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Record-Setting Power Consumption In Texas -- ERCOT Narrowly Avoids Rolling Blackouts

Michael Giberson's picture
Center for Energy Commerce, Rawls College of Business, Texas Tech University

Dr. Michael Giberson is an instructor with the Center for Energy Commerce in the Rawls College of Business at Texas Tech University. Formerly, he was an economist with Potomac Economics, Ltd., a...

  • Member since 2018
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  • Aug 14, 2011

Much in the news in Texas these past few weeks have been new peak power records and several grid emergency conditions which saw the ERCOT power system narrowly avoid rolling blackout a time or two. Tom Fowler of the Houston Chronicle‘s Fuel Fix blog has been tracking the story closely, see selected links below.

Rebecca Smith provided a broad view of the events in the Wall Street Journal yesterday. She reports that power consumption has reached levels this summer than ERCOT had forecast would not be reached until 2014. Eight times this summer power consumption has exceeded the previous record, set last year, 65,766 MW. The new record, set August 3, is 68,294 MW.

Smith’s article reports some concern about the future ability of ERCOT to meet rising demand, given the lack of regulatory tools to push companies to build more power plants. Fortunately, powerful economic incentives are at work:

While most power in Texas sells for negotiated prices spelled out in long-term contracts between generators and power retailers, the grid operator also procures electricity to keep the system in balance. The price paid in this auction readjusts every 15 minutes. When supplies are thin, prices can rise rapidly.

As a result of record electricity consumption, prices repeatedly hit $3,000 a megawatt hour last week, which is three times the maximum amount that generators can charge in deregulated electricity markets in the eastern U.S. (Electricity markets in Texas have rules created by state authorities, whereas other deregulated U.S. power markets are guided by the Federal Energy Regulatory Commission.)

Note that the presence of long-term contracts at prices significantly lower than $3,000 per MW h doesn’t diminish incentive effects, since at the margin conservation or additional consumption faces that price. Also, the expectations now being formed concerning next summer’s average prices will factor in recent experiences and shift the prices higher for future power contracts.

Those powerful economic forces at work will be signaling to both generators and retailers. I am a little surprised that Retail Electric Providers in ERCOT are not yet offering smart-grid enabled products involving price-sensitive (or emergency grid condition-based) demand response, but I’ll be much more surprised if such products are not available before next summer.

MORE: ERCOT story highlights from the past two weeks:

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