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In wake of power outages, Texas lowers price cap for electricity providers

  • Dec 3, 2021
  • 146 views
Source: 
Austin American-Statesman

No matter how the Texas power grid performs this winter, wholesale prices for electricity won't soar as high as they did during February's deadly freeze.

That's because state regulators voted Thursday to cut the maximum allowable price by about 45%, dropping it from $9,000 per megawatt hour to $5,000.

The $9,000 price ceiling was behind much of the direct financial havoc caused by the near collapse of the power grid in February, when millions of Texans were left without electricity for extended periods.

By design, the state's deregulated electricity market relies mainly on financial incentives to prompt generators to deliver more power to the grid in times of soaring demand. But the maximum $9,000 incentive had little impact in February — aside from socking some retail electricity providers, cooperatives and other wholesale buyers with huge bills — because nearly half the state's generation capacity had been knocked offline by the weather or related problems, such as an inability to access enough natural gas to operate.

Impact: Report highlights Austin's failures during freeze

Peter Lake, chairman of the Texas Public Utility Commission, said the move to lower the price ceiling will limit "the extraordinary financial liability" that electricity customers and other market participants could face in the future.

The goal "is to make sure the people of Texas are not exposed to those extraordinary high prices" again, Lake said earlier this week during a meeting held before Thursday's vote.

More: Amid criticism, Texas regulators tighten winterization rules for natural gas sector

Still, the utility commission — revamped with all new members in the wake of February's freeze — also is considering a related measure to allow the lower ceiling of $5,000 per megawatt hour to kick in earlier than the $9,000 cap did.

Commissioners have said their aim is to prompt generators to bring capacity online before power reserves on the grid fall to crisis levels, as well as to maintain enough financial inducements for generators to invest in infrastructure.

The utility commission oversees the Electric Reliability Council of Texas, better known as ERCOT, which runs the state's power grid. The commission has been in the midst of enacting measures — such as weatherization requirements for generators — to try to prepare the ERCOT grid for this winter, while also considering longer-term structural improvements to how it operates.

Mark Jones, a political science professor at Rice University's Baker Institute, said the move to lower the wholesale price cap was an obvious step to take.

"It didn't work — the $9,000 carrot didn't ensure a constant supply of power" in February, said Jones, who has helped produce a study on the impact of the deadly freeze and the electricity blackouts. "I think that just undercut the logic behind it."

In addition, he said the $9,000 cap had become "a huge headache" for state officials politically, because it fueled public anger and triggered a massive financial burden — much of which will be passed on to consumers around the state in the form of monthly charges on electricity bills.

Wholesale electricity on the ERCOT power grid rocketed to the $9,000 per megawatt-hour ceiling during February's crisis, compared with about $25 per megawatt-hour typically under normal circumstances, but many generators weren't able to produce more power anyway. One megawatt of electricity is enough to power about 200 homes.

Related: Federal report points finger at natural gas sector in February power outages

More: ERCOT's June power grid scare triggered by some of same plants that failed in February

Still, Beth Garza, a former Austin Energy executive and independent market monitor for ERCOT, said there are dangers to having a price ceiling that's too low. Power consumers will have less incentive to conserve when supplies are tight, she said, and generators will have less incentive to bring higher-cost generation units online when needed.

"Dropping the price signals that we somehow value electricity less," said Garza, currently a senior fellow at the R Street Institute, a Washington-based think tank. "If you are paying less for electricity, then there is less of an incentive to curtail" usage and less of an incentive for generators to produce.

But she said she doesn't view the new $5,000 ceiling as so low that it's likely to trigger those unintended consequences.

The maximum price cap has been changed multiple times over about the past decade — but always to higher levels.

It was set at $1,000 during the early years of deregulation, according to the Texas Coalition for Affordable Power, before being raised to $3,000 in 2012, $5,000 in 2013, $7,000 in 2014 and, finally, to $9,000 in 2015.

"This just sort of takes us back to where we were," Jones said. "The ($9,000) price created a lot of sticker shock, and the proof is in the pudding — it didn't work" in terms of ensuring adequate generation capacity during a crisis.

At least 210 Texans died for reasons related to February's severe winter freeze. More than 4.5 million lost power for lengthy periods, with some going days without electricity.

©2021 www.statesman.com. Visit statesman.com. Distributed by Tribune Content Agency, LLC.

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