Update: On Tuesday night, PUC chairman Arthur D’Andrea, who was appointed chairman by Governor Greg Abbott less than two weeks ago, has resigned. In a statement, Abbott said, “Tonight, I asked for and accepted the resignation of PUC Commissioner Arthur D’Andrea. I will be naming a replacement in the coming days who will have the responsibility of charting a new and fresh course for the agency. Texans deserve to have trust and confidence in the Public Utility Commission, and this action is one of many steps that will be taken to achieve that goal.”
While many Texans last week were worried about sky-high electric bills from February’s winter storms, the state’s sole utility commissioner was privately reassuring out-of-state investors who profited from the crisis that he was working to keep their windfall safe.
Texas Monthly has obtained a recording of a 48-minute call on March 9 in which Texas Public Utility Commission chairman Arthur D’Andrea discussed the fallout from the February power crisis with investors. During that call, which was hosted by Bank of America Securities and closed to the public and news media, D’Andrea took pains to ease investors’ concerns that electricity trades, transacted at the highest prices the market allows, might be reversed, potentially costing trading firms and publicly traded generating companies millions of dollars.
“I apologize for the uncertainty,” D’Andrea said, promising to put “the weight of the commission” behind efforts to keep billions of dollars from being returned to utilities that were forced—thanks to decisions by the PUC—to buy power at sky-high prices, even after the worst of the blackout had passed.
Billed as “Learning the Texas Two Step: A Chat with the PUCT,” the call originally was scheduled for early February but was postponed until after the winter storm. The conversation shows a coziness between a top Texas regulator and some of the biggest players in the electricity market at a time when the PUC’s oversight is under fire from lawmakers. At one point, during a discussion about whether natural gas, which also saw huge price spikes during the crisis, would be “repriced,” D’Andrea said no, adding that most legislators understand that gas is priced by global markets and is out of their purview. “But I’ll let you know if I hear anything crazy on it,” D’Andrea said.
AUDIO: Listen to the conversation:
PUC spokesman Andrew Barlow said the call was part of regularly scheduled discussions between commissioners “with constituent groups across the spectrum who are interested in myriad issues.” He stressed that D’Andrea did not reveal confidential information or make comments that he hasn’t said publicly or in recent testimony before the Legislature.
Much of D’Andrea’s discussion focused on the issue of repricing some of the most expensive electricity trades during the crisis. Wholesale power prices rose 10,000 percent during the third week of February, hitting the state-imposed maximum of $9,000 per megawatt-hour and staying at those levels for days.
The PUC mandated that the $9,000 prices stay in effect for 32 hours after the market had returned to normal, a move that has angered many municipal utilities and retail electricity providers. Those providers are now struggling with huge bills that they say are unjustified and could push them into bankruptcy, while potentially eventually driving up bills for millions of residential and commercial consumers in Texas. The independent market monitor for ERCOT, the grid operator overseen by the PUC, has called the prices artificially inflated and recommended that billions be returned to purchasers. Some lawmakers have also called for contracts sold during that extended period to be repriced, and lawmakers are debating a bill this week that would force D’Andrea to issue refunds.
Tim Morstad, associate state director for AARP Texas, said instead of offering assurances to investors, D’Andrea should be offering them to consumers. “At the bottom of the heap are consumers, and the system isn’t reducing their pain at all,” he said. “It’s time to use the power of the commission to provide relief to consumers who were harmed during this electricity emergency.”
The repricing issue has caused a rift between the state’s two top Republicans. On Monday, Lieutenant Governor Dan Patrick criticized D’Andrea’s opposition to repricing and called for the PUC to reverse the overcharges. Governor Greg Abbott, who promoted D’Andrea from commissioner to chairman in early March, has opposed repricing. During the call, D’Andrea tried to reassure investors that repricing wouldn’t happen.
“I took that first step to tip the scale as hard as I could in favor of it being resolved … to provide some calming force,” D’Andrea said. “It’s a contentious political issue. The best I can do is put the weight of the commission in favor of not repricing.”
D’Andrea noted that ERCOT requires that all trades be finalized in thirty days, which means the last of the maximum-priced contracts will be settled this week. After that, he said, any repricing discussion is moot. D’Andrea said he doubted lawmakers could get a bill passed in time to force repricing—a prediction that seemed to come true on Tuesday, when House Speaker Dade Phelan announced that his chamber wouldn’t consider a bill rushed through the Senate that would force ERCOT to reverse billions of dollars in charges.
Bank of America’s power trading business, like those of other major investment companies, made hundreds of millions of dollars in trading windfalls during the crisis. The security analysts on the call with D’Andrea are not traders. Instead, they advise institutional investors on whether to buy stocks or other securities in companies that could be affected by his decisions.
The moderator of the call thanked D’Andrea for his insights, including those informed by his private conversations with the governor and various legislators. A Bank of America spokeswoman declined to comment on the call. Abbott did not respond to a request for comment.
D’Andrea’s views carry more weight than usual because he speaks for the entire three-member utility commission following the resignations of chairman DeAnn Walker and commissioner Shelly Botkin in the wake of the crisis. Both were also appointed by Abbott.
D’Andrea indicated that he expects to remain the sole regulator over the electric markets for the foreseeable future. He said he doesn’t think Abbott is interested in appointing new commissioners during the legislative session, when appointees would have to be confirmed by lawmakers. “I went from being on a very hot seat to having one of the safest jobs in Texas,” D’Andrea said. “I think it’s just going to be me for a while.”
Given the focus on the PUC and its oversight of the market, new appointments would likely be “a big slog of a fight,” he said. Instead, he believes Abbott will wait at least until the end of the regular session in May before nominating anyone. “I think they probably enjoy having just one person up there because they can secure promises from me and I can’t say, ‘Oh, well, my fellow commissioners wouldn’t go along.’ It’s easier for everyone, actually. At a time like this when I’m communicating all the time with the Legislature, it’s easier to just be going through one person.”
Asked what actions he believes the Legislature will take in response to the crisis, D’Andrea said he thinks protecting power plants and natural gas wells against harsh winter weather will be a primary focus. Lawmakers may also require generators to store more fuel on-site to avoid the issues with freezing gas transmission systems that crippled many power plants last month. D’Andrea said it’s unclear how lawmakers will decide to pay for these measures.
However, he doesn’t believe the Legislature will adopt sweeping changes to the deregulated market’s design because it’s too complicated and there are too many competing interests. “I think the Legislature will do some of that, but I don’t expect to see a ton,” he said, adding that he believes most of the changes will be administrative in nature.
Lawmakers may consider a measure to require that generators build additional plants that could be kept in reserve to meet demand during a crisis. However, D’Andrea noted that the market currently doesn’t offer incentives for such reserve generation.
“We haven’t had a real plant in years,” he said. “It’s nothing but wind and solar. I like our wind and solar fleet, and I’m trying to protect them from some criticism.” Because wind and solar generation is weather-dependent, it doesn’t serve as reserve generation in all cases. The question, D’Andrea said, is whether lawmakers would force wind and solar providers to pay for more natural gas, coal, or nuclear reserves, or if any market incentives would be shared equally among all generators.
At the end of the call, the host thanked D’Andrea for addressing their concerns, noting that there was “a lot of fear out there, uncertainty.”
D’Arthur again apologized for the instability. “There’s not much that can be done about it now,” he said, adding that he was “trying to settle things down as much as possible.”
Correction: The original version of this story stated that the March 9 call took place between D’Andrea and Bank of America analysts and researchers. In fact, Bank of America hosted the call for investors. The story has been corrected.