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Texas regulators keep prices near $9,000/MWh cap during rotating outages


Lower prices 'inconsistent' with scarcity

'Circuit breaker' price-gouging scheme waived

  • Author
  • Mark Watson
  • Editor
  • Richard Rubin
  • Commodity
  • Electric Power Natural Gas

Houston — Real-time locational marginal prices for the Electric Reliability Council of Texas remained at or near a $9,000/MWh cap on Feb. 16, as the grid operator continued rotating outages to accommodate about 45 GW of capacity offline, including about 35 GW forced offline due to the severe winter weather that has hit the state.

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The Public Utility Commission of Texas Feb. 16 ordered ERCOT to keep as final existing prices below the cap during the winter weather power shortfall, reversing its Feb. 15 order to correct the prices higher.

"If you are suffering from high prices, it means you either failed to plan or failed to perform," said Commissioner Arthur D'Andrea at the virtual meeting. "But if there are people out there who would be harmed by repricing, through no fault of their own, we should not do it."

The PUC met Feb. 15 to address the pricing issue and decided to order ERCOT to set prices administratively at the $9,000/MWh systemwide offer cap during the emergency.

"At various times today (Feb. 15), energy prices across the system have been as low as approximately $1,200[/MWh]," the order states. "The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market. Energy prices should reflect scarcity of the supply. If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest."

The PUC also ordered ERCOT "to correct any past prices such that firm load that is being shed in [Energy Emergency Alert Level 3] is accounted for in ERCOT's scarcity pricing signals."

The commission Feb. 15 also suspended the scarcity pricing mechanism that would change the systemwide cap from $9,000/MWh to the greater of $2,000/MWh or 50 times the natural gas price index, when the peaker net margin threshold of $315,000 is reached.

The spot natural gas price at the Houston Ship Channel for Feb. 16 was $180.66/MMBtu, which would set the systemwide cap at $9,033/MWh.

In ERCOT's energy-only market, generators rely on scarcity pricing to determine whether to build or maintain capacity. One standard for determining whether generation can cover its costs in such a market is the accumulation of Peaker Net Margin over the course of a year.

PNM is a measure of how much net revenue a hypothetical natural gas generator might have earned in a year, given real-time power prices and spot natural gas prices. The 2020 total was less than $50,075, which is well below the estimated $88,500 net cost of new entry for a hypothetical gas turbine plant. ERCOT's record high PNM was almost $150,000 in 2019, according to Potomac Economics, ERCOT's independent market monitor.

ERCOT's latest peaker net margin, which is calculated as of 4 pm CT Feb. 15, is $134,682.50.

Reducing the systemwide offer cap "would be contrary to the purpose of the rule, which is to protect consumers from substantially high prices in years with substantial generator revenues," the PUC's order states.

"It would make little sense to expose consumers to prices that are higher than the usual maximum price after a generator revenue threshold has been achieved," the order states.

Other areas affected by storm

The winter blast affected several other grid operators across the US. In addition to ERCOT, Southwest Power Pool and the Midcontinent Independent System Operator coped with capacity challenges in order to meet demand, which resulted in some instances of rotating outages Feb. 15 and Feb. 16, and extraordinarily high prices in SPP and in certain load pockets of MISO.

Other areas, such as the Pacific Northwest, and the Mid-Atlantic area of PJM, faced challenges related to winter storm-induced transmission and distribution outages, which resulted in some price volatility.

Polar vortex power market effects
Reliability issue
Customers out as of 1 pm Feb. 16
Real-time prices as of 1 pm ($/MWh)
$ 9,000.00
$ 252.40
$ 1,538.86
$ 55.76
Spot natural gas prices for Feb. 16 ($/MMBtu)
$ 180.66
$ 6.00
$ 224.56
$ 5.66
$ 14.03
Average daily temperature Feb. 16
Average daily temperature Feb. 17
Notes: PJM and Oregon outages are due to transmission and distribution issues.
Real-time prices are at ERCOT North Hub, MISO Texas Hub, SPP South Hub, PJM West Hub and Mid-C.
Mid-C real-time price is assessed by S&P Global Platts for Feb. 15
Spot natural gas is at Houston Ship Channel for ERCOT, Henry Hub for MISO, Panhandle Eastern Texas-Oklahoma for SPP, Texas Eastern M-3 for PJM, Northwest Canadian Border Sumas for Oregon.
Average daily temperatures are population-weighted, calculated by CustomWeather. Oregon numbers are for the Pacific Northwest.
Sources: S&P Global Platts, Platts analytics,, ERCOT, MISO, PJM, SPP, CustomWeather.