Texas wholesale market opens with high prices in some markets

After months of anticipation, Texas' competitive wholesale electricity market got off the ground Tuesday to mixed reviews. The real-time market for energy produced rational prices, but prices for certain electricity services jumped to $1,000/Mw-hr and stayed there most of the day, industry participants said.


By Ann de Rouffignac
OGJ Online

HOUSTON, July 31 -- After months of anticipation, Texas' competitive wholesale electricity market got off the ground Tuesday to mixed reviews.

The real-time market for energy produced rational prices, but prices for certain electricity services jumped to $1,000/Mw-hr and stayed there most of the day, industry participants said. The Electric Reliability Council of Texas Inc. (ERCOT) consolidated grid operations into a single control area from the previous separate control areas operated by the utilities.

Problems with ERCOT's computer systems had delayed opening of the commercial market and consolidation of the control areas from a planned June 1 start date until Tuesday. The energy or balancing market for electricity clears every 15 minutes. This market functioned fairly smoothly with prices in the $10-$35/Mw-hr range, industry participants reported.

But the price for certain electricity products or nonspinning reserves bumped up against a $1,000/Mw-hr price cap for most of the day. One wholesale market participant said the high prices were probably caused by a large player that did not submit schedules for nonspinning reserves on time.

Nonspinning reserves, an ancillary service, refers to generating units that are not connected to the grid but are capable of coming on line within a specified time.

Chris Schein, spokesman for TXU Corp., Dallas, said in an interview the company failed to submit schedules for ancillary services in the day-ahead market by Monday's deadline for Tuesday's market opening.

"But TXU is not prepared to take the sole blame for what happened," Schein said. "We believe that others didn't make the cut off either." The high prices were cause for concern to other market participants.

"The ancillary market prices are kind of strange," said Dan Jones, director, market policy and planning, at City Public Service of San Antonio (CPS). An official with AES New Energy Inc., a unit of AES Corp., Arlington, Va., a retail provider serving large industrial and commercial customers, agreed.

"NewEnergy is concerned about ancillary services pricing and hopes these prices are reflective of confusion because of the market just opening," said Vanus Priestley, AES NewEnergy, vice-president. "We expect those prices to become rational. If they don't, we would consider it indicative of market power and we will take appropriate steps."

TXU's Schein said the company modified its procedures so schedules will be submitted on time.

ERCOT said in a statement that "all market systems and processes are functioning properly to ensure a successful pilot program." Priestley observed the balancing or real-time energy market appeared to working. Prices ranged from $10 to $35/Mw-hr.

However, prices didn't vary any by zone in Texas. While New Energy and CPS chalked off these aberrations to growing pains in a new competitive market, the retail side of the market got off to a much slower start.

ERCOT said power began flowing to retail customers who switched to new electricity providers. But retail electric providers said few customers are receiving power from new suppliers even though 82,000 have signed up.

Since June 1, ERCOT has only been able to process two customers/day/retailer/service territory. ERCOT said it would accelerate to 10 customers/day soon. This slow rate of switching could mean customers requesting service from a competitive provider will have to wait months before receiving power from the new supplier.

Some retailers continued to complain completed switches are error ridden. One large retailer said ERCOT processed only 14% of the few dozens of customers they were allowed to submit correctly and on time. The rest of the requests were late or incorrect.

ERCOT plans to accelerate to 10 switches/retailer/day and then up to thousands. "We hope that ERCOT can get the retail system fixed in a timely manner," said Priestley.

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