ERCOT Tweaks Congestion Rules
In response to continued price spikes in its balancing market, ERCOT will be adjusting the way in which congestion rules are applied. An emergency meeting of the ERCOT board held on Friday voted to accept recommendations made by the Public Utility Commission’s independent market monitor, Dan Jones, that it hopes will reduce the severity of price spikes in the system. Although prices in the balancing market are typically in the region of $100/MWh, recent spikes have been as high as $4,500/MWh.
The Houston Chronicle cites congestion on a few key transmission lines and some unexpected outages as causes of the spikes. However, as the market prices have been well in excess of the market’s bid cap of $2,250/MWh it appears likely that some sort of market rule is being applied to create these high prices. Changing the algorithm will presumably reduce the incidence of spikes. The Chronicle quotes Jones as saying, “We were using a tool to fix certain problems that was not particularly effective.”
Meanwhile the high market prices are continuing to pose problems for retail companies. As the Chronicle article explains, ERCOT requires retailers to post collateral equal to three times the value of their wholesale power purchases. The price spikes have caused three small supply companies to default on this requirement and go out of business, while a fourth has applied for bankruptcy protection.
Price Spikes Hit Ercot
Prices in the Texas electricity market have been causing concern of late. According to this article in the Wall Street Journal, prices in the spot market exceeded $2,000/MWh at times on seven out of the past ten days, and on May 23rd briefly went above $4,000/MWh. Most of the supply in Texas is under long term contracts, so there should be no danger of a California-like collapse. However, the going is still tough for some retailers. Texas has fairly low entry requirements to the retail market, and already two small supply companies, National Power Co. Inc. and Pre-Buy Electric LLC, have defaulted on some contracts leading to 15,000 customers being transferred to other retailers under “supplier of last resort” agreements. Other supply companies are thought to be vulnerable. The situation is sufficiently serious for the Texas Public Utility Commission to hold an emergency meeting yesterday to find out what could be done to help vulnerable customers.
As yet no explanation has been provided for the price spikes. As the WSJ article notes, demand is nowhere near what is expected at the summer peak. Prices of this level could therefore be expected to continue, and even increase, for months to come.