Wall Street and rating agencies are sifting through the aftermath of the recent near collapse of the Texas grid to sort out which power businesses can survive and which may be positioned to thrive.

"Long term, I think you're going to have regulators more skeptical of the types of generation that they are counting on," Morningstar analyst Travis Miller told S&P Global Market Intelligence. "Wind has got a bad name because it obviously failed miserably. But also gas generation. You can plan for intermittent wind generation as long as you have a reliable backup source. What ended up happening was that supposed reliable backup source wasn't reliable."

A powerful winter storm caused widespread generation outages and skyrocketing electricity and fuel prices in the Electric Reliability Council Of Texas Inc. as it swept through Texas in mid-February.

"Over time, we anticipate that market participants will seek to reconsider hedging policies and explore the availability of hedging structures and supply commitments that could better able them to shield financial performance from extreme prices of the kind and duration experienced during the storm," S&P Global Ratings wrote in a March 15 report. "However, we anticipate that in [winter storm] Uri's aftermath, counterparties may be less willing to provide hedges and/or price them more expensively."

During the deadly storm and arctic freeze, the Public Utility Commission of Texas ordered electricity prices to the $9,000/MWh cap after load shedding artificially reduced power demand.

Texas lawmakers are now in a fierce debate about whether to retroactively bring down the electricity prices to prevent more bankruptcies among market participants.

To further cloud the picture, the sole remaining member of the Public Utility Commission of Texas resigned March 16, effective upon the appointment of a replacement, following the release of a recorded call with Wall Street investors about repricing decisions.

It remains unclear what market reforms will be enacted and whether enough support exists for a capacity market construct or regional interconnection.

"I think you'll hear a lot of focus on how to balance the idea of intermittent generation resources," Miller said. "There is certainly a way to incorporate intermittent generation into the energy mix, but it has to be done the correct way to ensure that the electric system remains reliable."

During the storm, more than 52,000 MW of power generation was forced offline at one point, ERCOT said. Henry Hub natural gas prices soared to $24/MMBtu on Feb. 17.

"Sustained high prices over several days saddled the sector with an estimated $55 billion of extraordinary electricity prices, in addition to margin calls on contractual positions," Ratings analysts wrote. "February's gas and electricity costs have created formidable liquidity needs that many, but not all, market participants are struggling to satisfy. Beyond extreme liquidity calls, entities that were short power or natural gas have suffered substantial losses."

S&P Global Ratings on March 17 placed NRG Energy Inc. on CreditWatch with negative implications after the company said it expects an interim financial loss of $750 million from the February freeze.

NRG's stock closed down more than 17% on March 17 as the independent power producer also withdrew its full-year 2021 financial guidance.

Executives said about 15% of NRG's financial impact is tied to ERCOT's latest systemwide default of $3.1 billion.

"Most of the financial impact that we're talking about today, it has to do with how ERCOT ran the system," NRG President and CEO Mauricio Gutierrez said on a March 17 conference call. "The defaults from market participants, the uplift charges that we have received and how the grid was operated."

Just weeks earlier, NRG management told analysts and investors that a stress-test analysis showed a potential positive or negative $100 million impact to its 2021 guidance ranges.

Texas-based power provider Vistra Corp. also surprised the market when management revealed in late February that they expect a financial hit as large as $1.3 billion driven by generation constraints and skyrocketing prices for power and fuel.

'Winners' and 'losers'

Still, Vistra is seen among Morningstar's winners in the wake of the Texas chill.

"I think the first big winner is going to be generators who can prove reliable operations and invest the money to prove to regulators and to some extent politicians, legislators, that they can provide reliable generation," Miller said. "I put that into one bucket as fossil fuel, mostly gas, generators who put in the investment and make sure the operations are top notch and are available during extreme conditions.

"That is why I put Vistra in that winner's bucket. They are definitely one of the top operators. You can't control the gas pipelines freezing."

Morningstar also sees solar as a long-term beneficiary from the energy emergency.

"Wind obviously is going to get a bit of a bad mark here," Miller said. "Solar wasn't perfect but it also did perform within the bounds of what regulators and the grid operators were expecting. You also think about the opportunity at the retail level with solar, rooftop solar."

On the opposite end of the spectrum are retail energy providers.

"I think you're going to have more oversight, you could have more regulation, and that is going to shrink what are already low margins," Miller said.

Retail providers are already heavily competitive, and when one thing goes wrong, they could go out of business, the analyst said.

NRG is the largest retail provider in Texas. Just Energy Group Inc. and Griddy Energy LLC, meanwhile, have already filed for bankruptcy protection.

Insulated utilities

S&P Global Ratings said it sees investor-owned utilities as "structurally less exposed to the storm's financial and operational fallout because they neither produce nor purchase electricity for their retail customers; rather, they are compensated for merely conveying the electricity that separate retail electric provider companies (REPs) procure."

Still, American Electric Power Co. Inc. executives said on a Feb. 25 earnings call that preliminary estimates indicate the company's utilities in ERCOT and the Southwest Power Pool spent more than $1 billion in fuel costs during the bitter cold snap in the Central U.S.

Exelon Corp. management expressed concerns about the company's Texas fleet as it spins off its unregulated Exelon Generation Co. LLC arm from its utility operations.

"The Exelon subsidiary's Texas generation assets were almost entirely unavailable during [winter storm] Uri, which forced the company into the market to purchase extremely costly power to discharge power supply commitments," Ratings said.

The company said its preliminary estimate showed a pretax financial impact of $750 million to $950 million.

"During Uri, the market's price signals not only failed to produce their intended supply response but were the catalysts for economic impairment when operational hurdles frustrated generation from dispatching," Ratings analysts wrote. "Investments in more robust winterization might add to the financial pressures already facing market participants."