MORE

To Keep the Lights On, Texas Utility Regulators May Triple the Electricity Price Cap

To Keep the Lights On, Texas Utility Regulators May Triple the Electricity Price Cap

The Texas Public Utility Commission is finally spitballing dollar figures for just how high they're willing to let wholesale electricity prices spiral when weather extremes send us to our thermostats. For the moment, we're sitting at $3,000 per megawatt-hour.

To keep the lights from going out (ERCOT predicts demand will outstrip supply by 2013), they're talking about tripling it. As we discussed at length in last week's cover story, Texas is facing a wee (read: terrifying) electricity shortfall, primarily because wholesale prices -- tied to the price of natural gas -- are bargain-basement low right now. In Texas, new power plants are financed by power sales and the promise of more power sales, not ratepayer subsidies. With natural gas prices nearing $2.50 per million British Thermal Units, financiers are bearish on generators in the deregulated market. Nobody but the public utilities is building anything.

The theory is -- and it really is nothing but a theory -- that if we raise the price cap on electricity, they'll make even more money and decide to build power plants, and then we won't be totally screwed anymore. Now, nobody can guarantee that generators won't simply take the money and pay the mortgage and shareholders. In fact, a PUC spokesman confirmed that nobody is even thinking about getting something in writing with generators. But, hey, that's the deregulated market. It's a crapshoot.

It left me wondering, though: If the PUC does decide to let wholesale electricity prices go buck wild, who's it going to suck for the most? The ratepayer? Sure, you have a contract, you tell yourself, but when we log record electricity demand like we did last August, all bets are off, except the one where I put money on the cost getting passed down to you.

And what about the generator? Remember February 2011, when Luminant said it lost $30 million during the biggest rolling blackouts in Texas history? If a generator's plant has the misfortune of crapping out or undergoing routine maintenance when prices spike, they have to make up for it by buying electricity on the spot market -- at $3,000 per megawatt-hour. What would Luminant's losses have looked like if the price cap was $9,000? Just do a little multiplication. (Last summer, NRG, the second-biggest power plant operator in Texas, had to adjust its expected earnings downward because a few of its gas-fired plants were offline for maintenance during the August price spikes.)

How about the retail providers? I seem to recall a few going bankrupt back in 2008 because of price spikes and an ERCOT collateral call.

So, cui freakin' bono? Not us.


Sponsor Content