A deal to avoid future manipulation claims against TXU

The Public Utility Commission approved a plan earlier this week for TXU’s power generation business, Luminant, to operate without drawing further claims of market manipulation. That doesn’t mean the company is off the hook from that $210 million fine the PUC wants to levy, however.
The agreement essentially spells out a plan that will keep Luminant from repeat accusations of wielding improper market power in the state’s wholesale electricity markets, a claim the PUC made in connection with trades the company did in 2005. We wrote about the allegations here.
The agreement reached this week centers on the balancing energy market, which power generators bid into to sell electricity to the state’s main power grid operator, the Electric Reliability Council of Texas. As the Forth Worth Star-Telegram has said succinctly:

ERCOT uses the balancing market to fine-tune the minute-by-minute balance of supply and demand. Electricity there typically sells for about $50 per megawatt, but prices can shoot up to the regulatory ceiling of $1,500 per megawatt amid unexpectedly high demand or short supply, as they did in April.
Under the terms of the plan Luminant would agree to make most of its power available at prices well below that ceiling. For example, at the current price of natural gas of about $6 per 1,000 cubic feet, Luminant would cap 75 percent of its bids at $75 per megawatt, 22 percent at $90 per megawatt and 3 percent at $500 per megawatt.

Again, this doesn’t resolve the manipulation allegation, just keeps it from happening again. Here is a version of the agreement that the PUC considered from the PUC’s online filing system. If any readers want me to show them how to use this thing drop me a line. Seriously.
So, what does the rest of the industry think?
In a statement given to the Chronicle, Reliant Energy, the state’s largest retailer, said:

“We believe that the Commission erred in not allowing buyers and consumers any ability to comment upon the plan. While we have not been allowed the time to do a detailed review of the plan, it does not appear on its surface to effectively mitigate TXU’s market power. Reliant is considering what steps to take next.”

And Thad Hill, head of Texas operations for NRG Energy, the second-largest power producer in the state behind TXU, told us:

“NRG has always supported competition and believes the wholesale market in Texas is working well. TXU has the right to file a mitigation plan under PUC rules and has exercised that right. We feel it is very important that in implementing any mitigation plan that Texas strikes the right balance to ensure that consumers have confidence that the market is fair and competitive and that the energy industry operates in an environment that encourages new investment to cleanly and efficiently meet growing demand for electricity.”

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