By: L.M. Sixel |
This summer was supposed to be brutal with days of triple-digit temperatures, less generating capacity and predictions the power grid couldn’t support the state’s electricity needs. Some of the dire warnings were spot on, as Texas broke records for heat and electricity use during the heat wave last month.
But regulators didn’t call for consumers to cut back. The lights stayed on. And wholesale prices didn’t spike as high as some feared.
Power experts figure it will take months for state regulators to report on whether there was any behind the scenes drama during the hour-by-hour power surges during the July heat wave that pushed temperatures in Houston above 100 degrees. At the moment, though, the state’s grid manager, the Electric Reliability Council of Texas, credits careful planning for weathering conditions that tested grid reliability in Texas.
ERCOT said it expected extreme temperatures and took steps to ensure it had enough supply by restricting planned transmission outages during the summer months and conferred with pipeline companies to ensure that natural gas needed to generate electricity made it to power plants.
Generators also responded to the higher prices, which peaked at $2,172.70 per megawatt hour during the hottest days — compared to last year’s average of $28 per megawatt hour — cranking up power plants during the peak demand periods, said ERCOT spokeswoman Leslie Sopko. Consequently, with supplies sufficient to meet demand, ERCOT didn’t have to issue pleas to consumers and businesses to conserve power.
Instead, the pleas to conserve came from the retail electricity companies that must buy power on the the spot market if they haven’t contracted far enough in advance. Typically, retail companies buy futures contracts to secure electricity for their customers and set prices for their power plans. But when temperatures spike and demand soars, retail companies must often turn to the spot market to acquire additional supplies. That leaves retail firms at the mercy of the marketplace, where prices can spike as high as $9,000 per megawatt hour and quickly shrink — if not wipe out — the retailers’ profit margins.
Several retail electricity providers, including Direct Energy, Cirro Energy and Reliant Energy, sent out email alerts asking their customers to turn off pool pumps, turn up thermostats and refrain from using washing machines, dryers and dishwashers during the late afternoon hours when power use peaked — and wholesale prices were at their highest. Cirro and Reliant are both owned by NRG Energy.
“It was pretty clear we were getting to the point we were strained,” said Ed Hirs, energy economist at the University of Houston.
Power use hit 72,192 megawatts on July 18, surpassing the previous 2016 record. The following day Texas set another all-time, system-wide peak demand record, topping out at 73,259 megawatts between 4 p.m. and 5 p.m. One megawatt can power about 200 homes during a hot summer day in Texas.
Direct Energy won’t provide an analysis of its power buys, noting that the information is confidential. But spokeswoman Jessica Michan said the retail provider regularly calls on customers to conserve during peak times —summer in the South and winter in the North—regardless of how the company’s hedging, or purchases of futures contracts.
NRG Energy said information about how its retail companies supplied customers in July won’t be made public until the company announces its third quarter earnings in the fall. But NRG spokeswoman Pat Hammond said that its request to customers to conserve power was made to protect the integrity of the power grid, knowing how hot it would be and how much it would strain electricity supplies.
DeAnn Walker, chairman of the Public Utility Commission, said her agency is already examining how ERCOT handled the hot weather demands this summer.
“The summer season is halfway over,” Walker said in a statement, “but we anticipate continued reliability,”
One former power trader said it appears ERCOT encouraged generators to operate their plants at maximum capacity and sell the power on what’s known as the “day ahead market,” a financially-binding forward energy market where generators agree to sell their power at a contracted price on the following day.
That caused day-ahead prices to rise, which in turn spurred generators to produce more electricity, said Trent Crow, who left trading to launch the electricity shopping service Real Simple Energy.
“At those prices every single power plant is making money,” said Crow, noting that the price per megawatt hour in the day ahead market hovered between $1,400 and $2,000 during the hottest afternoons last month, compared to typical prices of $100 to $200. Conversely, the spot market —which is usually more expensive than the day-ahead market —was tame, rarely going above $500 per megawatt hour, Crow said.
The soaring wholesale prices in the day-ahead market will likely filter down to retail customers in the form of higher rates, as would spikes in spot market prices, Crowe said.