European renewables giant sues Texas for the massive loss it ran up during February ice storms

May 17, 2021, 1:43 PM UTC

A major European utility with operations in Texas is suing the state for intervening in power markets during the freak winter storm in February, costing the firm nearly $500 million. 

Wind-park owner RWE of Germany said its unit RWE Renewables Americas has filed a lawsuit against the Public Utility Commission of Texas (PUC) as well as the Electric Reliability Council of Texas (ERCOT), a nonprofit that operates the state’s power grid. 

It did not name the district court at which the motion was filed.

In February, a massive ice storm pounded the state, plunging millions into blackouts and crippling much of Texas’s energy grid. In response, the PUC issued an emergency order to hike the cost at which utilities buy wholesale electricity to the maximum level allowed under law to reflect the scarcity of power supply. 

With 70% to 80% of its own 2.6 gigawatts in installed wind power capacity temporarily knocked out by the storm, RWE was forced to purchase electricity at exorbitant prices to fulfill its obligations to customers.

“The crucial point is actually that the regulator intervened to set the price at $9,000 per megawatt-hour. Interestingly enough, this didn’t even turn out to be economically sensible, since [the incentive] did not actually create any additional supply to the grid,” Michael Müller, finance chief of parent RWE, said last week. 

“Since this is effectively a political process, no one should expect any concrete result in the near future. It’s more of a long-term issue,” he told reporters during a quarterly earnings briefing on Wednesday.

RWE declined to provide further details, while a spokeswoman for ERCOT said it was unable to comment at this time amid the ongoing legal proceedings.

A spokesman for the PUC told Fortune the commission was “unable to discuss matters that are the subject of pending litigation.”

‘Won’t see a payout’

Insurance companies would not compensate RWE for the losses, estimated at roughly 400 million euros ($483 million), according to Müller: “We won’t see a payout since we typically only insure against property damage and not events such as these.” 

Following the February ice storms, RWE incorporated the economic hit into its annual earnings guidance, issued in March. This foresees a decline in underlying profits of between 5% to 17% over the past year’s 3.2 billion euros owing mainly to sharply lower earnings at its onshore wind and solar division that includes the Texas operations.

The Texas storms prompted a national debate over what share of power should come from fluctuating renewable sources. Texas Gov. Greg Abbott even singled out renewables as being especially to blame for the blackouts. While wind parks including RWE’s did indeed fail owing to the weather, so too did the typically more stable conventional power plants that burn coal or natural gas. 

Weather-related power outages in Texas have also had wide-scale effects on the broader economy. Several semiconductor wafer fabs operated by companies like Infineon, NXP, and Samsung had to be shut down and only gradually ramped back up, exacerbating a global shortage of chips for the auto industry.

Sky-high bills

Texas is a unique energy market in that Texans get roughly 90% of their electricity from independent producers within state lines. Therefore, much of the grid falls outside federal regulatory oversight. The catch: Texans learned that in times of crisis, they’re largely on their own; it is extremely difficult to import power from neighboring states. 

A number of Texas households whose electricity contracts were linked to wholesale power prices were hit with exorbitant bills as a result of the PUC’s decision, prompting an investigation by the oversight body.

“There were people that were hit with bills worth $15,000 for the week, so this is really an issue of broader relevance beyond just RWE,” Müller added. RWE doesn’t sell power to retail customers.

In March, all three individuals in charge of the PUC at the time of the decision resigned their post. First, DeAnn Walker stepped down as chairwoman at the start of the month, as did her successor, Arthur D’Andrea, after being promoted to the post, just two weeks into the job.

RWE said it will review the operation of its wind parks in Texas, the marketing of their electricity, and, in particular, whether to hedge its exposure to major deviations between the retail and wholesale power price to include winter months.

“We already do this for the summer months when these price peaks have been known to occur in Texas due to shortages in supply, with the important distinction that regulators did not intervene,” Müller explained.

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