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Why Texas missed a nationwide drop in power prices

By: L.M. Sixel |

Wholesale electricity prices last year fell nationwide except in one place — Texas. Here, they soared when an August heat wave gripped the state and repeatedly sent wholesale power prices up to the state’s maximum price of $9,000 per megawatt hour.

In most of the U.S., average annual wholesale prices fell 15 to 30 percent in 2019 compared with the previous year, a reflection of lower natural gas prices, according to the Department of Energy.

But in Texas, day-ahead wholesale electricity prices averaged $38 per megawatt hour in 2019, an increase of 13 percent over the 2018 average, according to the Energy Department. The higher average price was caused by the state’s tight power supply cushion, record demand and surcharges.

Monthly wholesale prices in Texas were the highest in August, a month when punishing triple-digit temperatures and record-setting demand forced the state’s grid operator, the Electric Reliability Council of Texas, to issue emergency alerts, including voluntary conservation measures, to prevent rolling blackouts. The surge in demand set off price signals that prompted power generators to produce more power and for consumers to use less, according to the Energy Department.

State regulators agreed last year to increase the amount that generators could charge during times of peak demand. The surcharges, known as price adders, were triggered in August during the heat wave. Average prices in Texas that month were $162 per megawatt-hour, compared with $38 per megawatt-hour in August 2018.

The surge in prices was especially difficult on Texas consumers that buy wholesale power on the spot market from retail electric providers such as Griddy, the California-based company. Griddy, which provides tools to customers to make on-the-spot changes in electricity use when wholesale prices change, said it lost some customers as a result of the record-setting prices.

Most Texas consumers, however, didn’t immediately feel the increase in wholesale prices because most households are on fixed-rate power plans. The higher prices in August, however, increased the price per kilowatt hour of future contracts.

“The prices spiked in August and they have remained high,” said Fred Anders, founder of Texas Power Guide, a shopping site that helps consumers find the cheapest plan based on their past use.

Some of the biggest power companies in Texas have credited the heat and high prices in August for their profitable third quarters.

NRG Energy, one of the state’s biggest generators, reported that higher power prices in Texas contributed $213 million — or about 40 percent — of the $524 million the company earned from its generation business before taxes, interest, depreciation and amortization for the quarter ending in September. The higher prices helped convert a $72 million third-quarter loss in 2018 into a $372 million profit for the same period in 2019.

Vistra Energy of Irving, the state’s biggest power seller, reported third-quarter income from generation increased $226 million in Texas before taxes and other factors, off-setting lower generation prices in other markets.

ERCOT predicts that the supply of electricity won’t be as tight this summer as new wind, solar and natural gas-fueled generation comes online. The grid manager estimates that Texas will have a reserve margin cushion of 10.6 percent heading into next summer, 2 percentage points higher than the 8.6 percent reserve margin Texas had as it entered the hot summer months of 2019. But another price adder is scheduled to go into effect this year.