The Public Utility Commission is holding an emergency meeting this morning to address spikes in wholesale power prices caused by congestion on certain power lines in the states electric grid, according to a statement put out today.
| Transmission congestion problems near the Sandow Power Plant in Milam County may be contributing to the high wholesale prices.
In April and May the price of power in the balancing market — where the state’s grid operator buys small amounts of electricity at 15-minute intervals to keep supply and demand in balance throughout the grid–has hit record highs.
A cap on the balancing market prices was increased earlier this year from $1,500 to $2,250 per megawatt hour, but the recent spikes also add in the price paid to power companies to relieve congestion on certain lines. Combined, that’s called the Shadow Price. As we described it once before it’s like being compensated for having to drive from Houston to Dallas on only two-lane dirt roads instead of I-45.
In April the high was $3,805.72 per mwh in the Houston area and $4,514.68 in South Texas, according to data from the Electric Reliabilty Council of Texas’ Web site. That price can reach up to $5,600 mwh.
The cause is a congestion problem between North Texas and South Texas (not the Houston zone although our prices are affected). It seems to be around a transmission line coming out of the Sandow power plant in Milam County.
The reason you should care: The balancing market sets the wholesale price, and wholesale price affects what we pay at home for our power. If you’re locked in on a long-term price plan it won’t matter right now, but it could once you sign up for a new plan.
You should really care if you were one of the thousands of National Power and PreBuy Electric customers who were switched to the “provider of last resort,” since the balancing market price almost directly sets the power price for last resort customers.
The spikes in the balancing market may have contributed to the downfall of National and PreBuy, say other retailers.
ERCOT requires smaller retailers that don’t have credit ratings from one of the rating agencies to put up collateral equal to a certain percentage of the power its customers will be using. If a retail company miscalculates slightly how much power its customers use in a given day it has to make up the difference on the balancing market. If the balancing market price sudden spikes as it has recently, the amount of collateral a retailer has to have with ERCOT could spike.
Javier Vega, President of Amigo Energy, said it could create a situation where a relatively small retailer has to come up with $1 million in extra collateral to post with ERCOT or else be considered in default.
“These are companies that are probably capitalized appropriately for a normal situations, but when the market goes out and clears at these levels, particularly at the time of year where we’re no where near our load peak, it can get very difficult,” Vega told the Chronicle this week. “ERCOT’s not out there giving second chances.”
An industry consultant who reviewed a webcast of the meeting earlier today shared some of the basics of the discussion with the Chronicle:
• Chairman Barry Smitherman noted that due to the price increases, other retail electric providers may be in financial difficulty. He encouraged other REPs to work with these troubled REPs to take customers.
• Smitherman also encouraged the providers of last resort and their affiliates to offer other rates than the standard POLR rate which is allowed under Commission rules. He cautioned that POLRs not put customers on term products that charge cancellation fees.
• Commissioner Julie Parsley said that whatever the market can do to prevent these customers landing on the high POLR rate is the end goal of the PUC.
• Randy Chapman with Texas Legal Services Center said the PUC should consider re-evaluating many of the rules, including the REP financial standards and the POLR rules, to prevent further issues caused by escalating prices.
• Finally, the PUC is working with the Independent Market Monitor and ERCOT to evaluate the causes of the recent price spikes and take necessary actions to address.