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New price adders boosting electricity prices in Texas

By: L.M. Sixel |

Wholesale electricity prices peaked at $6,500 per megawatt hour Monday afternoon in Houston, reflecting triple-digit temperatures that strained capacity and triggered price adders that were boosted by Texas regulators earlier this year.

The Public Utility Commission agreed this spring to increase the amount generators could charge for producing power during periods of peak demand. If operating reserves dip below 2,000 megawatts of operating reserves the price adders would increase the price of power to $9,000 per megawatt hour, the highest price allowed in Texas.

Price adders are also phased in but are progressively lower when operating reserves range between 2,000 megawatts and 7,000 megawatts. The Texas power grid was operating under normal conditions on Monday but operating reserves were low enough during the hot afternoon hours that the addition of the upward price adjustments boosted the cost of electricity in Houston as much as 10 times.

Power companies lobbied for the change, telling the utility commission that unless upward price adjustments are made to what’s known as the operating reserve demand curve generators would have little incentive to build new power plants or fix up old ones to accommodate population growth and the threat of power shortages. Another upward price adjustment is scheduled to go into effect next year.

Texas set a new record for power when demand reached 74,531 megawatts between 4 p.m. and 5 p.m., according to the state’s grid manager the Electric Reliability Council of Texas.

Mid-afternoon power prices in Houston on Saturday peaked at $94 a megawatt hour and $71 on Sunday.