With Texas power prices hitting $500, investigation possible

Texas electricity prices Monday gyrated between $1/Mw-hr and $500/Mw-hr, but the price swing was relatively mild compared to the $15,000/Mw-hr price set in the real time market during 1 hr Friday. Texas regulators said the price run ups are too high and warned the market warrants investigation, if prices don't settle down soon.


By Ann de Rouffignac
OGJ Online

HOUSTON, Aug. 6 -- Texas electricity prices Monday gyrated between $1/Mw-hr and $500/Mw-hr, but the price swing was relatively mild compared to the $15,000/Mw-hr price set in the real time market during 1 hr Friday.

Texas regulators said the price run ups are too steep and warned the market warrants investigation, if prices don't settle down soon.

"If the prices are still high in the next week or so, we will have to look into it," said Danielle Jassaud, director of economic analysis at the Public Utility Commission of Texas. "We cannot judge it now. But if prices don't come down, it will have to be investigated."

Jassaud said the $500/Mw-hr price for the hour ending at 1 p.m. Monday was out of line. She said a specific event could explain such a price spike. A downed transmission lines could have caused a supply shortage, she said.

But Sam Jones, chief operations officer of the Electric Reliability Council of Texas (ERCOT), said $500/Mw-hr is not that unusual during the summer peak season. Jones noted the high price only applied in the real time market which is "well below 5%" of the entire ERCOT electricity market.

$15,000 under review
Jones said, however, $15,000/Mw-hr is definitely an "erroneous" price that is under review by ERCOT officials. He blamed it on an inaccurate short-term load forecast generated by ERCOT's supply-demand model.

When the model forecast demand is higher than the amount of power bid into the market, ERCOT, as grid manager, calls for more. But, in this case, the forecast was so off the mark power production had to be quickly reduced to keep the grid stable.

Generators bid into the market how much they would accept to turn off those power plants. The highest price set the market clearing price for all bidders. ERCOT will be reviewing some of these prices, Jones said.

Experts are unclear at this point what is causing the high level of volatility that has emerged since the market opened July 31. Texas is set up primarily as a bilateral market in which the majority of sales are negotiated, with just a small percentage of power being bought and sold in the real-time market.

For example, on Aug. 3 for the hour ending at 1 p.m. the total load forecast for ERCOT was 49,093 Mw-hrs. The prices during that hour were $29/Mw-hr in the south zone, $60/Mwh-hr in the west zone, and $64 to $225/Mw-hr in the north zone.

During the same hour Monday, the next business day, the forecast load was about the same at 49,721 Mw-hrs. But prices in all three zones were $500/Mw-hr, according to numbers posted on ERCOT's web site.

A consultant with PriceWaterhouseCoopers who did not want to be identified said with a near 30% reserve margin in Texas, supply shortages can be ruled out as a reason for the jump in prices. He said it's possible the model ERCOT uses does not calculate the marginal clearing price correctly, or it could be "the bid strategy of the generators."

Barring a rash of unplanned plant outages, supply was supposed to be adequate in Texas to keep prices from spiking. But ERCOT doesn't publish unplanned outage information, and it isn't automatically supplied to the PUC oversight committee. The PUC's Jassaud added not all the possible bidders have begun participating in the ERCOT market.

"Not all the generators are comfortable with the system yet," she said. "There could be insufficient bids for the amount [of power] required. ERCOT would be required to accept all bids submitted." By the full opening of the market in January, she expects these problems to be fixed.

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