It’s hard to believe that last winter’s storm and the resulting rolling outages happened one year ago this month. That event triggered many questions and fears about the stability of the grid managed by the Electric Reliability Council of Texas and how increased costs incurred by Big Country Electric Cooperative during the storm could affect members’ electric bills. We said then that this is a complex and ongoing situation that we will strive to keep you abreast of. A year later, that remains the case.
Financial Impact on Big Country EC and Its Members
The financial hit to BCEC and our members from last year’s winter storm was $14 million. Initially expected to be even higher, our tab for the weeklong disaster was still much steeper than the cooperative’s typical February power costs. For perspective, BCEC’s February 2020 power bill was $1.1 million.
The hard-to-imagine sum of $14 million became reality due to three primary factors in play during the storm: the high cost of natural gas, the limited supply of natural gas due to frozen lines and the drastically increased cost of generation in the ERCOT market, which peaked at the wholesale electricity price cap of $9,000 per megawatt-hour. Record-setting demand for electricity and natural gas collided with a record-low supply of power, which led to the increased costs.
What Has Changed as a Result of the 2021 Storm?
The cap per megawatt-hour has been reduced to $5,000, which is a plus. This should reduce the likelihood of additional unbudgeted purchased power cost increases should another catastrophic event occur but doesn’t guarantee such increases won’t happen.
Another consideration is that the reduction of the price cap doesn’t address the problems of inadequate generation capacity or natural gas lines freezing, which took generating units offline last year, leading to the mandated statewide rotating outages. Much legislation has been discussed concerning these issues, but nothing that solves the problem quickly has been passed.
When Texas’ retail electric industry became deregulated in 1999, it made energy a market-traded commodity, not necessarily matched by actual available generation capacity, or usable electricity. It’s worth noting that no matter how much generation capacity is available, Mother Nature often has the final say, but relying less on the market and increasing available generation capacity in Texas would certainly help reduce the likelihood of events like last winter’s storm having such far-reaching and devastating effects on us.
How Does This Affect You?
Since last February’s storm, BCEC has been up-front with members in communicating that the costs we have to pass along would be reflected as an additional charge, seen in the power cost adjustment of your monthly electric bill, as seen in the example below. At $0.01 per kilowatt-hour, this reflects pass-through charges for debt stemming from last year’s storm as well as the increased (and increasing) cost of natural gas for generation of electricity that the cooperative pays to Golden Spread Electric Cooperative, our power supplier.
Neither BCEC nor GSEC profit from the amounts that are collected to offset the expense of fuel costs for generation. There is some good news too—because BCEC has experienced higher-than-forecast system growth over the past year, our 2021 margins are also above budgeted expectations. Because of this, the board of directors plans to apply a portion of those increased margins to reduce the undercollected power cost from members, pending the review of 2021 year-end financials.
This is a win-win for the co-op and you because you get the benefit of increased operating margins now, instead of having to wait for them to be returned as capital credits down the road. BCEC will also be able to maintain our current method and schedule for capital credits allocations and retirements, which will keep the co-op healthy and honors our obligation to you.
The board is prepared to evaluate this on an annual basis. As long as the cooperative’s margins are large enough, we may be able to keep the PCA as low as possible while maintaining the financial health and stability of the cooperative.
The Cooperative Difference
We know that this information is complex and can be difficult to understand, but we offer it to be fully transparent with you. Could another winter storm happen? Yes. But rest assured that whatever comes our way, BCEC and GSEC will always work to serve you and protect your welfare and best interests in the face of unfathomable circumstances.
