Huffman – Would it make sense to look at what we allow you to talk about in an emergency?
    • Yes
    • Bill made the decision and the Chair said yes, then plan was enacted
  • Huffman – Should it work that way?
    • I think it’s tricky, Chair Walker is the Chair, but can’t act as the commission as a whole
  • Huffman – But we set up the emergency open meetings act to allow the commission to act
    • My speculation is that decision was made at 1:30am and it needed to be made by 4am, didn’t have time to brief PUC
  • Huffman – Why didn’t you lower cap after load shed was over? Did you discuss it then?
    • COS said that it made no sense, called ERCOT after and asked to have decision explained
  • Huffman – So the decision was made? You’re the commissioner?
    • Yes, Bill made the decision, but I could have reversed the decision
    • Thought the explanation from Bill made sense & think it was the right call to save lives
  • Huffman – So the $9k cap was left after load shed was over to save lives and no other reason?
    • Was to ensure the wellbeing of Texans, would’ve done anything at that point to prevent another night of load shed and deal with economic fallout later
    • I think we have dealt with fallout, consumers and rate payers are largely protected
  • Huffman – I think IMM would disagree
    • IMM said most effects would not hit consumers, agree with IMM that we need
    • I know majority of the money would go to Brazos Electric, who is sitting in bankruptcy and hasn’t paid us a cent
  • Huffman – Do you think it would be fair to reassess the price, see who winners and losers are, see if there are errors?
    • Know the answers for public power
    • Brazos wins, Rayburn wins, Austin loses; decided to stay out of it
  • Huffman – Have you ever told anyone that you thought leaving the $9k was a mistake
    • At first yet
  • Huffman – And after talking with ERCOT you changed your mind?
    • I didn’t appreciate the nature of industrial load shed
  • Huffman – Do you agree you could order ERCOT to do the price assessment?
    • We have authority over ERCOT, but don’t think I can order this because ERCOT protocols say that there needs to be an error
  • Huffman – Those are ERCOT protocols, what does the law say?
    • We delegated those, those are the law in my world; need to act lawfully according to those protocols; have a duty to ERCOT and consumers
  • Huffman – You have a duty to the legislature as well
  • Huffman – Have you talked to any lawyers, are you represented by counsel?
    • No, but know that when money is on the table, they get involved
  • Huffman – Do you think the order allowing ERCOT to deviate on protocol deadlines for re-pricing gave ERCOT authority?
    • No, this order was due to bill timing at NRG, let them net out costs; doesn’t let them re-price
  • Hughes and D’Andrea discuss municipal power systems, D’Andrea notes they must sell into the market and have to buy from the market; can look into this
  • Hughes – Has been indicated that there may have been a provider in this setting that chose to sell at $9k while customers were without power
    • Denton statements made in response to $200 million short, made comment that they wouldn’t turn off customers
  • Hughes – Are you aware of a situation where ERCOT system was bypassed to go to cap before?
    • Never
  • Hughes – Would you agree the ERCOT process for setting that algorithm is open?
    • Yes
  • Hughes – To the extent we are concerned about people ordering conduct according to rules, moving to cap is a large change in the rules
    • When we pegged that at $9k, prices had been jumping up and down for some time;
    • Spoke about how prices needed to have been at $9k for some time, but decided that order setting $9k would only take effect from when it was issued
  • Hughes – Whether we leave things the same or reassess prices, we have market participants operating under changed rules
  • Hughes – Would you agree the 55-day deadline is standard, market participants shouldn’t be surprised if repricing occurs within this period
    • Agree
  • Hughes – Even with the 30 days, I think everyone is on notice this is still in flux, correct?
    • Yes, get calls daily
  • Johnson – Seems there isn’t a lot in dispute, cap probably shouldn’t have been at $9k, was industrials coming back online a real threat? They wouldn’t do that without consultation at ERCOT would they?
    • My feeling is the same, but some operators like steel recycling mills operate on tight schedules
  • Johnson – I just can’t see the steel mill flipping the lights on without talking to ERCOT
  • Johnson – Seems to me that what is at issue is the finality of price changes, market closing
  • Johnson – Not aware of anyone who would take a huge hit if the price is reset, are you aware of anyone?
    • Haven’t looked at books, but my understanding is South Texas Electric Coop will take a hit and need a loan, Panhandle will also take a hit
  • Johnson – Did they provide numbers to you?
    • Roughly, I know they’ve provided testimony either at the PUC or the legislature
  • Johnson – Important to establish that on the whole, if there were a repricing, we would see less overall loss at about $5 billion
    • No, disagree, you’re moving this $5 billion from pocket to pocket
  • Johnson – Isn’t removing the pocket to pocket how we got from $16 billion to $5 billion?
    • The way I read it is it is just moving around
  • Johnson – You don’t think $5 billion left the system? I think you need to have a conversation with IMM because they said it’s a real number
  • Johnson – This is critical point because if money is just moving around this isn’t an issue; if we’re talking about uplift it will ultimately hit rate payers this is different
    • Looked at the $3.2 billion from the energy and this looked like pocket-to-pocket transfers or money changing hands
  • Johnson – Critical for us to understand if this is the case or if it is an extra $5 billion of uplift that will hit ERCOT participants
  • Johnson – Asks after repricing panicking investment
    • Difficult to tell, have heard other things
  • Johnson – People would lose money on derivative transactions; but I think as policy makers we should look at if it will damage Texas’ attractive economic position or if it is an inconvenience
    • Have heard that large generators could see large economic troubles from a repricing
  • Johnson – If we’re talking about transactions that don’t net out, is it possible the derivative losses will exceed ERCOT losses?
    • Great question, similar to the housing crisis, but unsure if it compares to ERCOT exactly
  • Hughes – Isn’t there some loss here that wasn’t part of normal transactions
    • Shouldn’t say this is just money changing hands, there is harm by this
    • One thing to bring cost down for everyone, another to say specific providers are in a tough spot and moving money from those who performed better
  • Hughes – Not okay for market participants who agreed to provide power for $40, but then had to buy at $9k, this isn’t right
    • Market is designed for short periods of $9k, difference is market is not designed for this type of cold snap
    • Need a circuit breaker
    • If we knew at the time it would extend for 4 days then would’ve suggested spending rules, but constantly expected that generation would come back online quickly; this was a mistake
  • Hughes – Does the ERCOT system allow us to look at if a $40/$9k exchange happened?
    • I would expect this happened, looks like it happened to Brazos; looked like they had to buy every megawatt and had no hedging, only explanation

Lt. Gov. Dan Patrick intervened in the hearing to ask questions of Chair D’Andrea

  • Lt. Gov. Dan Patrick – Senator Hughes earlier said you had the authority to correct and reprice in unusual circumstances
    •  I think it has to be a mistake to reprice
  • Lt. Gov. Patrick – You’ve said this is an unusual circumstance
    • Will need to look into this
  • Lt. Gov. Patrick – Did anyone prepare you for this morning or this afternoon?
    • Have spoken with many people about testimony today
  • Lt. Gov. Patrick – Who would that be?
    • Can get you a list of everyone
  • Lt. Gov. Patrick – Anyone in the Governor’s office? Speaker’s office? Our office?
    • Stopped by the Governor’s office, have a friend in the Speaker’s office
  • Lt. Gov. Patrick – I haven’t spoken with you
    • No
  • Lt. Gov. Patrick – Appreciate you staying on as Chair, but I don’t know what to believe; you said in the House that LCRA told you they were going bankrupt?
    • Spoke with Phil Wilson on the phone, he identified one repricing in the IMM letter
  • Lt. Gov. Patrick – Are you aware LCRA put out a press release that disagrees with this; said they never told you that?
    • I did, heard from Phil Wilson that they wouldn’t recover from that
  • Lt. Gov. Patrick – Agency said they never told you that, said that if you reprice LCRA would make money on one side and lose a little on the other
    • Would love to verify with him; heard him say if we reprice both energy and ancillary they would be okay, but if just ancillary was repriced they wouldn’t recover
  • Lt. Gov. Patrick – Why did you say that LCRA would go bankrupt in the House this morning? Much of what you said this morning was not true, was speculation, exaggeration
  • Lt. Gov. Patrick – Your testimony worried their customers; they would not have put out a press release
  • Lt. Gov. Patrick – Their press release and your testimony is in conflict, so your testimony was incorrect?
    • I disagree that my testimony was incorrect; no space between it would ruin them and bankruptcy
  • Lt. Gov. Patrick – You said in the House that repricing could affect market like cattle, here you are not sure; you’re making statements in the House that cause people to worry about price correction, do you know this? I call repricing correcting a mistake
    • Prediction about the future
  • Lt. Gov. Patrick – You also testified that money would not go to consumers, but goes to entities that serve consumers
    • It does, these entities pocket this money for shareholders
  • Lt. Gov. Patrick – But if it’s not done, could impact consumers; testimony from the House is not accurate
    • I think it’s accurate
  • Lt. Gov. Patrick – Do you know which people at ERCOT told Chair Walker to go to $9k
    • Only know the people who briefed me
  • Lt. Gov. Patrick – You voted to go to $9k, did it occur to you to ask who advised Chair Walker?
    • Did not, made the vote with the
  • Lt. Gov. Patrick – On that Monday, everyone who could come on was on
    • It was fluctuating
  • Lt. Gov. Patrick – Why didn’t you let the market be the market?
    • Because the market was killing people
  • Lt. Gov. Patrick – Order setting the $9k ended Wednesday night, correct?
    • I think it was the right call
  • Lt. Gov. Patrick – The right call or correct? The order ended, were we in load shed?
    • We weren’t in residential load shed which is how we traditionally think of it, but were in industrial
  • Lt. Gov. Patrick – So this rule changed to? Because this is an unusual circumstance
  • Lt. Gov. Patrick – Do you remember telling me that in real-time this was the wrong decision this past Tuesday?
    • That’s what I said
  • Lt. Gov. Patrick – You didn’t say anything about industrial concerns
    • Have told this story many times, mentioned this
  • Lt. Gov. Patrick – Need to make decisions and want someone who is credible; you say things in the morning and now that don’t seem to agree, when I talked with you, you didn’t say anything about the concerns about industrial load
  • Lt. Gov. Patrick – You said it was the wrong decision to keep things at $9k
    • I told you about this, did I not tell you this?
  • Lt. Gov. Patrick – You told me you spoke with Magness, told me it was a mistake
    • If I thought it was a mistake, I would’ve forced a vote
    • Keeping the $9k was the correct move
  • Lt. Gov. Patrick – So if it’s the right decision there is no need for an official vote after the order ended
    • There was no need as Magness correctly interpreted the order
  • Lt. Gov. Patrick – There was no order, it expired on Wednesday night
    • It didn’t expire
  • Lt. Gov. Patrick – You can look at the timeline, is Carrie Bivens wrong?
    • I knew Bivens thought it was a mistake
  • Lt. Gov. Patrick – But no vote to go to $9k, just went on Magness’ word
  • Lt. Gov. Patrick – At the end of the call, you said you agreed with my view, I said you need to fix this and do what’s right to correct this mistake
    • I had just taken a vote not to correct, didn’t agree with your view
  • Lt. Gov. Patrick – You said on the phone you agreed and that you were talking to lawyers to correct the issues
    • Told you I was talking to lawyers to see what could happen
    • May have agreed with some view you were espousing, not sure
  • Lt. Gov. Patrick – Had a good conversation, I said this is wrong, and you said you agreed, that in real time it was a mistake, I said you need to correct this and do the right thing
  • Lt. Gov. Patrick – Sen. Johnson said why are we wasting our time if it’s just money changing hands; correct action is to follow the rules of unusual circumstances, IMM properly identified the market is aware this can happen
  • Lt. Gov. Patrick – On the floor, they asked if you agreed with the letter from the Senators, you said you disagreed, but it’s a close call
    • I’ve said multiple times I’ve flip-flopped, was a close call; tough question on whether I had authority and whether we should do it
  • Lt. Gov. Patrick – Don’t you think it’s been established by IMM that you have authority?
    • I think she’s an economist
  • Lt. Gov. Patrick – This is correcting an error, not repricing; not going back to Monday-Wednesday, asking you to correct a mistake on Thurs-Friday
  • Lt. Gov. Patrick – You’ve said it was a mistake
    • At the time I thought it was a mistake and spoke to Bill Magness
  • Lt. Gov. Patrick – This is a conversation you never told me and another
  • Lt. Gov. Patrick – Gov. ordered an emergency item on repricing, put together a good hearing with 3 witnesses; pretty clear this is a mistake
    • I made a lot of mistakes, but not a mistake based on ERCOT rules allowing me to reprice
  • Lt. Gov. Patrick – Told me on Tuesday that this was a mistake and agreed we needed to correct
    • No way I told you that I agree; would not be going through this
    • Disagree that I have authority to change this and I don’t think it benefits consumers
  • Lt. Gov. Patrick – You testified $16 billion was wrong in the House, IMM stated it wasn’t wrong, cost will be in billions
  • Lt. Gov. Patrick – You’re perfectly happy as Chair to say that even with reserves, the system was stable, etc. that for 32 hours the price should have been $9k
    • Yes, to keep the lights on
  • Lt. Gov. Patrick – The lights were on
    • Because we were at $9k
  • Lt. Gov. Patrick – At midnight Wednesday we were in balance and we were building reserves
  • Lt. Gov. Patrick – If the Governor called you and decided it was clear it was a mistake, or based on the rules it was an unusual circumstance, and he ordered you to correct this error, would you do it?
    • I don’t think I have the authority
    • I have never been asked to do something that’s illegal
  • Lt. Gov. Patrick – No one has said it’s illegal; would you go to jail if you do this?
    • No
  • Lt. Gov. Patrick – You said you could face civil liability; the rules say you can make that change
  • Lt. Gov. Patrick – Governor would not have asked for this hearing if he thought it was illegal because there would be no point
    • You can act as the legislature
  • Lt. Gov. Patrick – You’re on a tight deadline, not sure a bill can be passed within those
  • Lt. Gov. Patrick – I believe it is established you are able to reprice; first principle is to do what is right and correct a mistake in unusual circumstances
  • Schwertner – Speaks about D’Andrea’s testimony to the House; said it wouldn’t help or hurt consumers, deadlines have passed, and that it would be illegal to reprice
  • Schwertner – You said that $16 billion was not real, is it not a real number looking at the gross
    • It doesn’t represent anything in the real world
  • Schwertner – I think it discredits your position as Chair to not have at hand the IMM’s concern over numbers and the breakdown on numbers
  • Schwertner – Your purpose here is to lead the committee down a certain path; my faith in you as Chair is lacking
  • Johnson – Did you at one point think we should reprice Monday’s transactions?
    • I did, ERCOT presented prospective and retroactive repricing; at one point in conversations
  • Johnson – Referring specifically to algorithm pricing too low
    • Completely agreed with repricing that to $9k
  • Johnson – Should we be looking at repricing that Monday? Same way as Thurs-Friday
    • Will need to think, haven’t thought about if this counts as a mistake
    • Not what I expected it to do, agreed with tacking it at $9k going forward
  • Johnson – Do you know anything about the new position at ERCOT?
    • This was former Chair Walker’s policy advisor, asked to be PUC’s eyes and ears at ERCOT
  • Johnson – Were we lacking in ERCOT accountability without these positions?
    • Was done in response to Rep. Phil King’s suggestion to get trusted people at ERCOT

Closing Comments

Sen. Joan Huffman

  • Lot of good testimony today, some of it contradictory; still have unresolved issues & discussion will continue later

Senate Jurisprudence recessed