Boundaries Remain Hazy for Power Regulators
May 31 - Fort Worth Star-Telegram (Fort Worth, Texas)
Electricity regulators trying to write market rules resemble art gallery visitors: They know what they like and dislike, but they can't describe it.
Those rules would affect wholesale prices, not the retail rates that
residential and commercial customers pay. But as California learned, consistent
upward pressure in the wholesale electricity markets portends higher rates for
consumers, too. They also threaten the financial condition of electric providers
who must buy electricity wholesale.
After more than a year of discussion and proposals, the PUC has struggled
with even the most basic definitions of what it wants in the wholesale markets,
where generators and electric retailers buy and sell from one another. They'll
try again at a three-day workshop in Austin early next month.
"We haven't even figured out what the term 'market dominance'
means," PUC Chairman Paul Hudson said at a recent meeting.
The company most vulnerable to the dreaded charge of market dominance in
North Texas, TXU Electric, was dismayed by a PUC investigation after it briefly
offered electricity above $300 per megawatt hour -- six times the normal price
-- last November.
TXU said the bids it offered were high because the electricity had to come
from older, less-efficient plants that run only periodically and thus carry
significant firing-up costs.
The PUC staff investigation -- mandatory under its rules -- cleared TXU of
Enron-style market manipulation and even noted that because TXU is also a buyer
of electricity, the Dallas-based utility didn't profit from the incident.
But TXU chafed at the examination because the report speculated that TXU --
which has about 45 percent of the generating capacity in the North Texas grid
zone -- possesses the "potential," in the words of the report, to
control the local market.
As a result, TXU has avoided offering electricity at or near the $300 per
megawatt hour range since the beginning of the year.
"We didn't do anything wrong and we didn't profit, and it certainly
wasn't pleasant to be on the end of an investigation," said Chris Schein, a
TXU spokesman.
Not everybody is so sanguine.
"TXU is the 900-pound elephant in the market," said Eddie Kolodziej,
executive director of the DFW Electric Consumers Coalition. "They obviously
have the potential to operate in a very advantageous way."
Kolodziej, whose group represents the cities of Fort Worth and Dallas and
some industrial users of electricity, plans to press his point at the Austin
workshop.
In addition to figuring out market dominance, the PUC also has to address the
issue of nodal pricing, a proposed scheme that would assign congestion costs
specifically to areas where the congestion occurs rather than spread them across
the entire grid.
Because the North Texas section of the state electricity grid tends to have
more congestion, there is a worry that nodal pricing would push up electricity
prices that already have risen 45 percent since 2001.
TXU isn't alone in its wariness about the $300 ceiling. Trudy Harper of
Tenaska, which schedules electricity service for the new independent retailers,
said that "when prices get close to $300, we do a lot of consulting with
customers to make sure it is justified."
Harper said the wholesale electricity market, telephone- and computer-based,
moves fast and can be difficult to track.
"Price run-ups can happen quickly," she said. "A storm can
knock out a generator and suddenly, when the rain stops, the temperature rises
and the load demand increases. Things like that happen."
That's what worries PUC Commissioner Barry Smitherman, who said that if a big
electricity producer like TXU deliberately avoids the wholesale market on a
high-demand day, parts of the Texas grid might run short of power.
"This is an untenable situation, if TXU stays out of the market,"
he said. "We'll achieve exactly what we don't want: a market shortage that
drives spot prices up even higher."
Smitherman said that TXU has told him that it wouldn't be in the balancing
market anymore if it wasn't able to offer plain-vanilla, $40 to $50 per megawatt
hour prices offered in a normal trading day.
Schein qualified that stand.
"We haven't made any $300 bids since Jan. 1 and hope we don't have to,
but we might in the future," he said.
What worries everybody is that electricity, unlike oil, gas, corn, soybeans
and pork bellies, is a commodity that can't be stored. The prime lesson learned
the hard way in California is that when electricity demand threatens to outstrip
supply, the spot market prices shoot up geometrically.
Texas, unlike California, has covered itself by letting its utilities and
electricity providers buy and sell from one another under contract. But the
Electric Reliability Council of Texas, which oversees the state's electricity
grid, operates a daily spot market where suppliers who have surplus electricity
can sell to retailers who have short-term needs.
Texas avoided a California-style meltdown in another way by having a surplus
of generation. On a typical day Texas' generators stand ready to put out at
least 60,000 megawatts of electricity.
During moderate spring-fall seasons, the state's demand seldom exceeds 40,000
megawatts. Texas went over 60,000 megawatts of demand just once, last August,
and then only for one day. The ERCOT forecast for this summer holds that Texas
will have a reserve margin of at least 14 percent during the summer.
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