Temperatures in Texas soar — and so do energy prices

This is a reprint of a post by Jake Dyer from the RechargeTexas.com blog

The rolling blackouts that swept through Texas last February have been blamed on the unexpected failure of generation plants. The temperature dropped during a cold snap, the plants froze up, and then — before anybody really knew what hit them — the lights went out.

And now we’re in the middle of another weather event – this time a heat wave – and just as before a large number of generation plants have failed. The loss of capacity during the February event sent wholesale electricity prices soaring to $3,000 per megawatt/hour, or more than 50 times higher than typical. The same occurred this week as well.

Clearly somebody is making money off the bad weather.  One expert, Oregon-based economist Robert McCullough, raised the possibility that there was  “artificially-created scarcity” last February. That’s regulatory lingo for market manipulation. Although not leveling any specific accusations, McCullough concluded that the cold weather alone could not explain the failure of the state’s power grid to operate reliably.

However, another expert,  the state’s independent monitor of the wholesale energy market, concluded the punishingly high price spikes in February were understandable, given the circumstances. He found no evidence of hanky-panky by electric companies.  Likewise, a federal report largely blamed the inclement weather, although it said plant operators could have done a better job.

This week’s event has not drawn such scrutiny. What’s clear, however, is that more than 20 generating plants unexpectedly failed during the middle of a heat wave. In February, 80 plants went down during a cold snap. Although the ERCOT grid operator hasn’t again ordered blackouts, the organization has taken other emergency steps this week. And if the situation gets worse, some businesses could have their power cut or there could even be more forced outages.

The fact that the lights went out in February prompted a statewide demand for answers.  If ERCOT is able to stave off rolling blackouts during this heat wave, it is unlikely that there will be a widespread outcry for a market manipulation investigation but Texans should be aware, that in a deregulated, market driven energy market, the potential for market manipulation is always there.